Family Law Update
The last few months have seen some big changes in family law as we start to recover from the pandemic. In April, we saw the introduction of the ‘no fault’ divorce process. This has led to an increase in divorce applications and further delays in the court service. However, there are signs that things could be calming down. Please look out for Lucy Clarke’s bulletin on this in the coming weeks.
Elsewhere, the government and the courts have been introducing new legislation to tackle problem areas, particularly related to treatment of victims and perpetrators of domestic violence following the passing of the Domestic Abuse Act 2021 (DAA 2021).
The government has also announced that they are contributing an extra £4 million worth of funding to assist charities and organisations to provide early legal help, although this is likely to involve an increased focus on telephone advice and mediation. This does not seem to mean an increase in spending on Legal Aid or representation. Here at Temple Heelis we offer new clients a free 30 minutes telephone call at the outset to discuss your problem, how we can assist and give you an idea of the likely costs for doing so.
Statutory Threshold for Prohibiting Applications
Section 67 of the DAA 2021, introduces a statutory power allowing the court to prohibit the bringing of applications under the Children Act 1989 (typically Child Arrangements Orders, Prohibited Steps Orders and Specific Issue Orders) where the court is satisfied that it would “put the child concerned or another individual ‘at risk of harm’.”
This is a much lower threshold than previously available to the court. The power to prohibit such claims, was previously only to be exercised with “great care and sparingly, the exception not the rule.”
Cross-Examination of Vulnerable Witnesses
Unrepresented parties to family proceedings are now prohibited from questioning a vulnerable witness who is or has been the victim of domestic violence perpetrated by them. This also applies to an unrepresented party who was the victim of domestic abuse questioning their abuser. The court has the power to appoint a “qualified legal representative” to undertake the questioning instead of the unrepresented party. They can now also require a party to submit written questions which will be put to the witness by the judge. The court may give a direction prohibiting cross-examination of parties or witnesses where a ‘quality condition’ or ‘significant distress’ condition is likely to be met. It will apply to applications made on or after 21 July 2022 and applies to any hearing in which a ‘vulnerable witness’ is required to give oral evidence.
The challenge in this will be to ensure there are sufficient “qualified legal representatives” in each court.
Payment of Capital Gains Tax
At the moment, couples who transfer property on which they would otherwise pay Capital Gains Tax (CGT) are exempt from doing so if the property transfer occurs within the tax year in which they separate. This can be useful where a party who has left the former matrimonial home and cannot claim the ‘principal private residence’ relief is transferring their share to their former spouse, or where parties with more than one property, in which only one of them maybe living, are relinquishing their ownership to the other.
At present, married couples who transfer property or shares in property, to each other are subject to the ‘no gain, no loss’ rule. This means no CGT is payable. However, if a couple separate, under the current rules, this rule only applies if the transfer of property takes place within the tax year when the parties separate. This means, in many cases, that CGT could be payable by the party who is bought out of a property. The rules on how the liability is calculated can be complicated, particularly if the parties have been separated for several years. This could be an issue in the current economic climate if parties simply cannot afford to get divorced. Expert accountancy advice may be necessary.
Changes to the rules, which are expected to apply from 6th April 2023 will provide that:
- Separating couples will have up to 3 years from when they stop living together in which to make ‘no gain’ no loss’ transfers;
- ‘no gain, no loss’ will also apply to assets being transferred as part of a formal divorce agreement;
- A spouse who retains an interest in the former matrimonial home will have the option to claim Private Residence Relief when the property is sold;
- Individuals who transfer their interest in the former matrimonial home to their former spouse and retain a percentage of the proceeds when the property is eventually sold, will be able to apply the same tax treatment to those proceeds when received as would have applied when they transferred their original share.
These provisions also apply to Civil Partners, but not to cohabiting couples.
It is, therefore, important that separating or divorcing couples or Civil Partners take early advice regarding their rights and what action can be taken. It is also important that any agreement to divide the family assets is contained in a formal separation agreement or Financial Consent order following divorce proceedings.
Court Treatment of Pre-Acquired Assets
The recent case of IR v OR (2022) stated that so far as the husband’s business, which his father had set up in the 1950s was concerned, it had become a marital asset by virtue of the fact that it had increased significantly in value since it was taken over by the husband. However, the court had to make allowance for the significant non-marital element (ie the value at the time the husband took it over) as the husband could not have achieved such success without the father having started the business in the first place. The court then calculated, based on very broad-brush calculations what the value of the non-matrimonial property would be to give the wife a share which was equivalent to 38% of their total joint assets.
Adding a Solicitor to Financial Remedy Applications
Applications for Financial Remedy started through the HMCTS court portal, or issued on paper and uploaded to the portal, can now allow for the adding or changing of a solicitor by one of the parties. Unfortunately, this function still does not apply to divorce applications issued on-line, where Notices of Acting or Notices of Change can only be dealt with by submission of the paperwork by email or post, which can take many weeks to be dealt with.