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    109.  The draft Bill which accompanied the Scottish Law Commission's recommendations for reform passed into law almost unaltered as the Family Law (Scotland) Act 1985 ("the 1985 Act"). The general note which introduces the annotations to this Act in Current Law Statutes pays tribute to the fact that the Act attracted so little in the way of criticism during its passage through Parliament. This was in sharp contrast to the controversy generated in the previous year by the Matrimonial and Family Proceedings Act 1984 which made changes in the same area in relation to England and Wales in response to the Law Commission's recommendations.

    110.  The law as enacted in the 1985 Act has remained almost unaltered for over twenty years. Apart from amendments which were introduced by the Welfare Reform and Pensions Act 1999 to provide for the sharing of pensions, the only significant change is that made by section 16 of the Family Law (Scotland) Act 2006. It amends the rule laid down section 10(3)(b) of the 1985 Act that the date on which matrimonial property is to be valued is the date when the parties ceased to cohabit. The fact that this rule could lead to injustice was revealed by the decision of the First Division of the Court of Session in Wallis v Wallis, 1992 SC 455. That case is instructive. It illustrates how inflexible the 1985 Act's regime relating to the valuation and division of the matrimonial property is compared with that in the English legislation.

    111.  In Little v Little, 1990 SLT 785, 787C-D I said that division of matrimonial property under the 1985 Act was essentially a matter of discretion, aimed at achieving a fair and practicable result in accordance with common sense. Those comments were directed at the risk that treating each step in the process as raising an issue of law and not of discretion would open up decisions by the court of first instance for reconsideration on appeal: see also Lord Dunpark at p 790J-K. But there was no getting away from the fact that the directions in the 1985 Act were designed to reduce the scope of the court's discretion to the minimum that was consistent with enabling the court to deal with each case on its own facts. The Scottish Law Commission had rejected the unfettered discretion model that up to then had been part of Scots Law: see paras 3.37-3.39 of their report. There is almost no room here for what Lord Cooke of Thorndon referred to in White v White [2001] 1 AC 596, 615 as the development of general judicial practice.

    112.  The sheriff who granted decree of divorce in Wallis v Wallis made an order for the transfer by the wife of her half share in the matrimonial home to the husband as part of the division of the matrimonial property. The Court of Session held that the effect of section 10(3)(b) of the 1985 Act was that the whole of the wife's share of the increase in its value after the date of separation which passed to the husband as a result of the sheriff's order had to be left out of account in the computation of the amount of the matrimonial property that determined how much of it was to be paid by him to the wife: 1992 SC 455. Dr Eric Clive, the principal architect of the legislation and a Scottish Law Commissioner said that the decision was wrong (Financial Provision on Divorce - A Question of Technique, 1992 SLT (News) 241). Professor Joseph Thomson, then Regius Professor of law at Glasgow University, said that it was right (Financial Provision on Divorce - Not Technique but Statutory Interpretation, 1992 SLT (News) 245). When it came here on appeal your Lordships' House affirmed the decision of the Court of Session: Wallis v Wallis, 1993 SC (HL) 49. In Jacques v Jacques, 1997 SC (HL) 20, the House held, again affirming a decision of the Court of Session, that the sheriff was entitled to give effect to the principle of equal division in a way that had not been contemplated by the statute. He thought that the spouses could share equally in the increase in the value of the matrimonial property after the date when they separated. That could not be done under the rules laid down by the statute. So he refrained from making any order for a financial provision.

    113.  The effect of the amendment made by section 16 of the Family Law (Scotland) Act 2006 is that property transferred to one of the spouses by order is now to be valued, unless otherwise agreed, at the date of the making of the property transfer order, or, in exceptional circumstances, such date as the court shall determine: see Joe Thomson's general note on this section in Current Law Statutes. But this amendment leaves untouched another problem which was mentioned in Wilson v Wilson, 1999 SLT 249. At p 253C-D Lord Marnoch drew attention, as he had done previously in Latter v Latter, 1990 SLT 805, to the fact that the definition of matrimonial property was capable in other ways, on occasion, of producing very real injustice. He thought it had done so in that case, where much of the wealth created during the marriage was vested in a farming company and the husband's shareholding in the company was excluded from the matrimonial property because it had been either held by him prior to the marriage or inherited by him from his father.

    114.  The clean break principle lies at the heart of the argument in Mrs McFarlane's case about the effect of section 25A(2) of the Matrimonial Causes Act 1973. The Scottish approach to it is set out in section 9(1)(d) of the 1985 Act. In this paragraph the Act states that the principles which the court shall apply in deciding what order for financial provision, if any, to make under it include the principle that:

"a party who has been dependent to a substantial degree on the financial support of the other party should be awarded such financial provision as is reasonable to enable him to adjust, over a period of not more than three years from the date of the decree of divorce, to the loss of that support on divorce."

This rule is reinforced by section 13(2)(a), which provides that the court shall not make an order for a periodical allowance under section 8(2) of the Act unless the order is justified by a principle set out in paragraph (c) (the economic burden of caring for children), (d) (financial support for no more than three years) or (e) (likelihood of serious financial hardship) of section 9(1). Paragraph (b) (fair account to be taken of economic advantages and disadvantages) is omitted from this list. Section 11(4) sets out various factors to which the court shall have regard for the purposes of section 9(1)(d), including all the circumstances of the case: section 11(4)(e). But it does not allow the court to override the three year limit. It excludes compensation aimed at redressing a significant prospective disparity between the parties arising from the way they conducted their marriages.

    115.  A rigid application of the clean break principle, as enacted in section 9(1)(d), has the advantage of certainty. But it runs the risk of becoming outdated as social conditions change and the reasoning behind it no longer fits in with modern concepts of fairness. As Lord Nicholls has explained, the concept of fairness is ultimately grounded in what people think. Social and moral values change from one generation to the next. Lady Hale's comment in para 127 that statutory statements of principle translated into rules can operate harshly in some cases, particularly where the resources consist largely of income rather than capital, shows where the problem lies. The flexibility which sheriffs and judges need to adapt the law to what would be regarded as fair today as compared with what was regarded as fair 25 years ago is denied to them.

    116.  The way that Mrs McFarlane's case would have to be dealt with if the case had arisen in Scotland illustrates the problem. It would not be possible to design an award under the Scottish system that provided her with an amount of income for the future that gave fair recognition to her entitlement. She is entitled to an award that reflects the agreement that she and her husband entered into, because in their case the capital assets that would be needed for this are not available. They decided that she should sacrifice her own high earning career in the interests of the family while her husband developed his ability to generate income. Under the Scottish system he would continue to enjoy the benefits of his high earning capacity. But she could not be compensated for her future economic disparity, due to his lack of capital. She would be required instead to adjust to a lower standard of living. And she would have to do this over a period of no more than three years.

    117.  The annotation to section 9(1)(d) in Current Law Statutes, based on para 3.107 of the report by the Scottish Law Commission, explains the purpose of that paragraph. The principle is intended to enable the court to cushion the blow of divorce by providing funds to enable a spouse "to find employment or retrain, or to adjust to a lower standard of living." I agree with Lord Nicholls's observation, in para 94 of his speech, that the situation in which Mrs McFarlane finds herself is a paradigm case for an income award that will compensate her for the significant future economic disparity, sustained by the wife, arising from the way the parties conducted their marriage. That is impossible under the rules which apply in Scotland.

    118.  With the benefit of hindsight, it can be seen how unfairly the principle which section 9(1)(d) lays down (it adopts the statutory convention avoided by the English legislation of referring to "him" not "her") discriminates against women. It operates harshly in cases where a high earning wife, or the highly qualified wife with the prospect of high earnings - and it is, of course, almost invariably the wife, not the husband who does this - gives up a promising and demanding career in the interests of the family. Women today compete on equal terms with men in business and in the professions for high earnings. They are being encouraged to do so by the measures for equal pay and the removal of discrimination on the ground of sex. These measures were already in place by 1985, but had not begun to realise their full potential for change by that date. Many more women than was foreseen in 1981 are now reaching the ranks of those who are highly paid for what they do. But many women are mothers too. The career break which results from concentrating on motherhood and the family in the middle years of their lives comes at a price which in most cases is irrecoverable.

    119.  As the district judge recognised in Mrs McFarlane's case, it is almost always impossible for a woman who has made that choice to achieve the same pattern of high earning on her return to work which she would have done if the progress of her career had not been interrupted by concentrating on her family. The price that her decision brings with it is made all the more severe by the difficulties which under current conditions couples are likely to experience in providing for a pension which will maintain their standard of living in the future.

    120.  These effects appear not to have been foreseen in 1981 when the Scottish Law Commission published their report. Achieving a clean break in the event of divorce remains as desirable now as it was then. But if this means that one party must adjust to a lower standard of living, the result is that a clean break is being achieved at the expense of fairness. Why should a woman who has chosen motherhood over her career in the interests of her family be denied a fair share of the wealth that her husband has been able to build up, as his share of the bargain that they entered into when that choice was made, out of the earnings that he is able to generate when she cannot be compensated for this out of capital?

    121.  I suggest that the time has come for taking a fresh look at this problem. The length of the period for which a periodical allowance should be awarded should no longer be confined to an absolute maximum of three years. The court should have a discretion to provide for a longer period where, in exceptional circumstances and applying the overriding criterion of fairness, the judge finds that one party to the marriage whose contribution to the marriage has resulted in a reduction in his or her earning capacity ought to be compensated out of the other party's future income because the capital needed to provide this is not available. This could be achieved by inserting a qualification to this effect into section 9(1)(d) and by inserting a reference to section 9(1)(b) in section 13(2)(a). There may be other ways of achieving this result. Whatever method is chosen, it seems to me that the principles on which current restrictions are based need to be reconsidered in the interests of fairness as soon as possible.

BARONESS HALE OF RICHMOND

My Lords,

    122.  There is much to be said for the flexibility and sensitivity of the English law of ancillary relief. It avoids the straitjacket of rigid rules which can apply harshly or unfairly in an individual case. But it should not be too flexible. It must try to achieve some consistency and predictability. This is not only to secure that so far as possible like cases are treated alike but also to enable and encourage the parties to negotiate their own solutions as quickly and cheaply as possible. This latter aim will become even more important once the new costs regime comes into force on 3 April, as each party will usually have to bear his or her own costs. We must therefore strive to identify some principles, consistently with the task set for the court by sections 25 and 25A of the Matrimonial Causes Act 1973.

    123.  English law starts from the principle of separate property during marriage. Each spouse is legally in control of his or her own property while the marriage lasts. But in real life most couples' finances become ever-more inter-linked and inter-dependent. Most couples now choose to share the ownership of much of their most significant property, in particular their matrimonial home and its contents. They also owe one another duties of support, so that what starts as individual income is used for the benefit of the whole family. There are many different ways of doing this, from pooling their whole incomes, to pooling a proportion for household purposes, to one making an allowance to the other, to one handing over the whole wage packet to the other (see Jan Pahl, Money and Marriage, 1989). Some couples adopt one or other of these systems and retain it throughout their marriage. But as the gender roles also become more flexible within the marriage, with bread-winning and home-making responsibilities being shared and changing over time, so too their financial arrangements may also become more flexible and change over time. It also becomes less and less relevant to ask who technically is the owner of what.

    124.  When the marriage comes to an end, the court's powers are also flexible. They are no longer based upon the assumption that there is one male breadwinner to whom all or most of the resources belong and one female home-maker in need of his support (and entitled to it only as long as she remains deserving). The court is directed to take into account all of their resources from every source. It is then given a wide range of powers to reallocate all those resources, be they property, capital or income. It is directed to take account of all the circumstances, and in particular the checklist of factors listed in section 25(2). But what, at the end of the day, is it supposed to do? What is it trying to achieve?

    125.  In its original form, section 25 directed the court to try and place the parties in the financial positions in which they would have been had the marriage not broken down and each had discharged their financial obligations towards the other. This made perfect sense when the assumption was that the financial obligations undertaken, mainly by the husband, at marriage endured for life even if the marital consortium came to an end (indeed, before the Matrimonial Proceedings and Property Act 1970 came into force, a rich man whose divorced wife married a poorer one might still have to support her in the manner to which she had become accustomed during their marriage). But it made less sense once the basis of divorce was that the marriage had irretrievably broken down, the law no longer drew formal distinctions between the obligations of husbands and wives, and the court had a wide range of powers to distribute their resources in such a way as to enable each to go his or her separate way.

    126.  Hence the assumption of life long-obligation was repealed by the Matrimonial and Family Proceedings Act 1984, following the Report of the Law Commission (1981, Law Com No 112, The Financial Consequences of Divorce). The Commission's reasoning (see para 17) was essentially pragmatic. In the great majority of cases, it simply was not possible to enable two households to continue to live as if they were one. Nor in many cases was it desirable to perpetuate their mutual interdependence. The whole point of a divorce is to enable people whose lives were previously bound up with one another to disentangle those bonds and lead independent lives. But at least the discredited objective had encouraged a sort of equality: if the marriage had not broken down, the couple would still be enjoying the same standard of living. The object, therefore, was to get as close as possible to that for both of them. John Eekelaar dubbed this the 'minimal loss' principle (I used to refer to it as the principle of 'equal misery').

    127.  The 1984 Act put nothing in its place. The Law Commission, in their previous discussion paper (The Financial Consequences of Divorce: The Basic Policy, A Discussion Paper, 1980, Law Com No 103), had discussed various models of financial provision after divorce and found all of them wanting. Thus they deliberately eschewed recommending any overall guiding principle or objective, other than the attempt to disentangle the spouses' mutual interdependence. The Commission may have been inhibited because they were only considering financial provision, still usually referred to as maintenance, and not property adjustment and capital. This is in contrast with the approach of the Scottish Law Commission, of whose work the Law Commission were well aware. The Scots' Report (Report on Aliment and Financial Provision, 1981, Scot Law Com No 67) resulted in statutory statements of principle translated into rules. As my noble and learned friend, Lord Hope of Craighead has demonstrated, these can operate harshly in some cases, particularly where the resources consist largely of income rather than property.

    128.  Although the 1973 Act, as amended in 1984, contains no express objective for the court, it does contain some pointers towards the correct approach. First, the court is directed to give first priority to the welfare while a minor of any child of the family who has not attained the age of 18: section 25(1). This is a clear recognition of the reality that, although the couple may seek to go their separate ways, they are still jointly responsible for the welfare of their children. The invariable practice in English law is to try to maintain a stable home for the children after their parents' divorce. Research indicates that it is more successful in doing this than in securing a comparable income for them in future (see, eg, Sue Arthur, Jane Lewis, Mavis Maclean, Steven Finch and Rory Fitzgerald, Settling Up: making financial arrangements after divorce or separation, National Centre for Social Research, 2002). Giving priority to the children's welfare should also involve ensuring that their primary carer is properly provided for, because it is well known that the security and stability of children depends in large part upon the security and stability of their primary carers (see eg Professor Jane Lewis FBA, "Debates and Issues regarding Marriage and Cohabitation in the British and American Literature" (2001) 15(1) Int JLPF 159, 178).

    129.  Secondly, the checklist in section 25(2) is not simply concerned with totting up the present assets and dividing them in whatever way seems fair at that time. Despite the repeal of the statutory objective, the court is still concerned with the foreseeable (and on occasions more distant) future as well as with the past and the present. The court has to consider, not only the parties' present resources, but also those that they will have in the foreseeable future: section 25(2)(a). The 1984 Act included in these any increase in earning capacity which it was reasonable to expect either of them to achieve. Although clearly aimed at trying to get home-makers back into the labour market, it applies equally to each party. Breadwinners are not expected to give up work so as to diminish the claims of the home-maker and children. Changes introduced by the Pensions Act 1995 require the court to consider any benefits under a pension arrangement which either party has or is likely to have and in this case not just in the foreseeable future: see 1973 Act, section 25B(1). The checklist has always required the court to take account of any benefit which a party will lose the chance of acquiring because of the loss or marital status: section 25(2)(h). But until pension attachment and, more recently, pension sharing were introduced, there was often not much they could do to reflect this other than through periodical payments. The court also has to consider the parties' needs, both now and in the foreseeable future: section 25(2)(b). Finally, when considering the parties' contributions to the welfare of the family, the 1984 Act inserted a requirement to look, not only to the past, but also to the contributions likely to be made in the foreseeable future: section 25(2)(f). Principally, of course, these will be the continued caring responsibilities resulting from the relationship.

    130.  Thirdly, several provisions were inserted in 1984 to encourage and enable a clean break settlement, in which the parties could go their separate ways without making further financial claims upon the other. One such provision has already been mentioned: the expectation that each party would take reasonable steps to increase their earning capacity. Three others are now contained in section 25A, which was much debated in argument before us. Section 25A(1) provides:

"Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers under section 23(1)(a) [periodical payments], (b) [secured periodical payments] or (c) [lump sum], 24 [property adjustment], 24A [property sale] or 24B [pension sharing] above in favour of a party to the marriage, it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable."

This applies to the whole range of the court's powers, not just to the power to award future periodical payments. It assumes that the court has decided that some award is appropriate (in practice, there are very few cases in which some readjustment of the parties' strict proprietary rights is not required, if they cannot agree it, in order to disentangle their previously entangled affairs). The court is then required to consider whether it could achieve an appropriate result by bringing their mutual obligations to an end. This is a clear steer in the direction of lump sum and property adjustment orders with no continuing periodical payments. But it does not tell us much about what an appropriate result would be.

    131.  Section 25A(2) provides:

"Where the court decides in such a case to make a periodical payments or secured periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made or secured only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party."

    I assume that the reference to "such a case" is to a case in which the court has decided to exercise its powers under the listed sections rather than to a case in which it has decided that it would be appropriate to exercise those powers so as to terminate the parties' financial obligations as soon as possible after the decree. If it decides to make a periodical payments order, it must consider how quickly it can bring those payments to an end. It has therefore to consider fixing a term, although in doing so it must avoid "undue hardship". This is linked to two other powers: section 28(1) allows the court to specify the duration of a periodical payments order; generally, it is open to the recipient to apply to extend the term, provided this is done before it expires; but section 28(1A) gives the court power to prohibit any application for an extension. If there is an application for an extension, the court has the same duty to consider bringing the periodical payments to an end as soon as possible: section 31(7); and it now has power to order a lump sum, property adjustment or pension sharing instead: section 31(7B). Thus if there were not the capital resources to achieve a clean break at the outset, it may be achieved later if sufficient capital becomes available.

    132.  Section 25A(3) reverses the decision of the Court of Appeal in Dipper v Dipper [1981] Fam 31, and allows the court to dismiss an application for periodical payments at the outset. The logical consequence of the previous tailpiece had been that such claims should be kept alive unless the claimant agreed to relinquish them. The life-long obligation might be revived by events which had nothing to do with the marriage.

    133.  Section 25A is a powerful encouragement towards securing the court's objective by way of lump sum and capital adjustment (which now includes pension sharing) rather than by continuing periodical payments. This is good practical sense. Periodical payments are a continuing source of stress for both parties. They are also insecure. With the best will in the world, the paying party may fall on hard times and be unable to keep them up. Nor is the best will in the world always evident between formerly married people. It is also the logical consequence of the retreat from the principle of the life-long obligation. Independent finances and self-sufficiency are the aims. Nevertheless, section 25A does not tell us what the outcome of the exercise required by section 25 should be. It is mainly directed at how that outcome should be put into effect.

    White v White