My Lords, I will speak to Amendments 6 and 15A. As the noble Baroness, Lady Deech, said, Amendment 6 is one of the main pillars of the Bill. The revised proposed new clause embodied in Amendment 6 lays down the general principle that matrimonial property is to be divided equally in normal circumstances. That is the easy bit. The more difficult bit is defining with reasonable precision what matrimonial property is. The revised proposed new clause largely reproduces—we hope in a clearer form—what was in the Bill as introduced, although there are one or two significant alterations to which I shall draw attention. I recognise, of course, that in this context clarity is a pretty relative concept and that the proposed new clause is not particularly easy going.
One way of viewing the proposed new clause is as laying down three general principles in proposed new subsection (1), followed by four qualifications or refinements in the four paragraphs of proposed new subsection (2). The first general principle is that property acquired before marriage should not be regarded as matrimonial property but as—to use a clumsy but unavoidable term—non-matrimonial property. The second general principle is that gifts received from third parties or inheritances or intestate succession to the estates of third parties are also to be treated as non-matrimonial property, even if the gift is made, or the death occurs, during the marriage. I should treat the third general principle at some length because it differs from both the Bill as introduced and from the Scottish legislation embodied in the Family Law (Scotland) Act 1985, from which these provisions are fairly obviously derived.
I mention in passing that I very much regret that my noble and learned friend Lord Hope of Craighead cannot be here today because he, as former Lord President in Scotland, has unparalleled experience of the practical working of Scottish legislation. I have had the advantage of some discussion with him but I take responsibility for what I say about the law of Scotland, which will be far less learned than if it came from him.
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The problem can perhaps be illustrated by a simple example. Suppose that a wife owns a portfolio of stock exchange investments that are managed on a discretionary basis by a financial adviser. It may be that she does not know that the portfolio is being changed from time to time, with her authority, by the adviser. After several years of a long marriage, a few of the investments held in that portfolio may be exactly the same as those that were in the portfolio when she got married. Are they or are they not non-matrimonial property? The answer that Scottish law has given, rather surprisingly, is that they would cease to be non-matrimonial property—that a mere change of investments in a managed portfolio would be enough. Indeed, in one case decided in the Court of Session, a company reorganisation carried through by a simple share-for-share exchange converted a very large and valuable holding from non-matrimonial to matrimonial property. We take the view that that is unfair and against the public interest, in that it has the effect of inhibiting normal economic activity if it is essential to keep non-matrimonial property in just the same form as before.
The amendment proposes that property that can be regarded as directly or indirectly in substitution for non-matrimonial property shall have the same character, subject to the exceptions and qualifications that I now come to. The notion of tracing property through to substitute property is familiar in several areas of English law—for instance, in tracing misappropriated trust assets and, in a very different context, in tracing the proceeds of crime for the purposes of the Proceeds of Crime Act. It can create difficulties but it is the lesser of two evils to have a provision about substituted property as against a position under which non-matrimonial property may suddenly and almost irrationally turn into matrimonial property.
I come to the four qualifications or refinements. The first, in subsection (2)(a), is well understood and, I think, non-controversial; the matrimonial home and its household contents should be regarded as matrimonial property, even if acquired before the marriage. The second qualification, in proposed subsection (2)(b), is concerned with the situation in which property loses its non-matrimonial status by, in effect, being merged with matrimonial property. To follow on from the simple example of the wife with the portfolio, if she decides to raise £20,000 from her portfolio and put it towards improvements to the matrimonial home, it is no longer traceable as non-matrimonial property and becomes matrimonial property—and that is, no doubt, the fair and simple solution.
Proposed subsection (2)(c) is concerned with the converse case, whereby matrimonial property is used in turn to enhance the value of non-matrimonial property. Again, using the same example, if the wife’s investment portfolio includes shares with a large, valuable rights issue but the wife is not in a position to put up the cash to take up the rights, and the husband says, “I will do that”, the new shares acquired on the rights issue would be an example of matrimonial property being recycled, as it were, into non-matrimonial property but would keep its character as matrimonial property.
Fourthly, proposed subsection (2)(d) applies the same principle to where the contribution is not in cash or assets but in skill, time and effort. It is not intended to apply simply to a bit of help given from time to time by a husband to his wife in her business, or vice versa, but contributions that are beyond the ordinary, by which the value of non-matrimonial property is enhanced, should be marked by an appropriate adjustment.
Those are the purposes of the four paragraphs in proposed subsection (2). They largely follow the Scottish pattern but we venture to hope that we may have made them somewhat clearer and simpler. They do not follow exactly the Scottish pattern. That is the way in which we have tried to provide a reasonably sensitive but nevertheless not too complicated pattern for distinguishing between matrimonial and non-matrimonial property.