Divorce poses a considerable cost to the state each year. The family courts are overloaded and, despite the changes introduced to make an initial mediation meeting mandatory before issuing children and financial proceedings on divorce, there are still numerous applications to the family courts each day.
As a result of a reduction in funding, the court service is stretched, and parties involved in proceedings are generally frustrated by the system and the speed at which matters are dealt with.
It’s not just the financial cost to the state in running the court system, but the emotional cost to the individuals, the impact it has on their ability to care for their children, and the emotional fallout for the children, which may result in referrals to overstretched counselling services and the parents’ ability to work while engaged in court proceedings.
The huge reductions in legal aid funding mean that many have little choice but to represent themselves in court. This adds to the pressure on the judiciary, and applications and hearings generally take much longer, increasing the cost to the taxpayer.
Couples who don’t divorce cost the state very little, so should they be rewarded by tax savings? Sir Paul Coleridge, the retired High Court judge, certainly thinks so. He believes that tax breaks that increase in value depending on the length of the marriage would encourage married couples to stay together. Specifically, he said, a milestone tax break could be staged so newlyweds would have minor advantages over unmarried couples.
There could also be increments to increase the tax allowances at five and ten years, possibly linked to the arrival of children. By the time of a silver wedding anniversary after 25 years, a married couple could expect to enjoy a major income boost under the scheme, compared to people their age who never married. Incidentally, Sir Paul Coleridge has been married for 30 years, so he would certainly benefit from such a milestone tax break.
However, it is hard to be convinced that such a scheme would make that much of a difference. The tax savings cannot be huge, as they would then be unaffordable, and they are unlikely to play a major factor in a couple’s decision as to whether their marriage is at an end.
There are huge financial consequences on divorce, far more than the potential tax savings being considered. A family is suddenly in a position where it has to run two households. In most cases, that means changes have to be made to spending and there is usually an adverse impact on the financial position of the parties. For example, if there is more than one property, there is the consideration of capital gains tax (CGT), and inheritance tax benefits will also be lost.
It’s fairly unusual for tax consequences to stop a couple when one of them has made up their mind that the marriage is over. Despite the potential financial consequences of divorce (and that’s without the legal fees that both parties could end up incurring), most instigators of divorce proceed.
Milestone tax breaks as suggested by Sir Paul Coleridge are more likely to have their place as a means of rewarding married couples who do stay together. Why shouldn’t they be rewarded because they aren’t adding to the cost of divorce?
Tax breaks may encourage more cohabitating couples to marry, but will that mean that they then bolster the number of married couples with children who stay together?
The Office for National Statistics said in 2012 that 42 per cent of marriages ended in divorce. If someone is simply getting married to benefit from tax savings, it’s hard to understand how that will make the relationship more secure and less likely to end.
The Marriage Foundation, which is Sir Paul Coleridge’s creation, has suggested that two in ten unmarried couples with children stay together. Why do couples choose to cohabit rather than marry? For those with the greater assets, it may be because they understand the financial risks in getting married, such as the starting point for capital division in most cases being 50:50, and there being a potential liability for ongoing spousal maintenance, which is not the case if one is unmarried.
If that is the reason they have chosen to stay unmarried, I can’t understand why the possible tax advantages would be enough of an incentive to them to marry. However, if there is evidence to suggest that being rewarded financially for getting married will encourage more couples with children to do that and then stay together, then it will benefit society and, particularly, children, if their home life is secure.
The current tax benefits are not going to incentivise a couple to get married or stay married. The current married couples allowance potentially saves couples between £314 and £816.50 a year. The more recent marriage allowance, which was introduced to benefit married couples on lower incomes, could potentially save a couple £212 a year. The difficulty is that even if the tax savings were several thousand pounds a year, is that going to make someone who is unhappy or in an abusive relationship stay with their husband or wife, or get married in the first place? It seems highly unlikely.
However, it may be an incentive for those who are in a relationship and happy but simply don’t get around to getting married. Perhaps it will encourage those couples to think about the longevity of their relationship and if they want greater security, and tax benefits as well, that may be enough.
Article first published in Solicitors Journal in April 2015.