Action of Liberal with wife in a formal outfit (7)
I believe the answer is:
lawsuit
'action' is the definition.
(legal action)
'liberal with wife in a formal outfit' is the wordplay.
'liberal' becomes 'l' (abbreviation).
'with' is a charade indicator (letters next to each other).
'wife' becomes 'w'.
'in' means one lot of letters goes inside another.
'formal outfit' becomes 'suit' (a suit is a formal outfit).
'a'+'suit'='asuit'
'w' put inside 'asuit' is 'awsuit'.
'l'+'awsuit'='LAWSUIT'
'of' is the link.
(Other definitions for lawsuit that I've seen before include "The process of bringing action in legal court" , "Legal proceedings" , "Dispute brought to court" , "Court case" , "Process of bringing dispute or claim before the courts" .)