Training/Financialprovision/RFPUpdate171013

ROYAL FACULTY OF PROCURATORSUPDATE IN FINANCIAL PROVISION IN FAMILY LAW17/10/2013

IntroductionInteresting times in Family Law! While the word “interesting” should rightly strike fear in the heart of any client, practitioners should find some comfort in developments over the last period and find something of interest in how things are shaping up on the Family Law front.

There are 3 main areas I intend to cover, all inter-related:-

Support for children Claims for cohabitants who separate Financial provision on divorce

We will grasp the nettle of child support first and do so briefly then consider the developments in claims under the Family Law (Scotland) Act Section 28, again briefly, before spending the main part of the update considering developments in financial provision on divorce.

The grand finale will be some suggestions for bringing all this to life in every day practice.

CHILD SUPPORT

The public incarnation of the Child Support Act of 1991 has had more rebirths than Dr Who! The reason it is so essential to keep up with the reincarnations is that from 3/03/2003, parents entering into a Minute of Agreement which sets out a level of support for their children can only rely on that arrangement for one year. After the first anniversary of the Agreement either parent can apply for a Maintenance Calculation from the CSA/CMS which then supersedes the alimentary terms of the Agreement except insofar as the Agreement covers aliment excluded from the scope of child support maintenance, such as educational expenses. The inclusion of a higher level of support for the parents with care but no support for the children is no longer a reliable option. The third wave of major change was initiated on 10th December 2012 when a new formula was introduced, initially in a limited number of cases with the objective of having general application by 2017. The new formula uses gross income under deduction of pension contributions only. The % approach is still to be found, though using lower figures. In respect of the paying parent’s gross income between £200 and £800 per week the payment is 12%, 16% and 19% for 1, 2 and 3 or more children. In respect of gross income between £800 and £3000 per week the payment is 9%, 12% and 15%. The reduction for overnight stays remains with the potentially important difference that if both parents have equal numbers of nights with the child or children, there is no liability for maintenance at all. The Child Maintenance Service (CMS) which implements this regime is the new incarnation of the CSA.

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There is a cost in relation to children which is in danger of falling between the two stools of the 1985 Act and the 1991 Act. The 1985 Act includes the following section:-

(4)(4) Where a court makes an award of aliment in an action brought by or on behalf of a child under the age of 16 years, it may include in that award such provision as it considers to be in all the circumstances reasonable in respect of the expenses incurred wholly or partly by the person having care of the child for the purpose of caring for the child.

This provision could cover expenses of third party child care such as a child minder or pre or after school or holiday or nursery care but the implications of the 1991 Act prevents most parents using this basis for claim. An order could be sought under s.9(1)(c) but if made as a periodical allowance would end on the remarriage of the recipient and so be unreliable for the parent looking after the child. If made as capital, it would be difficult to quantify and any variation could not be in respect of the amount, but only with regard to the method of payment and this could be unfair for the paying parent. The CSA/CMS formula is not a bespoke one and may well not provide adequately for the element of third party care or nursery fees. Those elements now represent a significant outlay for many families. It could be covered by a contractual provision in a separation agreement, clearly stated to be a non maintenance provision to prevent it being superseded by a CSA/CMS assessment and with specific provision for variation by arbitration.

CLAIMS UNDER THE 2006 FAMIY LAW SCOTLAND ACT s28

The provisions of s.28 of the 2006 Act echo s.9 (1)(b) of the 1985 Act in relation to consideration of advantage/disadvantage, but without the additional structure provided by the other principles.

The interpretation of s.28 the 2006 Act was initially narrow. This trend was significantly reversed in the Supreme Court Case of Gow v Grant 2013 SC (UKSC) 1 which approached interpretation broadly and with the touchstone of fairness. The decision also endorsed the relevance of cases decided under s9(1(9)(b) of the 1985 Act and so has confirmed some common ground between aspects of financial provision on divorce and that on the ending of a cohabitation in separation. It may be that the more robust approach to financial provision under s28 of the 2006 Act may encourage more use of s9(1)(b) of the 1985 Act.

In the aftermath of Gow v Grant, Whigham v Owen [2013] CSOH 29 took a very broad approach to a S28 claim under the 2006 Act. That approach was tempered by comments in Smith-Milne v Langler 2013 GWD 13-284 but there has been a clear shift in the consideration of claims under S.28 of the 2006 Act.

The touchstone of fairness has been used where that term does not appear in the legislation. In Gow v Grant the general approach was to compare how parties stood at the beginning and the end of the relationship to give some indication of whether adjustment was necessary.

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When the 2006 Act came in to force the big question was how far S.9(1)(b) would influence the 2006 Act interpretation. It would be ironic if the influence flowed almost more strongly in the other direction.

PROCEDURAL CHANGES

It can be a challenging task to obtaining the relevant financial information from the other party to make proper use of the 1985 and 2006 Acts’ provisions. That step was made easier by the introduction of OCR 33.9(c) and 33.24 (4) by the Act of Sederunt (Sheriff Court Rules)(Miscellaneous Amendments) 2012. Those rules impose a requirement to lodge a statement of financial information with an Initial Writ or Defences in family cases involving financial provision. This has a helpful impact on negotiation since it underlines the need for early and full disclosure.

FINANCIAL PROVISION ON DIVORCE

It’s worth remembering the comments about financial provision in the 1985 made by by Lord President Hope in Little v Little 1990 S. L. T. where it described the Act as setting out "in considerable and almost clinical detail the nature of the property with respect of which orders may be made, the principles which are to be applied and the factors which are to be taken into account. No stone seems to have been left unturned in this analysis. The court is taken step by step through a complicated checklist of provisions to which it must have regard, so that no point which might conceivably be relevant is at risk of being forgotten as it proceeds through the exercise to the result. But despite all the detail much is still left to the discretion of the court. This is clear from an examination of s.8 (2) , which provides that the court shall make such order, in any, as is justified by the principles set out in s.9 and reasonable having regard to the resources of the parties. The concept of sharing the net value of the matrimonial property fairly, the flexibility which is given by the expression "special circumstances" in s. 10 (6) and the repeated references in s.11 to all the other circumstances of the case serve to emphasise that, despite the detail, the matter is essentially one of discretion, aimed at achieving a fair and practicable result in accordance with common sense. It remains as important as it has always been that the details should be left in the hands of the court of first instance and not opened up for re-consideration on appeal."

From a review of decided cases it could be concluded that the aim of a ‘fair and practicable result in accordance with common sense’ is an elastic benchmark.

The clear staring point is to capture the relevant date value of the net matrimonial property. There is a clear structure which could deliver a specific answer to what would be fair financial provision for a couple who had virtually no assets when they met, who worked at similar jobs with similar incomes throughout the marriage, who on separation agree to share the care of their children and who managed to keep all their near relatives alive during the period of the cohabitation. Very few couples are in that category. The Act can accommodate complexity but with that inevitably arrives a degree of uncertainty.

Challenging Provisions

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Two areas have continued to pose particular challenge in negotiation and unpredictability in litigation. One is assessing whether and how to factor in the impact of previously non matrimonial funds which have been invested in matrimonial assets in respect of the ‘source of funds’ provision in s10(6)(b). The other is weighing up whether there is a justification for a departure from equal sharing in terms of s 9(1)(b) in respect of economic advantage/disadvantage. These issues will be considered. But first, a pot pourri of various specific points.

New challenges arise. The introduction of S.10(3)(A) means that on transfer of property other than in exceptional circumstances, the value at the date of order rather than the relevant date value of the property will be taken into account.

If heritage is in joint names then the question arose whether on transfer, the half already owned by the transferee should be taken into account at its relevant date value and only the half being transferred being calculated using a value at the current date (or such other date as determined by the Court if exceptional circumstances are established)?

In Sutherland v Sutherland 2008 FamLR 151 where transfer to the husband of two heritable properties held in joint names on pro indiviso basis was ordered as part of the division with the value of the whole properties taken at current value in the calculation. The defender’s payment of the mortgage and endowment policies did not amount to exceptional circumstances justifying an earlier valuation date. The husband was awarded a capital sum to repay him for the share of the secured repayments he had paid for the wife during the period of separation. However, in Willson v Willson [2008] CSOH 161; 2009 Fam LR 18 the decision was to use the later valuation date only of the half share of a property ordered to be transferred. In Watt v Watt 2009 SLT 93 it was decided that even if a property were owned on a pro indiviso basis, it was only the share being transferred which should be valued at a date later than the relevant date. The relevant date value share being retained should be taken into account in the calculations.

Burnside v Burnside 2007 FamLR 144, 2007 GWD 24-404 confirmed that pension sharing was done in terms of S.8(1)(baa) and that S10 did not apply.

S v S 2012 GWD 14- 282Where shares had significantly fallen in value since the relevant date the relevant date was used in the calculations of the net matrimonial property. However, when all the calculations were worked through, the fall in the value of the shares was taken into account and a ‘discount’ allowed to reduce the capital to a sum which the wife could pay.

Widening OptionsIn a significant development it is now competent for a party to seek a principal order in their favour and an ancillary order in favour of the other party or to make an award that exceeded the sum craved. (Murdoch v Murdoch [2012] CSIH 2; 2012 Fam LR 2 & R v C (also known as C v C) 2013 Fam LR; 2013 GWD 22-431) This marks a big step towards making much fuller use of the provisions of the 1985 Act. It recognised that the objective of the 1985 Act was to give the widest possible powers to courts

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to enable them to effect a fair division of the matrimonial property on divorce

Future DevelopmentsThe Pensions Bill 2013-2014 proposes a single tier pension which, if the Bill receives the Royal Assent next year, will affect the future of sharing the present Additional State Pension.

The starting point - what Is Matrimonial Property ?

Some specific matters have been decided in the last few years.

Discounts & penalties. Armstrong v Armstrong 2008 FamLR 125The sale to the husband of a house by the husband’s father at below the market price did not amount to special circumstances simply because of the ‘discount’. It was clear that the father intended to benefit his son, not the couple and that aspect amounted to a special circumstance. This was quantified by the amount the father had discounted the price, not by taking that as a proportion of the value. The Sheriff effectively treated the increase in value as matrimonial property.

Pre marital property transferred into joint namesWillson v Willson [2008] CSOH 161; 2009 Fam LR 18 In a case in which it is clear that the husband defender was seen to have been proactive in bringing about changes in his wife’s premarital assets to make them joint, it was decided that only one half of a property which had been the wife’s before the marriage then transferred to joint names (with a survivorship destination) became matrimonial property, that although £231,930 which was in a joint account had been divided equally at the date of separation, that could be unpicked and the element the wife had contributed (and a lesser element her husband had contributed) could be subject to a tracing exercise to allow the appropriate proportion to exclude as matrimonial property retrospectively, on the basis that funds paid into a joint account are not ‘acquired’ as matrimonial property

Valuation of business interestsIt is essential for the expert’s firm not to have been involved with the business professionally (Watt v Watt 2009 FamLB 99-3; 2009 FamLR 62 )

DisposalsSome cases which were rather unusual do underline that if a client show signs of trying to manoeuvre themselves into what they think is a better legal position, that might backfire.

In M v M [2011] CSOH 33; 2011 Fam LR24; 2011 GWD 9 -219 the wife was awarded a capital sum of £789, 418 funded by the setting aside to that extent the husband’s transfer of funds to a company incorporated in connection with a trust. Those funds were not matrimonial property. The business was valued on a break up value rather than as a going concern The shares had nil value by date of proof.

In AB v CD 2007 Fam LB 85-6; 2007 Fam LR 53 Lord Brodie decided that substantial assets which had been transferred by the Defender into

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various trusts should be treated as matrimonial property. He very specifically attributed one half of the £1,000,000 awarded in respect of future aliment, recognising that alimentary provision was enforceable under Brussels 1 where a property award was not.

Bonus Payments/Subsidies It is necessary to provide evidence that the right to a bonus payment vested before the relevant date to have that sum included as matrimonial property (S v S 2012 GWG 14-282)

Assets acquired by way of gift or succession from a third partyThe onus is on the party seeking to establish a case under s. 10 (4) (Wilson v Wilson 1998 S. C. L. R. (O.H.) 1103).

Going back to Armstrong, remember in that case the matrimonial home was transferred during the marriage to the husband by his father at lower than market value. Although in itself the transfer of an asset at lower than market value was not itself a special circumstance, the transaction was considered equivalent to a gift from the father to the son to enable the purchase to be completed and constituted a ‘special circumstance’ justifying unequal sharing.

In Willson v Willson 2008 GWD 40-599 where the wife transferred a house she owned and lived in before meeting her husband into joint names after marriage, with a survivorship destination it was decided that only the husband’s share became matrimonial property. The source of now joint savings was tracked to effect a division reflecting the amount on non matrimonial funds injected by each (significantly more having been injected by the wife)

In a farming partnership where principal partnership assets were acquired before the marriage or acquired by way of gift during the marriage then the partnership interest were excluded as matrimonial property (B v B 2011 FamLR 91)

Benefits under a pension arrangementFor consideration of the term “referable” see Jackson v Jackson 1999 Fam LR 108 & 2000 SCLR 81. Where pension interests which are in existence at the relevant date have arisen from reinvestment during the marriage of earlier pension plans, apportionment in terms of the formula laid down by the regulations to bring in only the proportion attributable to the marriage is not appropriate. Their value as matrimonial property should be established not by reference to the period of membership but instead based on the contributions made during the marriage. (B v B 2012 [2012]CSOH 21;2012 FamLR 65; GWD 09-169).

Fair and ReasonableOnce the net matrimonial property has been identified it is necessary to bear in mind that orders must be both justified by s. 9 principles and reasonable (s.8(2)(b)). The principles of fairness and reasonableness are cumulative and both have to be satisfied. Hales v Hales (2012 GWD 20-417)

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In P v P 2012 Fam LR 41 an appeal was allowed against a decision which left a husband with assets of £14,707 and the wife of £193,137. It was considered that such an outcome was manifestly inequitable and plainly wrong.

In Smith v Smith 2010 SLT 372 it was considered reasonable for a wife, who for health reasons had to give up her work to receive both the proceeds of sale of the matrimonial home and periodical allowance, under 9(1)(d) for three years then under 9(1)(e) at a lower rate, until the husband’s retirement.

ReminderFor an award of periodical allowance to be reasonable the court has to be satisfied that an award of a capital sum, a property transfer order or a pension sharing is inappropriate or insufficient (W v W 2012 SCLR 591;2012 Fam LR 99)

Core Principles to be applied

(9) (1) The principles which the court shall apply in deciding what order for

financial provision, if any, to make are that –

(a) the net value of the matrimonial property should be shared fairly between the parties to the marriage or as the case may be the net value of the partnership property should be so shared between the partners in the civil partnership;

(b) fair account should be taken of any economic advantage derived by either party from contributions by the other, and of any economic disadvantage suffered by either person in the interests of the other person or of the family;

(c) any economic burden of caring, should be shared fairly between the persons

(i) after divorce, for a child of the marriage under the age of 16 years

(ii) (ii)after dissolution of the civil partnership, for a child under that age who has been accepted by both partners as a child of the family or in respect of whom they are, by virtue of sections 33 and 42 of the Human Fertilisation and Embryology Act 2008, the parents,

(d) a person who has been dependent to a substantial degree on the financial support of the other person should be awarded such financial provision as is reasonable to enable him to adjust, over a period of not more than three years from

(i) the date of the decree of divorce, to the loss of that support on divorce;(ii) the date of the decree of dissolution of the civil partnership, to the loss of that support on dissolution,

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(e) a person who at the time of the divorce or of the dissolution of the civil partnership, seems likely to suffer serious financial hardship as a result of the divorce or dissolution should be awarded such financial provision as is reasonable to relieve him of hardship over a reasonable period.

(2) In subsection (1)(b) above and section 11(2) of this Act-

“economic advantage” means advantage gained whether before or during the marriage or civil partnership and includes gains in capital, in income and in earning capacity, and “economic disadvantage” shall be construed accordingly;

“contributions” means contributions made whether before or during the marriage or civil partnership; and includes indirect and non-financial contributions and, in particular, any such contribution made by looking after the family home or caring for the family.

9(1)(a) The entry to the maze! The overall objective is fair sharing with the default set out in S.10 that the net value of the matrimonial property will be ‘taken to be shared fairly when it is shared equally or in such other proportions as are justified by special circumstances. So a good starting point is to work out net matrimonial property. Does sharing that equally seem fair to your client? If not, why not? Moral reasons? Important to parties but not in legal terms. So how might financial unfairness arise?

Consider special circumstances These are expanded on in subs. 10(6).

In Lawson v Lawson 1996 S. L. T. (Sh Ct) 83 Sheriff Principal Nicholson commented "... the reference to "special circumstances" in s. 10 (1) (d) does not qualify the way in which the net value of matrimonial property is to be determined. It simply introduces a factor of which account may be taken when a court is determining the division of matrimonial property of which the net value has been determined." The starting point is the net value, then the next step is to consider whether special circumstances exist to justify a departure from equal sharing.

It has to be born in mind that Jacques v Jacques 1997 SLT (H.L.) 459 decided that simply because special circumstances did exist the Court was not required to effect an unequal division of the matrimonial property. It is for the court’s discretion (Little v Little 1990 SLT 785, followed in Cordiner v Cordiner 2003 GWD 6-145) The list of possible special circumstances is not exhaustive. In Burchell v Burchell 1997 Fam LR 137 - more than half the matrimonial property awarded to wife because of husband’s lack of candour.In Lessani v Lessani 2007 FamLB 87-2;2007 FamLR 81 the sheriff formed a view that the husband lacked in candour in the issue of disclosure. The husband argued that his wife could have used disclosure procedure but on appeal it was decided that the parties had a duty of disclosure and a ‘surcharge’ (in this case of 10%) where a party appeared incredible or untrustworthy was acceptable as a special circumstance.

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Neither is the list totally elastic. Stewart v Stewart 2001 SLT (ShCt) 114 determined that any discrepancy between a ‘replacement value’ and an apportioned CETV based on the regulations could not be considered “special circumstances”Sometimes there will be an overlap between considerations of S 9(1)(b) and of special circumstances. Bremner v Bremner 2000 SCLR 912 - the wife’s taunting and abusive behaviour leading to her husband’s breakdown was accepted as special circumstances in terms of 10(6) and 11(7)(a) to justify unequal sharing. Burnside v Burnside 2007 GWD 24 –404; 2007 FamLR 144 - the wife was awarded a 60% share of the net matrimonial property to reflect the fact that she had given up work and a pension which amounted to special circumstances and financial disadvantage.

As mentioned, a provision which presents a particular challenge is:-Para. 10(6)(b) Source of funds for the acquisition of the family home The ‘source of funds’ issue arises most frequently and causes most difficulty when the funds have been invested in the family home. Cunningham v Cunningham 2001 Fam LR 12 did not recognise the investment of inherited funds in the matrimonial home as special circumstances on the basis that ‘money used to purchase the matrimonial home is devoted in a particularly clear way to matrimonial purposes, and the source of the funds so used is less important than it would be in the case of other types of matrimonial property.’ The source of funds is less likely to be recognised especially where it is clear that a couple have very specifically pooled all their resources, the relationship was of some duration and the wife is going to have to provide a home for the children (Moffat v Moffat 2006 FamLB82-5) or if there has been some effort expended by the partner (Woodhouse v Woodhouse 2006 FamLB 82-4). However, subsequent cases have recognized that the decision in each case must turn on the facts specific to that case. In Cunningham, there was a child to be considered, there were significant inherited funds on both sides, the funds were intended to be used for the provision of a family home and there other substantial assets to be balanced within the wider equation. There has been recognition of the policy of the 1985 Act as underlined by Lord Osborne in Whittome v Whittome 1994 SLT 114 at 126C, where he states:—“As I understand the policy of that part of the Act of 1985 which relates to the making of financial provision on divorce, which includes the fair sharing of “matrimonial property”, it is to the effect that, in general, the wealth acquired by the parties, subject to the statutory exclusion, or generated by their activity and efforts during the course of their life together is, in the absence of “special circumstances”, to be shared equally. The sharing exercise is not to be applicable to property acquired by one party or another by way of gift or succession from a third party.“In Langlands v Barron 2006 GWD 29-641 the fact a wife provided a significant part of the funds for the purchase of the matrimonial home, had suffered economic disadvantage because of giving up work for a period to look after the children, a disadvantage not balanced by the husband’s contribution to repairs and had an economic burden of caring for teenage son until 16 in about 3 years justified a division 60/40 in her favour. In Armstrong v Armstrong 2008 Fam LR 125 the matrimonial home was transferred during the marriage to the husband by his father at lower than

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market value. Although in itself the transfer of an asset at lower than market value was not itself a special circumstance, the transaction was considered equivalent to a gift from the father to the son to enable the purchase to be completed and constituted a ‘special circumstance’ justifying unequal sharing.In Scott v Scott 2011 GWD 37-762 the husband received damages in respect of an industrial accident some years before he met his wife. They married in 1999 and separated in 2009. In 2008 money deriving from the damages award was used to purchase a matrimonial home and pay for related expenses. Debts were incurred, mainly by the wife. The husband took responsibility for clearing that debt. It was accepted that the source of the funds for the purchase of the matrimonial home amounted to special circumstances justifying a departure from equal sharing in favour of the husband. Cunninhgam was distinguished.In Allan v Allan 2012 GWD 16-328 the source of funds was not recognised where the husband’s inheritance had been deposited into a joint account and that account was used to offset the mortgage in the particular circumstances of that case (where the source of funds for other assets was recognised).

The factors which have been taken into account in assessing a ‘source of funds’ argument include:-

whether the matrimonial home was taken in joint names; if so, the reason; whether the title where taken jointly included a survivorship

destination; where the funds were acquired by gift or inheritance, if the intention

of the original owner was to benefit the individual or the family; the scale of the funds invested; the timing of the investment; the duration of the marriage; whether there are children living in the matrimonial home; whether matrimonial funds were also invested; the impact of behaviour on the finances and the overall impact of a

departure in assessing fairness.

Funds invested in assets other than the family home.In Campbell v Campbell 2008 FamLR 115;2008 GWD 26-413 the defender had a pharmacy business at the date of marriage. The business was sold during the marriage and the proceeds reinvested in various properties. It was decided that the source of funds amounted to special circumstances and the matrimonial property should be divided three quarters to the Defender and one quarter to the Pursuer. .In Willson v Willson 2008 GWD 40-599 where the wife transferred a house she owned and lived in before meeting her husband into joint names after marriage, with a survivorship destination it was decided that only the husband’s share became matrimonial property. The source of now joint savings was tracked to effect a division reflecting the amount on non matrimonial funds injected by each (significantly more having been injected by the wife) . In W v W [2013] CSOH 136;2013 GWD 31-627 the husband had set up a company before the marriage. He transferred just under half of the shareholding he owned at to his wife about two years after the marriage. At that point the shares were not of significant value. By the date of divorce the company was of substantial value. There was no departure

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from equal sharing to reflect the source of the shares transferred from the husband. Although the wife’s input made a minor contribution to the success of the business any economic advantage to the husband was offset by the economic advantage from her own share ownership.

Further potential special circumstances:-S.10(6)(d) use as a Family home/for business purposesProper consideration of should be restricted to the couple and their children not to a third party dependent -Hales v Hales 2012 FamLR51;2012 GWD 7-123 . While greater weight is given to younger children residing in the matrimonial home with one parent, the situation of a young person no longer under 16 but still at school is of importance (Trotter v Trotter 2001 SLT (Sh Ct) 42; 2000 FamLR 94

Nature of the property Pension interestsIn S v S 2012 GWD 14-282 the fact that the wife would not derive benefit from the pension for many years, if ever, was one of a number of factors which were found to justify unequal sharing in her favour to allow a capital sum to be found due to her husband which was within her means. The wife’s borrowing capacity was a significant factor in shaping the financial provision.

Burnside v Burnside 2007 FamLR 144; 2007 GWD 24 –404 awarded the wife a 60% share of the net matrimonial property to reflect the fact that she had given up work and a pension which amounted to special circs and financial disadvantage. It was commented that the impact of giving up a career could be considered as either a special circumstance or financial advantage/disadvantage. It was not a mathematical calculation to establish a figure for compensation as in reparation case.

A key factor to consider is that where a claim is based on s. 9(1)(b) it is necessary to establish overall disadvantage and also that the disadvantage is not corrected by sharing the value of the matrimonial or partnership property which bring us on to the next avenue to explore:-

S.9(1)(b) – Financial advantage/disadvantageThere need be no matrimonial or partnership property for an award under this principle (Dougan v Dougan 1998 S. L. T. (Sh.Ct) 27).

The wording of S 28 of the 2006 Act, dealing with financial provision where cohabitation ends otherwise than by death, echoes the provisions of S 9(1)(b) of the 1985 Act. Gow v Grant [2012] UKSC 29; 2012 SLT 829 endorsed the relevance of s.9(1)(b) cases in considering decisions under the 2006 Act provisions. That case reversed a trend towards a narrow interpretation under the 2006 Act provisions and fostered a broader approach of fairness. It was emphasised that the provisions did not impose the responsibilities of marriage upon unmarried couples but was to provide a practicable and fair remedy, redressing the gains and losses flowing from their relationship. However the corollary could be argued, that married couples should receive no less fair provision. In the aftermath of Gow v Grant, Whigham v Owen [2013] CSOH 29 took a very broad approach to a

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s.28 claim under the 2006 Act That approach was tempered by comments in Smith-Milne v Langler 2013 GWD 13-284 but there has been a clear shift in the consideration of claims under s. 28 of the 2006 Act.

It was thought likely that cases decided under s 9(1)(b) of this Act may be looked to for guidance in considering claims for co-habitants. It was less anticipated that s28 cases might provide some direction for s 9(1)(b) cases. As indicated, very few guidelines have emerged under s.9(1)(b) and in many cases it has been unclear whether it is this or another principle being relied on to depart from equal sharing. The very definite starting point of equal sharing has given an anchor in financial provision on divorce but may also inhibit consideration of potential discretionary departures from equal sharing. The use of the provision for cohabitants may encourage more specific use of S 9(1)(b) in claims on divorce or dissolution, with some factors emerging common to both.

CareerIt is important to note that there is no automatic increase for the wife (or husband) who stays at home to look after the children in this provision (Coyle v Coyle 2004 GWD 2-30 and 2004 Fam LR 3 or under s9(1)(c). Disadvantage or need must be established to begin to justify an unequal division. Financial advantage/disadvantage was considered with great care in Coyle. It may be that the case of Gow v Grant 2013 S.C (U.K.S.C.) 1 arising from s.28 of the 2006 Act may encourage more use of s 9(1)(b) of the 1985 Act by emphasising a broad approach of fairness to the weighing exercise.

In Sutherland v Sutherland 2008 FamLR 151 it was decided that a wife who had not worked full time and at points had been unemployed because of child care did establish financial disadvantage but that was balanced by the advantage of being supported by the husband where the wife would be able to return to full time employment at a similar level of income as before, that in consequence there should be a 50/50 split although that meant the family home would have to be sold.

Porter v Porter 2010 Fam LR 68; 2010 SLT (Sh Ct) 179It was established that the wife had been in employment and in a pension scheme prior to the marriage and that throughout the marriage she did not work. She was awarded £10,000 to reflect career disadvantage but although there was no indication of how the sum of £10,000 had been arrived at, on appeal the Sheriff Principal accepted that this award had been within the Sheriff's reasonable exercise of discretion.

P v P 2012 FamLR 41 Each party sought the transfer of the matrimonial home and each craved a capital sum. On divorce, the sheriff granted an order for sale and also made a finding that the husband had gained financial advantage by using funds for payment of the mortgage on a property owned by him which was not matrimonial property. Both parties appealed. The sheriff principal added a finding that the wife gave up work in London to look after the parties’ child. He allowed the appeal and made an order for transfer of the house without payment of a capital sum to the husband. The decision left the husband with assets of £14,707 and the wife of £193,137. On appeal it was considered that such an outcome was manifestly inequitable and plainly wrong. It was not accepted that the wife had to give up her job for

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the benefit of the child. The husband indicated he was willing to transfer the house on payment of a capital sum and that was ordered on the basis that considering all the factors, any economic advantage to the husband had been offset.

B v B [2012]CSOH 21; 2012 GWD 09-169 and 2012 FamLR 65It was not accepted that the wife working part time was solely to look after the children, that she was the one who decided not to contribute to a pension scheme and so there was no economic disadvantage established for either of those aspects.

Payments of secured loan

There have been a variety of ways of dealing with payments of the secured loan after separation. There has been no consistent approach where the party in occupation pays the secured loan with no contribution from the other. If one parent is in the home with the children and the other parent pays the secured loan this may well be seen as part of alimentary provision rather than advantage to the other parent but that cannot be relied on.

Trotter -v- Trotter 2000 GWD 12-425;2000 FamLR 94;2001 SLT (ShG)42- Wife’s payment of endowment premiums and mortgage during separation one factor in justifying unequal division.

Quinn v Quinn 2003 SLT (ShCt) 5 the husband had paid the mortgage and other outlays during the period of non cohabitation and had sole responsibility for the youngest child now over 18. An order was granted for the sale of the property rather than its transfer to him. There was no identifiable economic advantage derived by the pursuer or economic disadvantage to the defender in providing a home for his children. This is in contrast to Khan –v- Khan 2002 GWD 38-1259 & 2003 FamLB 61-6 where there was unequal division to wife’s benefit to allow her to retain the matrimonial home. She (or her parents or state benefit but not the husband) had paid the mortgage, there seemed little prospect of aliment being paid and she had suffered career disadvantage.

In Sutherland v Sutherland 2008 FamLR 151 transfer to the husband of two heritable properties held in joint names on a pro indiviso basis was ordered as part of the division with the value of the whole properties taken at current value in the calculation. The defender’s payment of the mortgage and endowment policies did not amount to exceptional circumstances justifying an earlier valuation date. The husband was awarded a capital sum to repay him for the share of the secured repayments he had paid for the wife during the period of separation

S v S 2012 GWD 14-282. Any financial disadvantage incurred when the wife, who occupied the family home, met the full mortgage payments for a six month period following the separation was considered to have been more than outweighed by an economic disadvantage for her husband in making his share of the payments for the remainder of the period of over three years without the benefit of occupancy.

In W v W [2013] CSOH 136;2013 GWD 31-627 the husband paid support to the wife in the period of separation and from that the wife met the

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mortgage payments . It was considered that this provided the husband with a financial advantage by having his share of the mortgage paid and an adjustment to reflect that advantage was made as part of the capital adjustment.

Non-matrimonial assets / business interests Another aspect of W v W was that the husband had set up a company before the marriage. He transferred just under half of the shareholding he owned at to his wife about two years after the marriage. At that point the shares were not of significant value. By the date of divorce the company was of substantial value. There was no departure from equal sharing to reflect the source of the shares. Although the wife’s input made a minor contribution to the success of the business any economic advantage to the husband was offset by the economic advantage from her own share ownership. However, the husband paid support to the wife in the period of separation and from that the wife met the mortgage payments. It was considered that this provided the husband with a financial advantage by having his share of the mortgage paid and an adjustment to reflect that advantage was made as part of the capital adjustment.

The next provision to consider if appropriate is:-

S.9(1) (c) economic burden of child careThere was a period during which awards under s.9(1)(c) were rare but 2012 reversed that trend:-

B v B [2012] CSOH 21; 2012 Fam LR 65Although it was stated that the care of the children would be shared it was accepted that the wife’s earning capacity would be restricted and she had a need to adjust to not having the husband’s support.Since her financial provision was likely to come from her husband’s capital resources she was found entitled to six payments of additional capital to satisfy 9(1)( c)&(d) the first of £4,000 within two weeks of decree and the remainder of £2,000 at 6 monthly intervals.

W v W 2012 Fam LR 99The wife was found entitled to periodical allowance until their child (aged 9 at the time of the divorce) attained the age of 16 on the basis that this would initially be at the rate of £1,000 per month to allow the wife to pay of a car loan and major bills and progress her degree qualification then at £500 per month to reflect her limited earning capacity while the child was under 16.

S.9(1)(d) &(e) Period of adjustment/serious financial hardshipInconsistency alert!In McKenzie v McKenzie 1991 S. L. T. (OH) 461 periodical allowance was awarded for three years under s. 9 (1) (d) and then indefinitely under s. 9 (1) (e) which was considered fairer to a husband with substantial income than capital in lieu. There seems an inherent inconsistency in making an award straddle paragraphs (d) and (e). but that was done again in Smith v Smith [2009] CSOH 2;2010 SLT 372;2009 FamLR 39 Although the wife was to receive sufficient from the capital division to have a house free of a mortgage and an income from invested income and within 3 years, from a pension, her husband was going to have a significantly higher until he

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retired in 9 years. The wife was awarded £2,000 per month under section 9(1)(d) and £1,500 a month thereafter until the husband retired at 60. While the wife had health problems that was only one of a number of factors taken into account. Serious financial hardship was to be considered in light of the circumstances of the parties rather than ‘according to some undefined objective minimum subsistence provision’

B v B [2012]CSOH 21; 2012 GWD 09-169;2012 FamLR 65 As mentioned under 9(1)©, although the care of the children was to be shared it was accepted that the wife’s earning capacity would be restricted and she had a need to adjust to not having the husband’s support and since her financial provision was likely to come from her husband’s capital resources she was found entitled to six payments of additional capital to satisfy 9(1)( c)&(d) the first of £4,000 within 2 weeks of decree and the remainder of £2,000 at 6 monthly intervals.

Standard of livingSmith v Smith [2009] CSOH 2;2010 SLT 372;2009 FamLR 39 Serious financial hardship was to be considered in light of the circumstances of the parties rather than ‘according to some undefined objective minimum subsistence provision’

Timing of order

S 12. Includes provisions for the timing of and method for payment of a capital sum or transfer of property. In the absence of any statutory test to determine whether an order for payment of a capital sum should come into effect on a specified future date, the logical basis must be consideration of the payer’s resources (Hales v Hales 2012 Fam LR 51). An order was granted for a capital payment to be made the Pursuer to provide him with equal sharing, payable within 18 months and an order the sale of the matrimonial home, deferred for 12 months from the granting of the decree of divorce.In Langlands v Barron 2006 GWD 29-241 the wife was found liable to pay capital to her husband in two instalments, the first an immediate payment of the amount she could raise by way of additional loan and the rest when the son became 16, with no interest unless the house was sold in which case interest would run from that date.B v B [2012] CSOH 21; 2012 Fam LR 65Although it was stated that the care of the children would be shared it was accepted that the wife’s earning capacity would be restricted and she had a need to adjust to not having the husband’s support and since her financial provision was likely to come from her husband’s capital resources she was found entitled to six payments of additional capital to satisfy 9(1)( c)&(d) the first of £4,000 within 2 weeks of decree and the remainder of £2,000 at 6 monthly intervals.

S. 14 – Incidental OrdersThe 2006 Act amended the 1985 Act s. 5 A to allow the Sheriff to direct the Sheriff Clerk to execute deeds relating to moveable as well as heritable property. Where pension sharing was supposed to be included in the divorce decree but though mentioned in the Joint Minute had not been amended in to the Initial Writ this defect could not be cured by use of section 14 (Williams v Williams 2008 SLT (Sh Ct) 123)

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Adams v Adams 2010 SLT (Sh Ct) 2An order for the sale of the matrimonial home was made in favour of the wife pursuer prior to divorce for a specific figure after the property had been on the market unsuccessfully for some time in terms of S14(2)(a) but vacant possession under 14(2)(d) could only be granted on divorceIt could not be used to secure vacant possession prior to divorce where an order is made for the sale of a matrimonial home to one of the parties to the marriage (Adams v Adams 2010 SLT (Sh Ct) 2 .

Interest In W v W [2013] CSOH 136;2013 GWD 31-627 the financial orders made included transfer to the husband of the wife’s shareholding and payment of a capital sum of £606,000 to the wife in three instalments. Interest was to run on the first instalment at the judicial rate from 1st July 2013 until payment and at 4% per annum on the remaining instalments from the date of decree until the due date for payment and thereafter (or in the event of the husband selling his shareholding earlier) at the judicial rate.

Ancillary order which is expedient to effect to the s.9 principlesMurdoch v Murdoch 2012 GWD 04-69The wife was allowed to amend to add a crave under S14(2)(k) to seek an incidental order for payment to the husband of £20,000 by her on transfer of the house to her and varying the terms of the standard security over the matrimonial home freeing the husband of all liablility and orders were granted in those terms. It was held that there was no reason why a party to matrimonial proceedings should not seek an ancillary order in favour of the other party and that such an approach would be contrary to the objective of the 85 Act to provide wide powers to achieve fair division.R v C (also known as C v C) 2013 Fam LR; 2013 GWD 22-431Competent for the husband to crave a pension sharing order in favour of the wife

Another aspect which can arise is if there is a question mark over the fairness of an Agreement which has been entered into.

Agreements on financial provision

Kibble v Kibble 2010 SLT (Sh Ct) 5 & 2010 GWD 37-625Section 16 extends to Agreement made in contemplation of but before marriage and so can be used to seek variation of a prenuptial Agreement

Jackson v Jackson 2003 GWD 33-941. As terms of agreement did not make the financial provisions come into effect “on divorce” the periodical allowance was variable only in terms of the Agreement not tied to the provisions of the 1985 Act.

The principles to be taken into account were set out in detail in Gillon v Gillon (No 3) 1995 S. L. T. 678 -- (1) both fairness and reasonableness are to be considered (2) all the relevant circumstances prevailing are to be examined including the nature and quality of any legal advice (3) unfair advantage taken by one party of the other may have " a cogent bearing" (4) the court should " not be unduly ready to overturn agreements validly entered into" (5) the fact of even very unequal division is not in itself evidence of unfairness and unreasonableness. The withholding of relevant information is a relevant factor (Gillon –v- Gillon (No. 1) 1994 S.L.T. 978 at

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p. 983).

Variation GrantedWorth –v- Worth 1994 S.L.T. (Sh Ct) 54. Terms arrived at by the couple were recorded in a minute of agreement, only one solicitor was involved (as an “honest broker”) and the parties were unaware that pension rights could be looked on as property.

Short –v- Short 1994 G.W.D. 21 – 1300. The wife was suffering from reactive depression to the extent of having a nervous breakdown following the separation, no provision was made for periodical allowance or capital sum and no enquiries had been made into the husband’s salary or value of his pension. The wife was advised by her solicitor to accept the agreement.

McKay v McKay 2006 SLT (Sh Ct) 149; , FamLR 2006 4 – 782006 FamLB 82-6; 2006 GWD 24-534After the relevant date the husband received a redress payment from the misselling of a pension policy which ran during the marriage. He told his solicitor and was advised that was not matrimonial property and the asset was not disclosed. An Agreement was concluded without taking it into account. The wife found out about the payment subsequently and sought to have it varied. A decision to set the whole agreement aside was upheld on appeal.

Clarkson v Clarkson 2008 SLT (Sh Ct) 2; 2008 FamLB92-3; FamLR 2008 1 -15A Separation Agreement was set aside on the basis that the terms of the Agreement had been based on a shared understanding that the husband had quite significant business interests where it came to light after the Separation Agreement was concluded but before divorce that there was a significant tax VAT debt due in respect of the business which had not been taken into account in the valuation and in fact, the company was placed in liquidation. The jurisdiction to potentially set aside an agreement arose if an Agreement was either unfair or unreasonable- it did not have to be both. While courts should not be unduly ready to overturn agreement reached between parties the construction should not be so narrow as to deny a party the right to have an unfair or unreasonable agreement set aside.

MacDonald v MacDonald FamLB 2009 99-5 & 2009 FamLR 131; 2009 GWD 15-237It was accepted that an Agreement had not been fair and reasonable where the husband had been verbally abusive to wife, he failed to disclose details of their joint mortgage and taxi business and the wife did not have ready access that information.

Hughes v Hughes 2011 GWD 31-664This was an unsuccessful appeal by the husband against a decision to grant a warrant to arrest on the dependence in terms of the Debtors (Scotland) Act 1987 s15E(1) in favour of a wife who was seeking to vary the terms of an Agreement during divorce proceedings. The wife had not been legally represented and was to receive property worth £130,000 to the husband’s £400,000. It was considered that the wife only had to put forward a prima facie case under s.16, the task was not to judge her

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prospects of success and that the Sheriff to conclude that the concerns she outlined gave him reasonable risk of prejudice to the wife.

Variation RefusedGillon –v- Gillon (No. 3) 1995 S.L.T. 678. The settlement was unequal but accorded with the party’s wishes at the time after full discussion and with appropriate knowledge.

In Inglis v Inglis 1999 SLT (ShCt) 59 variation was not allowed even although the settlement did not take into account the value of the husband's pension interests and the wife did not take independent legal advice as she was told of her potential claim and advised to get legal advice.

Joint Minute or TenderAn agreement recorded in a joint minute or in a tender and minute of acceptance could fall within this subsection but the provisions must be invoked before the minute is implemented.

Turner v Turner 2009 FamLR 124 2009 GWD 31-515A solicitor has authority to enter into binding terms. The case underlines that solicitors have authority to bind their clients and how important it is to be sure client is quite clear about terms when negotiations are taking place at Court prior to a potential proof.

Jongejan –v- Jongejan 1993 S.L.T. 595 (joint minute) and Young –v- Young (No. 2) 1991 S.L.T. 869 (tender) are other cases worth considering.

S. 18 Orders relating to avoidance transactions

Robertson v Robertson FamLR 2009 1 – 13; 2008 GWD 40-600Recall of interim interdict against notice of dissolution of partnership upheld. Dissolution was not a transaction involving property and so the provisions of s18 did not apply but something the husband was entitled to do in terms of the partnership agreement.

M v M and Wards Estate Trustees Ltd 2009 SLT (OH) 608 and 2009 SLT (Ex Div) 750The provisions for setting aside were considered wide enough to justify the continuation of interim interdict granted before calling preventing the distribution of funds in trust for children, not of the marriage (and of whose existence the wife had been unaware) and which was considered to be justified on the balance of convenience. A reclaiming motion against that decision failed.

M v M 2011 GWD 9 -219In the subsequent proof on financial provision the wife was awarded a capital sum of £789, 418 funded by setting aside to that extent the husband’s transfer of funds to the company incorporated in connection with the trust. Those funds were not matrimonial property. The wife did not require to show an intention to defeat her claim nor that there was this effect on the date the funds were transferred.

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Steel v Steel 2010 CSIH 65 2010; SLT 2010 (2nd Division) 1085; 2010 FamLB 108 26-486 The wife in separate action obtained decree for payment as partner retiring from farming partnership of which the husband was a partner. In the divorce proceedings the husband craved transfer of the wife’s right to payment and ad interim sought to interdict the wife from enforcing her decree. It was decided that the wife was not going to diminish but augment her resources so s.18 not applicable. Her right under the decree was not ‘property’ in terms of s.8 (1)(aa). Common Law interdict not appropriate - generally only to prevent violation of rights, rarely if ever to be used to preserve the status quo and doubtful if appropriate to interdict the enforcement of a court decree

Practice PointsSo how to weave these threads together to provide a comfortable hammock for your Family Law Practice?

We will all have different approaches but the following points have stood me in good stead:-

“fairness” means economic fairness, not moral fairness Clients cannot be expected to understand that immediately Recognising the emotional landscape without joining the client

there assists with that aspect Check about potential career disadvantage, source of funds and

other special circumstances without raising expectations If the prospect of equal sharing of the net matrimonial property

leaves a taint of unfairness to you, test that out on the various “hooks”

If that turns out to be a “shoogly” hook and your unease is driven by sympathy, recognise that

If it persists, be systematic in analysing the factors and match them up against the discretionary rules for special circumstances or advantage/disadvantage

If there is very little matrimonial property 9(1)(b) advantage/disadvantage will hold more promise

Special circumstances has the advantage of not requiring a balancing exercise

A useful overall check is to consider the practicalities of the future to see if that assists in persuasion towards unequal sharing where appropriate

Promise less, deliver more!

Arbitration in family law cases has been facilitated by specific training for experienced family law advocates and solicitors who have formed the Family Law Arbitration Group (Scotland) (FLAGS). Hopefully the range of dispute resolution now available, mediation, Collaborative Practice, negotiation, arbitration and litigation will allow the best use of the provisions of the 1985 Act for separating couples.

The 1985 Act is now approaching its 30th anniversary. It was conceived when there were fewer possibilities about what could constitute a family

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and what the roles could be within a family. It is testament to the flexibility and foresight of its provisions that the terms of the Act can still deliver fair outcomes for separating couples. The flexibility has been supported by procedural changes in the intervening period and fostered by the trend in decided cases. Although case law has assisted in clarifying some specific points of interpretation, the basic concept of fair sharing in the particular circumstances prevents a formulaic or precedent constrained approach. The Act’s strength is to provide a starting point for fairness while still accommodating the unique circumstances of each family. Its weakness is the uncertainty which that creates for those couples who cannot be assisted to reach mutual agreement within the options generated by the Act. However, in the words of Voltaire ‘Uncertainty is an uncomfortable position. But certainty is an absurd one.’

Anne Hall DickFamily Law Matters ScotlandOctober 2013

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