Divorce & Financial Provision

Author: scott
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  • When it comes to financial provision on divorce it has been said that “…the matter is essentially one of discretion [for the court] aimed at achieving a fair and practicable result in accordance with common-sense…” (per Lord President Hope in Little v Little).
  • That is all very well but, of course, couples generally hope that matters will not end up in court. Instead  they usually try to come to an agreement between themselves about financial matters. In order to do that however they need to have some idea about what a court would be likely to award if it came to the crunch.
  • A court would be aiming at a “fair and practicable result” – but the facts and circumstances of each case will differ; often varying widely from one situation to another. So it is not always easy to predict how a court would exercise its discretion in a particular case. Nevertheless, the Family Law (Scotland) Act 1985 sets out five “principles” to be applied. This Note aims to give a flavour of what they are and how they work.
  • Before turning to that however it is worth flagging up the importance of what is referred to below as the “relevant date” – that is the point in time at which to identify what counts as “matrimonial property” and what debts are counted to identify its “net value”. The “relevant date” is fixed as being the earlier of:
    • the date on which parties ceased to “cohabit”; and
    • the date of service of the summons in a divorce action.
  • Parties will, of course, cease to “cohabit” if they separate and one goes to live elsewhere. But they may, in terms of the rules, cease to “cohabit” even though they both continue living in the matrimonial home because the rules provide that parties to a marriage only “cohabit with one another when they are in fact living together as husband and wife”. So, if a couple remain in the same house but lead entirely separate lives that may qualify as their ceasing to “cohabit”: the date on which they so ceased would then count as being the “relevant date”.
  • Finally, by way of introduction, it must be mentioned that the basic thrust of the financial provision “principles” is that there should be a “clean break” by payment of a capital sum or one-off transfer of property – rather than for one party to be tied into making periodical payments to the other year after year. Such “periodical payments” may be made but only if a capital provision is inappropriate or insufficient and only by reference to principles (c), (d) and (e) (outlined below) – not principles (a) or (b).

With that introduction the Note now turns to consider the five “principles” applicable to financial provision on divorce.

(a)          “Fair sharing” of “net value” of “matrimonial property”

That prompts three main questions: what counts as “matrimonial property”; what counts as “fair sharing”; and what is “net value”.

  • “Matrimonial property” is, broadly speaking, (i) the matrimonial home and contents, and (ii) all property owned at the “relevant date” as is acquired during the marriage. There is excluded from “matrimonial property”:
    • property acquired before the marriage (except for the “matrimonial home and contents”);
    • property acquired after the “relevant date”; and
    • property acquired during the marriage from someone else by gift or inheritance.
  • “Fair sharing” means that, as a starting point, it is taken that “fair sharing” means equal sharing. But that is only the starting point. In particular certain “special circumstances” may justify something other than equal sharing. For example:
    • the couple may have come to an agreement about how property was to be divided up;
    • money inherited by one spouse might have been used during the marriage to buy what then became “matrimonial property” – but the original source of such funds could be a “special circumstance” justifying other than equal sharing; or
    • one spouse might have given away property before the “relevant date”  which would otherwise have counted as “matrimonial property”.
  • “Net value” is the value at the “relevant date” after deducting (i) any outstanding debts incurred during the marriage, and (ii) any outstanding debts incurred before the marriage if they relate to “matrimonial property”. As indicated above, the “relevant date” may occur before a couple finally separate if they were living in the same house but not in fact “cohabiting” as “husband and wife”. This could be important if there is any significant difference between “net value” when they ceased to cohabit (i.e. the “relevant date”) and the date they finally separate.

(b)          Fair account should be taken of “economic advantage” derived or suffered

This principle is intended to compensate a party who, whether before or during the marriage, has either:

  • made a contribution to the economic advantage of the other e.g. putting money into the other’s business or working in the business as unpaid secretary; or
  • has suffered an economic disadvantage in the interests of the other or of family e.g. giving up a well paid to job to look after children.

(c)           Economic burden of caring for children to be shared fairly

Maintenance and aliment for children come first i.e. they must be determined before the court will consider financial provisions as between the couple themselves. But the parent who continues to look after the children after divorce may suffer economic disadvantage in doing so. For example:

  • he or she may not be able to take up full-time employment; or
  • may have to hire the services of a nanny.

(d)          Financial adjustment period up to three years

  • Where one party has been largely dependent on the other for financial support he or she should be awarded such financial provision as is reasonable to allow him or her to adjust – over a period of not more than three years. The idea is to give a “breathing space” so as to allow the dependent party to readjust to life as a single person. The scope for an award here is additional to any provision under the principles mentioned above.
  • The three year time limit on this has been criticised in the courts. For example, in Miller v Miller ([2006] UKHL 24) Lord Hope said this:

“Why should a woman who has chosen motherhood over her career in the interests of her family be denied a fair share…out of the earnings that he is able to generate when she cannot be compensated for this out of capital?…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.”

  • As mentioned in the introduction above, a periodical allowance can only be made if it is justified under principles (c), (d), or (e) (not under principles (a) or (b)). So, for example, if there are no children (under (c) above) and no “serious financial hardship” (under (e) below) one is left only with this principle (d) which is designed to cover an adjustment period – and where any such financial provision may not exceed 3 years.
  • So, you could have a high-earning husband with virtually no assets. Whilst his wife, following divorce, might well be awarded a periodical allowance which lasted more than three years it would not necessarily continue to reflect fully his high-earnings. It is such situations Lord Hope had in mind when making his criticisms.

(e)          A party likely to suffer serious financial hardship because of divorce should be awarded reasonable provision

  • This is intended as a “long-stop” measure where adequate provision cannot be made by applying the four principles mentioned. It deals with the situation where – at the time of divorce – one party is old or ill and, because unable to work, will suffer serious financial hardship following divorce.
  • It is to be noted that the principle is inapplicable if a party is overtaken by illness after the divorce: that is not then the concern of the other party.

Notes: (1) References to “marriage” in this Note include civil partnership; and references to “husband and wife” include civil partners. And (2) this material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Fiona Wayman at fhw@mitchells-roberton.co.uk

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