Financial Arrangements in Divorce – Scotland

There are four steps which should be considered before making a decision about the financial arrangements. Please note that matrimonial property is that which is accrued between the date of marriage and the agreed date of separation (otherwise known as the relevant date).

1. Establishing the date of separation on which the married couple cease to cohabit as man and wife.

2. Identifying all the assets owned jointly or individually by a couple at the separation date including the house, furnishings, a car, pensions, savings and investments and any outstanding liabilities (mortgage, car finance, personal loans, credit card debts etc) in existence on the date of separation.
Property and other assets acquired after the agreed date of separation by either spouse is not matrimonial property.

3. Determining any non-matrimonial property by looking at the individual assets and seeing the circumstances in which they were acquired. Assets owned by either party before the marriage or those gifted or inherited are not matrimonial property. However, gifted or inherited property or assets must remain substantially in the same form; where gifted or inherited property is sold and other property is acquired, or where property is acquired using gifted or inherited money, the acquired property is matrimonial property. However the Court may take into account the source of the funds used to purchase the property by applying the second of the “special circumstances” and dividing such property unequally.
The exception to property owned prior to the marriage is that where the matrimonial home is purchased before the marriage with the intent for use as the matrimonial home; this would be included in the matrimonial assets, as would any furnishings and other items for the home purchased prior to the marriage.

4. Valuing matrimonial assets as at the date of separation, for example, by providing statements for savings, asking insurance companies for surrender valuations of endowments and pension providers for the Cash Equivalent Transfer Value. Endowment policies and pensions started before marriage are apportioned for the years of the marriage. It’s best to have agreement before having the house valued by a Chartered Surveyor. The liabilities are deducted from the assets to provide the net value of matrimonial property.

Principles to be applied when sharing the Marital Assets

The principles which the court shall apply in deciding what order for financial provision, if any, to make are that
the net value of the matrimonial property should be shared fairly between the parties to the marriage;

• 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 party in the interests of the other party or of the family;
• any economic burden of caring, after divorce, for a child of the marriage under the age of 16 years should be shared fairly between the parties;
• a party who has been dependent to a substantial degree on the financial support of the other party should be awarded such financial provision as is reasonable to enable him to adjust, over a period of not more than three years from the date of the decree of divorce, to the loss of that support on divorce;
• a party who at the time of the divorce seems likely to suffer serious financial hardship as a result of the divorce should be awarded such financial provision as is reasonable to relieve him of hardship over a reasonable period.

(“economic advantage” means advantage gained whether before or during the marriage 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; 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.)
It is reasonable (and advisable) to apply these principles when making an agreement between the two parties, whether or not they use solicitors to negotiate on their behalf.
Factors to be taken into Consideration
If a financial order is applied for on behalf of a child, or to redress the balance of burden of caring for a child, the Court shall give regard to:

• any decree or arrangement for aliment for the child;
• any expenditure or loss of earning capacity caused by the need to care for the child;
• the need to provide suitable accommodation for the child;
• the age and health of the child;
• the educational, financial and other circumstances of the child;
• the availability and cost of suitable child-care facilities or services;
• the needs and resources of the parties; and
• all the other circumstances of the case.

If a financial order is sought on the basis that one party who has been dependent to a substantial degree on the financial support of the other party, then the Court shall give regard to:

• the age, health and earning capacity of the party who is claiming the financial provision;
• the duration and extent of the dependence of that party prior to divorce;
• any intention of that party to undertake a course of education or training;
• the needs and resources of the parties; and
• all the other circumstances of the case.

The above considerations shall also be regarded by the Court for all other financial order applications.
An order for financial provision must be justified by one or more principles in section 9 of the Family Law (Scotland) Act 1985 and that the order must be reasonable having regard to the resources of the parties.

Separation Agreements
This is often entered into when the couple initially separate, to regulate their financial affairs and the care arrangements for their children. It’s common for the couple to come to an agreement regarding the division of their assets and for payment of financial support for the spouse and children and indeed for the division of assets to take place at, or shortly after, the time they separate. Thereafter, if the parties do come to divorce, the divorce action can proceed on an uncontested basis.
Separation Agreements (formerly known as Minutes of Agreements) must be written up by a solicitor.  Such separation agreements are normally registered in the Books of Council and Session located in Edinburgh; this can be done simply by writing a letter to the Books of Council and Session with a copy of the signed agreement and asking for it to be registered. There is a fee payable depending on how many pages the agreement extends to and how many copies are required; once registered, the agreement has the same effect as a divorce court decree and can be enforced.

There is only limited scope for changing the terms of a registered agreement. For example, it’s possible to vary the arrangements made for the care of the children and to vary the arrangements made for the payment of maintenance for a spouse and/or children if there is a change of circumstances. Otherwise the provisions of the agreement can only be challenged if it can be shown that they were not fair and reasonable at the time they were entered into.

The Clean Break Premise.

Scottish Divorce law underpins the “clean break” premise when it comes to financial agreements – and these are usually accounted for in capital, although when there isn’t sufficient capital deferred lump sum payments are a possibility. The matrimonial assets are usually determined at the time of separation- anything acquired after that date is not usually counted as a matrimonial asset. Bank and savings accounts, whether they are in joint names or not, are also counted as matrimonial assets. It is only the pension/s accrued during the length of the marriage that is relevant. It is very rare that a court will decide the asset split and financial arrangements – only about 3% of cases are decided in court, the majority are haggled out via the solicitors or between the two parties.

Aliment (Financial Support)

Under the Family Law (Scotland) Act 1985 there is a general obligation to provide support “as is reasonable in the circumstances” by a husband and wife to each other, a natural parent to their child and a person to a child who has been accepted by him as a child of his family. This is known as ‘aliment’ and could apply equally to the situation when husband and wife or parent(s) and child live together as when they are separated. A child is defined as a person under the age of 18 years or over that age and under the age of 25 years who is in education or training.
Claims for aliment may be made in either the Court of Session or the sheriff court unless the court considers it inappropriate in any particular case. In determining the amount of aliment to award the court is directed to regard the needs and resources of the parties, the earning capacities of the parties and generally to all the circumstances of the case. On an application to court by or on behalf of either party an order or agreement for aliment may be varied, recalled or terminated if there has been a material change of circumstances. It is not only a spouse who may make claims for aliment against the other, or on behalf of a child or children, but also children in their own right may make claims for aliment against one or both parents.
While it is expected that “any economic burden of caring after divorce for children under the age of 16 years should be shared fairly between the parties” (s9(1)c of the Family Law Act (Scotland) 1985, section 3(1)(b) of 1985 Act makes allowances for claims of inlying expenses, such as educational expenses. It is possible for the Court to award aliment for inlying expenses, under which school fees may be included, and any aliment (which may not be a fixed sum) awarded for this purpose could be paid directly to the school. The Court, when making its decision would need to factor in the needs and resources of both parties, the earning capacity of both parties and all other circumstances of the case, as set out in s4 of the Family Law (Scotland) Act 1985.
It is usually the resources of the party which is to pay that is the determining factor.
Orders for Financial Provision

• An order for the payment of a capital sum
• An order for the transfer of property
• An order for the making of a periodical allowance (aliment)
• A pension sharing order

A Pension Sharing Order will divide the pension and allow a specified portion of that pension to be transferred to the other spouse; this will come into effect at the date of the Decree being granted.
It is important to note that only those pension credits accrued during the length of the marriage, and up to the relevant date (of separation) will be subject to a PSO – this is because any pension accrued prior to marriage, or after the date of separation is not deemed a marital asset.
A PSO can be achieved either by way of a Court Order, or by a qualifying agreement, pension sharing is expensive, and in instances where the CETV is of a low value, it may be wise to consider off-setting the share of the pension due to the spouse against another marital asset, as the costs of implementing the PSO may outweigh the actual sum to be received.
It is important to note that if a couple have a qualifying agreement in place regarding the sharing of the pension, that a Court will not make a PSO.

Financial Provision for Co-Habitees

A co-habituating relationship is defined by characteristics that are common for husbands and wives – ie share mutual interests, share a social life, be economically inter-dependant and be regarded as a member of the other’s wider family. As the marital relationship is ­base­d upon sex, so living together as husband and wife requires that the couples’ relationship be, or at least have been at an earlier stage, sexually intimate. A child or children together would prove this last and important point.</p><p>

S28, (2) of the Family Law (Scotland) Act 2006 provides:

“on the application of a cohabitant (the applicant) the appropriate court may, after having regard to the matters in sub-section 3 – (a) make an order requiring the other cohabitant (the defender) to pay capital sum of an amount specified in the order to the applicant (b) make an order requiring the defender to pay such an amount as may be specified in the order in respect of any economic burden of caring, after the end of the cohabitation, for a child of whom the cohabitants are the parents; (c) make such an interim order as it sees fit.”

Subsection 3 – those matters are:

“(a) whether 9and, if so to what extent) the defender has derived economic advantage from contributions made by the applicant; and (b) whether (and, if so, to what extend_ the applicant has suffered economic disadvantage in the interest of – the defender or to any relevant child.”

These sections provide a basic set of rights and are also what the Court would take into consideration when considering a claim for financial disadvantage, for co-habitees who end their relationship and co-habitation:

• the sharing of household goods, bought during the time the couple lived together. This means that if you cannot agree about who owns
any household goods, the law will assume that you both own it jointly and must share it or share what it is worth;
• An equal share in money derived from an allowance made by one or other of the couple for household expenses and/or any property bought out of that money. It is important to understand that this does not apply to the house that the couple live in;
• Financial provision when, as a result of the decisions the couple made together during the relationship, one partner has been financially disadvantaged. This means, for example, if the couple decided that one partner would give up a career to look after their children, they
can ask the court to look at the effect that decision had on that partner’s ability to earn money after the relationship has ended;
• An assumption that both parents will continue to share the cost of childcare if they had children together

Property which is in the name of one party only will remain in the sole ownership of that named party, while property that is jointly owned by the two parties (and where there is no Deed of Trust stating otherwise) is presumed, in law, that each party shall own an equal share of the property.

A claim for financial disadvantage under Section 28 of the Family Law Act (Scotland) 2006 must be made within 12 months of the relationship ending. Should the date of the ending of the co-habitation be disputed, then Court will require the matter to be proved. A pursuer’s entitlement to seek a capital sum from the defender would depend on if this is necessary to rebalance any contributions (ie mortgage payments) or disadvantages suffered for the benefit of the relationship or in order to share future child-care costs (if there are children from the relationship). The Court would decide if any advantage has been offset by any disadvantage, and could specify the amount of the Order, a date on which it should be paid, and if it should be paid as a lump sum or as instalments.

Family Law (Scotland) Act 2006 

 

(c) Ruth Langford