MKBM AGAINST MABM
OUTER HOUSE, COURT OF SESSION
[2014] CSOH 136
F89/13
OPINION OF LORD ARMSTRONG
In the cause
MKBM
Pursuer;
against
MABM
Defender:
Pursuer: Dowdalls QC; Simpson & Marwick
Defender: Innes; bto
3 September 2014
Introduction
[1] The parties to this action of divorce were married on 14 February 1992. There are three children of the marriage, two of whom are under 16 years of age, namely O, born on 27 August 1997, and L and R, both born on 11 November 1999. The parties separated on 14 September 2012, which is the relevant date for the purposes of section 10(3) of the Family Law (Scotland) Act 1985. There is no prospect of a reconciliation. The contentious issue between the parties is that of financial provision.
Decree of divorce
[2] The pursuer seeks decree of divorce on the basis that the marriage has broken down irretrievably as established by the parties’ non-cohabitation for a continuous period in excess of one year and the defender’s consent to the granting of decree of divorce. I am satisfied on the evidence that this ground has been established and I shall therefore pronounce decree of divorce.
Agreed matters
(i) The children
[3] It was agreed that no order was required in respect of the children of the marriage.
(ii) X Farms
[4] It was a matter of agreement that in respect of the parties’ partnership in the business of X Farms, the pursuer’s 10% interest, valued as at 30 September 2013 was £7,857 and the defender’s 90% interest, valued as at the same date, was £20,288. The pursuer did not oppose the defender’s first conclusion for transfer to him of the pursuer’s 10% interest. I shall therefore make an order to that effect. It was further agreed that in these circumstances, the sum of £7,857 should be taken to be the value transferred to the defender in terms of section 10(3A) of the 1985 Act.
(iii) School fees
[5] It was a matter of agreement that the defender would continue to meet the fees and related expenses incurred by the attendance at school of the parties’ children. I shall make an order to that effect.
(iv) Periodical allowance
[6] In submissions, the pursuer sought payment of a periodical allowance of £2,000 per month until payment of any capital sum. Although the defender sought to limit the period to a maximum of 6 months, he did not otherwise oppose the pursuer’s submission. Subject to what follows, I shall grant an order in the terms sought by the pursuer, the sum to be payable monthly in advance with interest thereon at the rate of 8% from the date the same falls due until payment.
Financial provision
[7] Counsel for each party lodged and referred to comprehensive written submissions. I have taken due account of the arguments set out, as amplified at the bar, and of the terms of a lengthy joint minute of admissions, all of which is summarised in what follows. I found all of the witnesses who gave evidence at the proof to be credible and reliable. Some criticism was directed towards the defender on the basis of certain of his actings and the manner in which he gave some of his evidence. Although these matters are open to interpretation, they did not affect my objective assessment of him as a witness.
Matrimonial property at the relevant date
[8] Subject to an argument for the defender that an agreed sum of £10,000, used by the defender to pay school fees in September 2013, and a sum of £600, referable to an amount due in respect of the pursuer’s legal fees, should not be included in the calculation, the parties were broadly in agreement as to the assets which comprised the matrimonial property at the relevant date and the value of those assets. I accept the defender’s arguments in that regard. On that basis, the figures demonstrated that, as at the relevant date, the value of the matrimonial property held by the defender was £65,180. In respect of the matrimonial property held by the pursuer, the defender’s figure was £675,906 whereas that of the pursuer was £675,180. Given the minimal scale of the resulting discrepancy, I have taken the average figure, £675,543, to be the value of the matrimonial property held by the pursuer at the relevant date. On that basis, the total value of the matrimonial property at the relevant date was £740,723. Given the extent of the agreement between the parties in this regard, I consider it unnecessary to set out the constituent parts of the matrimonial property in detail.
Departure from the presumption of equal sharing
[9] For the pursuer it was maintained that there should be a departure from the principle of equal sharing of the net value of matrimonial property on divorce. There were significant assets amongst the matrimonial property which were derived from non-matrimonial sources applied by her. These assets comprised a property known as Millriggs Farm, a further property in Narrowmine, Australia, certain funds held by RBS Morgans, and the sums comprising the balances in a savings account held with AMP, Australia, and in an Intech Credit Union account. The gross value of these assets was said to amount to £717,516. That being so, it was argued that there were relevant special circumstances and that a 90/10 division of the net matrimonial property would achieve a fair division. Such a division would result in each of the parties continuing to hold the matrimonial property which respectively they currently held. It was argued that the defender did not demur from such an approach.
[10] In fact it was not any part of the defender’s position that in this regard a payment to him was necessary in order to achieve a fair outcome. The pursuer’s position was that notwithstanding such a division, she should additionally be paid a capital sum. In evidence the defender accepted that payment of a capital sum should be made by him to the pursuer. However, on his behalf it was submitted that special circumstances applied to land owned by him at X Sawmill and which comprised part of the agreed valuation of the matrimonial property held by him. The land had originally been inherited by him but in due course fell under the receivership of the business of X Sawmill. Subsequently, in the course of the marriage, the defender bought the land back from the receiver, not for full value, but for £20,000. Its value at the relevant date was £187,000. It was further argued on behalf of the defender that if there were to be an equal division of the matrimonial property, then, taking into account the transfer to the defender of the pursuer’s interest in X Farms, that would require a payment by the pursuer to the defender of a sum of the order of £297,500. Although the defender made no claim against the pursuer in relation to section 9(1)(a), it was submitted that the inequality of the division contemplated, exceeded that which would reflect credit fairly given for special circumstances. On that basis, the resulting inequality was a factor to be taken into account in assessing the pursuer’s claims in respect of the other principles of section 9.
The financial position of the parties as at the date of the proof
(i) The pursuer
[11] The pursuer was living with the three children of the marriage near Carlyle in rented accommodation. She was not in employment. Apart from the assets held by her and included in the agreed matrimonial property, she received £2,000 per month from the defender. For some time she had been supplementing that to some extent by drawing on savings.
[12] Prior to the marriage, the pursuer inherited about AUD $180,000 from her mother which she used to buy a property in Australia, eventually sold in about 2001 for AUD $900,000. The proceeds were held in an AMP account. In 2002, using part of these sale proceeds, she bought Millriggs Farm from X Estate for £104,500. Its agreed value at the relevant date was £350,000. It is the subject of an ongoing agricultural tenancy and produces an annual rental income of £6,500. The tenant was unwilling to leave the property but had offered to buy it for the sum of £300,000, subject to him selling another property. The pursuer’s position in relation to the possible sale of the property was that any sale in terms acceptable to her was unlikely, particularly in circumstances where she wished to retain the property for future use by her two younger daughters. After 2002, using more of the sale proceeds of the original Australian property, she bought shares, now held on her behalf by RBS Morgans, Australia. Their value at the relevant date was agreed at £98,965. She also bought a property at Narrowmine, in Australia. Its agreed value is £150,513, subject to a mortgage of £111,297 (net value as at the relevant date of £39,216). Other assets held by the pursuer include £12,146 held in a Henderson Global account; a Friends Life policy valued at £20,007; and the current balance in the AMP account of about £65,000. In evidence, the pursuer conceded that the original funds invested in the Henderson Global account and the Friends Life policy may well have come from the defender in the course of transactions designed to generate funding for the children’s education. The mortgage over the property at Narrowmine was subject to the maintenance of a minimum balance in the AMP account.
[13] Her current circumstances in relation to income are that she derives rental income from Millriggs Farm amounting to £6,500 per annum; she receives £2,000 per month from the defender; she receives £188 per month as child benefit; and child tax credits amounting to £170 per week. Her total monthly income is therefore £3,466, subject to overheads incurred in relation to the property at Millriggs Farm. Her evidence was that her necessary expenditure is such that, notwithstanding that total income, she is routinely left with a monthly deficit, drawing when necessary from the balance of her AMP account to correct it. Since the relevant date she had also used that account to service credit card expenditure. Since the relevant date, the balance of her AMP account had dropped from £117,675 to £65,000. Since the relevant date she had cashed in an ISA valued at £15,876.
(ii) The defender
[14] Prior to the marriage the defender inherited X estate from his father. It comprises land extending to some 1400 acres. During the marriage he was gifted and inherited further property, including heritable property on the estate, from his mother. The estate includes a number of cottages and farmhouses most of which are tenanted. There was evidence to the effect that the total value of the properties comprising the estate was greater than its value as an unum quid. The total value of the properties comprising the estate was agreed between the parties at £5,368,000.
[15] Under an agreement with Her Majesty’s Revenue and Customs, reached in about 1983, the majority of the estate is subject to a conditional tax exemption, the effect of which is that so long as the estate is maintained, as assessed by HMRC, and X House made open to the public to a limited extent, it is exempted from any charge to inheritance tax. In the event of a disposal of any exempted part of the estate, then, subject to the exercise of discretion on the part of HMRC as to the impact of the disposal on the integrity of the core estate, a charge to IHT at the rate of 20% would arise in relation to the whole of that part of the estate subject to the conditional exemption. The extent of such a charge would necessitate the sale of the whole estate. Although some properties on the estate, or parts of them, do not fall within the list of exempted properties, or could be separated from the main core of the estate without damaging the intrinsic amenity or market value of the remaining subjects, they are all, in general, tenanted by families who are established in them and do not wish to buy their homes. The total agreed value of the estate’s properties not subject to the conditional exemption (of which there are eight) is £1,680,250.
[16] Apart from its residential properties, the estate comprises land used for sheep farming and forestry. There are three related businesses: X Farms, a family enterprise, hitherto operated as a partnership between the parties to the action; X Estates, which derives income from the rental of the houses on the estate, and of a sawmill and one farm; and X Forestry, the business of which comprises a commercial conifer operation and a small hydro-electric scheme. According to the relative accounts for the accounting year to March 2013, X Estates generated a profit of £56,000 in respect of rent received, but a loss of £7,000 in respect of the opening to the public of X House, and X Farms generated a profit of £27,000. According to the accounts for the relevant year to December 2012, X Forestry generated a profit of £14,000. In those years, all three businesses operated on fluctuating overdrafts to the following approximate average extents: X Estates - £130,000; X Farms - £80,000; and X Forestry - £80,000. According to the defender, at the time of the proof the levels of indebtedness (and the respective overdraft limits) were the following: X Estates - £134,000 (£135,000); X Farms - £83,000 (£90,000); and X Forestry - £89,000 (£90,000).
[17] For the year ending April 2013, the defender’s total taxable income was £60,184, on which tax of £16,994 was due. Gillian Gray, the defender’s accountant gave evidence to the effect that the defender’s nominal net income should not be considered as cash in hand. In that year, business liabilities, comprising loan repayments, equipment costs, tax payable and personal drawings, had exceeded business income by £23,245. Provision for school fees, totalling £28,000 in that year, was included in personal drawings. Her clear evidence was that, insofar as X Estates is concerned, any drop in rental income would reduce the level of profit. In a situation where overall outgoings appeared to be constant, if estate property was sold, producing a consequent drop in rental income, there would be an increased reliance on funding from overdraft but with a reduced ability to service that liability. Any significant drop in the income of the estate was likely to reduce its viability.
The defender’s ability to realise funding for financial provision
(i) Valuation issues
[18] In the context of her submission that payment of a capital sum totalling £680,000 was appropriate, the pursuer argued that there were properties on the estate which could be sold to fund such financial provision without compromising the conditional exemption. In particular she sought an order for the sale of Woodlandbanks Farm. Another property was also identified: Woodfoot Farm. The issue of the valuation of these properties was contentious. Each party relied on the expert evidence of a chartered surveyor.
[19] Differences in opinion between Mr Hall, for the pursuer, and Mr Wright, for the defender, related to (i) the assessment of the quality and potential of the agricultural land and (ii) the effect on the value of Woodfoot Farm of the existence of a limited liability partnership and the consequences of relevant legislation by which rural tenants’ rights are safeguarded (sections 72-73 of the Agricultural Holdings (Scotland) Act 2003), having regard to the period within which vacant premises, allowing a sale, might be secured. Both surveyors agreed that the quality of land, and the use to which it was put, on neighbouring farms, was an appropriate indicator of the land’s farming potential. In the view of each expert, neither Woodlandbanks Farm nor Woodfoot Farm was currently farmed to its optimum productive potential.
Woodlandbanks Farm
[20] This property comprised about 100 acres and had been vacated by the last tenant in November 2013. Both surveyors agreed that Woodlandbanks Farm could be sold without four fields which were subject to the conditional agreement. In Mr Hall’s opinion, however, all of the land could be sold without undermining the intrinsic value of the estate. On the basis that the land had the potential to be used for purposes other than permanent pasture (its current use), he valued Woodlandbanks Farm at £560,000.
[21] Mr Wright assumed a greater cost for drainage and other work necessary to make better use of the land. His valuation was £455,000, in respect of the whole area, or £370,000, excluding the four fields subject to the conditional agreement.
Woodfoot Farm
[22] Mr Hall and Mr Wright disagreed about the quality of this land and the potential use to which it could be put. In addition, Mr Hall’s valuation proceed on the basis that while the provisions of sections 72 and 73 of the 2003 Act meant that it might take 3 years to obtain vacant possession, it could be obtained on the basis of giving 6 months’ notice by agreement. On the basis that such an agreement could be reached, he valued the land at £650,000. On the same basis, the equivalent valuation by Mr Wright was £427,000. Mr Wright’s valuation proceeded on the basis that it was most likely that a three year period would be required to obtain vacant possession. On that basis, his valuation was £320,000, while that of Mr Hall was £550,000. Significantly, Woodfoot Farm is subject to the conditional exemption.
[23] Mr Hall’s evidence was that it would be reasonable to expect farmland to be sold within 4 months of the commencement of marketing, or the equivalent period for an attractive estate cottage could be 2-3 months. He accepted that these periods could vary depending on the properties concerned and the state of the market at the time.
(ii) The conditional exemption
[24] In response to the evidence which emerged in the course of the proof, notably from Mr McArthur and Mr Gunn, as to the potential for a tax charge to be triggered in relation to the majority of the estate by the sale of property subject to the conditional exemption, and given the available valuations of property on the estate not subject to it, it was confirmed on behalf of the pursuer that she did not seek an order for the sale of any property which was subject to the conditional exemption. In particular, the order sought for the sale of Woodlandbanks Farm was in respect only of that part of it that did not fall subject to the conditional exemption, that is excluding the four fields which did.
(iii) CGT
[25] The effect of a CGT charge is relevant to the consideration of available resources where financial provision would require realisation of assets with the consequence that the tax would be payable (Sweeney v Sweeney 2006 SC 82, paragraphs 20, 21, 25; W v W 2013 Fam LR 85 at paragraphs 45 and 51ff). Gillian Gray gave evidence on the effect of CGT arising on the sale of properties on the estate on the basis that, in order to fund a capital sum of the amount sought by the defender, a number of properties on the estate, not subject to the conditional exemption, would require to be sold.
(iv) The constituent parts of the estate as income producing assets
[26] The level of income produced by the estate businesses is exhausted by the cost of the continued maintenance of the estate, the parties and their children, and the payment of the childrens’ school fees and associated costs. In the situation where the three businesses of the estate operate in reliance on overdraft facilities, any reduction in income, caused by the loss of rental resulting from the sale of property or by reduced animal stock, would compromise the ability to service or repay these facilities. Although in such a situation, further credit might be advanced on the basis of such security as was acceptable to the bank, in circumstances of limited cash flow, an increasing overdraft was likely to affect the viability of an affected business.
[27] In so far as Woodlandbanks Farm was concerned, the defender was currently using the land for grazing sheep. His evidence was that the availability of such grazing acreage was critical to the animal stock levels he could support. The greater the area available, the greater the stock and therefore the greater the profit generated. The children’s school fees were funded partly from the annual single farm payment of £19,000 received by the estate which in turn reflected the use of Woodlandsbanks Farm. For these reasons, he was reluctant to sell it. A prospective tenant had recently expressed an interest in renting the farmhouse itself.
(v) Property for sale
[28] At the time of the proof, and in contemplation of a liability to make payment of a capital sum, the defender was in the process of arranging the sale of one of the properties on the estate. Mossbank Cottage, now vacant, was to be marketed at a price of £140,000-£150,000. When tenanted, this property produced an annual rental of £4,000.
(vi) The potential to borrow
[29] The Bank of Scotland with whom the accounts of the estate businesses are held, had rejected applications by the defender for further loan facilities or for increased drawings. The bank was not prepared to offer such credit even if security was made available.
[30] In the context of the possibility of raising funds from the Agricultural Mortgage Corporation, Allan Bowe’s initial view was that the cash generated by the estate businesses was insufficient to sustain a further loan. However, on review, an offer was made of a further sum, not exceeding £100,000 on certain conditions which would include additional security over an area of land roughly equivalent to that of Woodlandbanks Farm. He too expressed a concern that significant disposal of property would necessarily affect the viability of the estate and the ability of the defender to repay indebtedness.
The purser’s claim for financial provision
Section 9(1)(b)
(i) Contributions by the pursuer
[31] When the parties met, the pursuer was working in Australia but, following the marriage in 1992, she has never again been employed. Her evidence, though, was that nevertheless the defender had derived economic advantage from contributions made by her.
[32] Following the marriage in 1992, the parties set up home on the estate in X House which had been the defender’s family home. Although in the early years she helped with the farming on the estate, following the birth of their first child in 1997 she ran the house and the household and the defender ran the businesses of the estate. In his evidence, the defender accepted that his principal aim had been to care for his wife financially and to give her time and space and that although he would not have been upset if she had found employment, he had not been enthusiastic about the concept.
[33] The pursuer had made efforts to improve the family home, particularly in the period 1993-95, by providing the feminine touches that it had lacked. She made it more comfortable and oversaw improvements to the bathrooms and various bedrooms, and to household furnishings in general. She added furniture which she had shipped from Australia and incurred expenses which could be vouched to the extent of £26,185.
[34] The pursuer’s position was that once the children had been born it would have been difficult to be in employment while simultaneously looking after them and accommodating shooting parties in the house.
[35] Shooting parties were hosted in the period between 1992 and 2011. These took place over 5 months of the year, on every second weekend between the beginning of September and the end of January. In the end, the decision to stop them was taken because of the disruption and upheaval caused by them to the family. In general, on about 8-10 weekends per annum, a typical party of about 9-10 people would arrive on Thursday evening and leave on Saturday evening. The parties were generally comprised of individuals, rather than couples, and they generally preferred not to share bedrooms. To accommodate them, the children were moved from their rooms and a bedroom was set up in the library.
[36] The pursuer made the practical arrangements necessary for the shooting parties and attended to the associated administration. Together with house help, she would make rooms ready, and attend to the laundry and bathrooms. She set menus, bought produce, and shared the cooking with a part-time chef, doing it herself latterly. In conjunction with bringing up the children, she described it as a full-time job. The guests were appreciative of the level of hospitality and accommodation extended to them.
[37] Payment for these weekends was by cheque payable to the pursuer, credited to the estate account and subsequently disbursed in payment of family living expenses.
[38] It was submitted that the pursuer’s purchase of Millriggs Farm, funded by her own investments in Australia, was also a relevant contribution. At a time when there had been a need to alleviate financial difficulty then being experienced, the purchase was made in order to avoid the necessity of relinquishing part of the estate to a purchaser outwith the family.
[39] For the defender, it was submitted that the pursuer’s contentions were subject to qualification. As regards her contributions to the amenity of the family home, other than her own assertion, there was no evidence that the sums expended had come from non-matrimonial property. Throughout the relevant periods the defender had paid £900 per month into the pursuer’s personal bank account and had thereby contributed to expenditure on the house from that source. Most of the expenditure had been made more than 15 years ago and ultimately several pieces of furniture, a bow-fronted chest of drawers, wingback chairs, a Hepple sofa, TV and fridge freezer had been removed by her.
[40] So far as the shooting parties were concerned, although the pursuer had set the menus, bought produce and maintained the business records, staff had been engaged in the kitchen and to clean the house and make up the bedrooms. Any profits deriving from the venture, together with the income from the other estate businesses was paid into the estate account and had therefore been shared between the parties.
(ii) Economic disadvantage suffered by the pursuer
[41] For the pursuer it was submitted that she had made significant sacrifices in the interests of the defender and the family. In coming to Scotland, she had left her home in Australia and her own family and had given up her career and independence. Prior to 1992, she had worked in Sydney as a secretarial personal assistant, latterly in the marketing department of IBM Australia. Her last salary had been AUD $40,000 per annum and, by reference to comparators, she maintained that had she continued to work, her salary would have progressed to AUD $100,000 per annum. But for her marriage to the defender, she would not have left Sydney or have given up her career. In consequence, however, she now had no pension provision and would require to re-enter the employment market at over 50 years of age. She had lost the ability to earn a significant salary and had given up property in Australia, leaving her economically insecure. The estate, while not matrimonial property, had increased in value over the period of the marriage. To that extent, the defender’s inherited wealth had increased. Whereas his position had improved, hers had deteriorated. It was submitted that the resulting imbalance ought to be corrected by the award of an appropriate capital sum.
[42] For the pursuer it was argued that, inevitably, there were imponderables in life which had to be considered. During the relevant period, the pursuer might have married someone else and had children, or might for different reasons have moved elsewhere or have given up work. On relocating to Scotland, it would have been open to her to find employment. It was, in effect, a conscious decision of the parties which resulted in her not doing so. Since the separation she had not looked for work and she had confirmed in her evidence that it was not her intention to do so until the girls had left school. The proceeds of sale of the Australian property had been invested in other assets. In particular, Millriggs Farm, held in her sole name, had increased significantly in value.
Section 9(1)(c)
Economic burden of caring
[43] The pursuer currently lives with the children of the marriage in rented accommodation. Her evidence was that their needs were met by the £2,000 per month currently paid to her by the defender, supplemented to the extent necessary, from her own financial resources. She maintained that she required to purchase a suitable home for them which provided four bedrooms, was suitably located out of town and within reasonable travelling distance of the girls’ school. These criteria were shaped to a considerable extent by the importance which the pursuer attached to a rural location. She and the girls had lived in a rural area throughout the children’s lives. It was submitted that it was appropriate to provide continuity in that regard. In the past, the pursuer had been concerned about her daughters being exposed to undesirable influences associated with life in town. Sales schedules of properties meeting these criteria indicated a purchase price range of £450,000-£575,000. It was submitted that a sum of the order of £500,000 would be necessary to fund appropriate provision in that regard.
[44] The defender’s response was presented under reference to the relevant matters to be taken into account in terms of section 11(3). In that regard:
(i) The ages of the children were significant. The principle that the burden of caring for the children of the marriage should be shared fairly extended only to children under the age of 16 years. The eldest daughter, O, was now aged 17 years and would complete her school education in June 2015. Her younger sisters would each reach the age of 16 years in November 2015. It was unnecessary to take into account any ongoing expenditure in relation to the loss of earning capacity caused by the need to care for them as they were now at an age where it was not necessary to remain at home in order to provide the necessary care. The pursuer’s evidence had been that she considered herself to be employable and hoped to be in a position to seek employment by September 2014.
(ii) As to the need to provide suitable accommodation, reasonable four bedroom properties were available in Carlisle within the range £220,000-£270,000, as demonstrated by other sales schedules of properties currently on the market.
(iii) Although L had recently undergone surgery and might require a further operation, any health issues arising as a result were not such as to impact on the economic burden of caring for her.
(iv) As regards the financial cost of the childrens’ attendance at private school, their fees were, and would continue to be, funded by the defender.
(v) Given the ages of the girls there was no need for paid childcare.
(vi) As regards the needs and resources of the parties, the pursuer’s capital included the value of her Australian shares (£98,965 at the relevant date) and her property on Millriggs Farm. The agricultural tenant of that property had offered to buy it, subject to the sale of another property. The defender’s sources of income were generated by the estate businesses, but the analysis provided by Gillian Gray indicated that each of the three businesses was trading on overdraft limit, a situation which had worsened in both of the years to 2012 and 2013, and that drawings from business income were principally in respect of the maintenance of the parties and the payment of school fees at the rates currently paid. The cash position of the businesses, taken as a whole, was worsening year on year.
Section 9(1)(d)
Adjustment to loss of financial support
[45] The pursuer’s position was that she had been financially dependent on the defender throughout their marriage. Of the £2,000 per month which he currently paid, £850 per month was spent on rent. It was argued that following continuation of payment to the pursuer of £2,000 per month until a capital sum was paid, sufficient to purchase a property for the pursuer and the children, a periodical allowance at a reduced rate should be payable until a period of 3 years had elapsed, in order to allow the pursuer to adjust to the loss of her husband’s financial support.
[46] Under reference to the terms of section 11(4) the defender submitted that:
(i) The pursuer was aged 52 years, and assuming a successful outcome to the hip replacement operation in contemplation, she would be in a position to look for work in 2014. She had been considering setting up her own business;
(ii) Although she had been dependent on the defender to some extent for some twenty years,
she had resources of her own;
(iii) There was no evidence that she had any intention of undertaking a course of further training or education ;
(iv) She would receive continuing payments of £2,000 per month until such time as a capital sum was paid to her. That was an amount which had been agreed having regard to a schedule of income and expenditure prepared by the pursuer;
(v) In terms of section 13(2) periodical allowance should not be awarded unless justified by a relevant principle (here section 9(1)(d)) in circumstances where the award of a capital sum would be inappropriate or insufficient to satisfy the requirements of section 8(2).
Section 9(1)(e)
Serious financial hardship
[47] The pursuer also claimed in respect of serious financial hardship on the basis that she would have limited resources to meet her future needs. A capital sum paid by the defender would be used to purchase a home for herself and her children. She would incur ongoing living expenses for herself and for them. She intended selling shares held on her behalf by RBS Morgans in order to meet her legal expenses incurred in relation to the current proceedings. She was continuing to deplete the balance of her AMP Account in order to meet her ongoing needs, but also required to maintain a specified balance for the purpose of the mortgage over her property at Narrowmine which was not appreciating in value. The rental income from Millriggs was limited and any earnings resulting from future employment or a new business were unlikely to provide a substantial income. In the situation where her lifestyle and circumstances were reduced compared to that enjoyed by her during her marriage, financial provision, whether by way of periodical allowance or by way of additional capital, paid in instalments, was necessary to relieve her serious financial hardship.
[48] Under reference to the terms of section 11(5), it was submitted for the defender that: (i) The pursuer was aged 52 years and would be able to work following her hip operation; (ii) The marriage had subsisted for 20 years;
(iii) Notwithstanding that, there was no evidence that during its subsistence the parties had in fact enjoyed a particularly high standard of living. Rather there had been longstanding financial difficulties;
(iv) The defender was not in a position to meet long term financial support and the pursuer was not in need of it.
The application of the section 9 principles
[49] In the context of the presumption that on divorce there should be equal sharing of the net matrimonial property but, in particular, having regard to the respective positions of the parties on the matter, I am satisfied that, in this case, there are special circumstances arising from the sources of the funds used for its acquisition, consistent with the terms of section 10(6)(b). Counsel for both parties recognised that such a situation did not necessitate an unequal division but rather that the application of the principle set out in section 9(1)(a) was essentially one of discretion aimed at achieving a fair and practicable result in accordance with common sense (Jacques v Jacques 1997 SC (HL) 20, 22).
[50] An approach based solely on the actual sources of funding produces in this case the apparently extreme 90/10 division taken into consideration by both counsel. For the defender, it was submitted that if there was to be such a division, which represented, in relation to the matrimonial property, the current holdings of the parties, then that was a factor to be taken into account in assessing the level of any capital sum. Having regard to the respective resources of the parties, the nature of the inequality resulting should be taken into account in any consideration of the other principles of section 9.
[51] In considering the application of section 9(1)(b) I must have regard to the factors set out in section 11(2) which are designed to allow for the correction of any imbalance arising between the parties in respect of any economic advantages or disadvantages sustained. In relation to the pursuer’s contributions made in relation to the decoration and improvement of the family home, the running of shooting parties and her acquisition of Millriggs, it would appear to be the case that she ultimately has retained certain items of furniture, that in economic terms the shooting parties produce limited income which was then used jointly by the parties as family expenditure and that in relation to Millriggs she still retains her entire beneficial interest, now much appreciated in value. While the defender, in his evidence, conceded that the pursuer had contributed in the way she described, I also recognise that she has benefited from his husbandry of the estate comprising farming, forestry and estate management, which produced the family’s principal source of income and maintained her quality of life. However, her own resources, in the form of the balance of her AMP account, have been depleted in the course of supplementing her income from the defender.
[52] Although I accept that, following her marriage, the pursuer gave up her previous life and its opportunities, I consider it artificial, given the intervening period of 20 years and the vagaries of life, to disregard the real possibility that her professional life might not necessarily have resulted in the career progression which it was suggested would otherwise have been the case. Although she clearly made an impression on Douglas Elix, for whom she worked as an executive assistant, I do not accept that it can be said with any degree of certainty that her career would have progressed in the manner suggested.
[53] In considering section 9(1)(c), it is significant that by 11 November 2015 all of the children will have reached the age of 16 years. It was not disputed that, payment of school fees aside, the economic burden of caring for the children would fall on the pursuer or that she would require to meet the capital need involved in acquiring a home suitable for them. It was not disputed that such a house should provide accommodation extending to four bedrooms.
[54] In considering section 9(1)(d), regard must be had to the factors set out in section 11(4). Similarly, in considering section 9(1)(e), regard must be had to the factors set out in section 11(5). Having regard to these factors, I note in particular that while the pursuer expressed a preference for starting a business of her own, she may not be well placed in the employment market, and that she has been dependent on the defender for some twenty years.
[55] As I have indicated, I am satisfied that special circumstances exist justifying a departure from the presumption of equal sharing of matrimonial property. As regards the other principles to which I must have regard, on behalf of the pursuer I was urged to consider the requirements of section 9(1)(b) and (c) together and the those of section 9(1)(d) and (e) together. In the circumstances of this case, I agree that there is merit in that approach.
[56] I consider that the pursuer has suffered some economic disadvantage by being unable to pursue an independent career because of her commitment to bringing up the children and the organisation of the family home and by funding family expenditure from her own funds. Her contributions in those respects have operated to the defender’s advantage.
[57] As regards the provision of a home for herself and the children, the defender accepted that it was appropriate that he should pay a capital sum. The pursuer’s clear evidence was that her preference was for a house located in a rural setting, the purchase price for which would lie in the range £450,000-£575,000. In relation to this issue, whilst I appreciate that the girls have been brought up in a country setting, I do not attach weight to the pursuer’s personal view that life in town would necessarily introduce undesirable elements into their lives. The pursuer anticipated that, within some 3 years, the girls are all likely to have gone on to further or higher education. It would be reasonable to assume that to involve an urban environment.
[58] It is incumbent on me to determining the reasonableness of any proposed financial provision by having regard to the resources of the parties. In that regard, I turn to consider the defender’s current resources and his ability to pay the requisite capital sum. Although he undoubtedly has property in the form of the estate which could be realised, there are material constraints in that regard which require to be taken into account. His continuing ability to pay for the girls’ education will depend on the ongoing viability of the estate businesses. Sale of properties, with the consequent drop in rental income, would necessarily compromise the overall financial position of the estate which even now suffers from restricted cash flow. In that regard, I accept the evidence that the sale of Woodlandbanks Farm could compromise the viability of the whole estate. Further, although in relation to the short assured tenancies on the estate, the defender could serve notice on the tenants, the sale of currently tenanted properties would involve, subject to the statutory protections in place, the removal of other families from their established homes. In the context of the unequal division of the matrimonial property, I take into account the source of funds argument available to the defender, in that regard, in relation to the Friends Life policy and the Henderson Global account held by the pursuer, and the circumstances of the purchase of X Sawmill. I also recognise that the extent of that inequality itself is a matter to be taken into account in considering the degree to which it is necessary to correct, by other means, any disadvantage suffered by the pursuer. Taking all of these factors into account, I am satisfied that the award which I propose to make is fair, having regard to the respective resources of the parties. In all of these circumstances, exercising the essentially discretionary judgment which I have to apply and endeavouring to achieve a fair and practicable result, the capital sum which I shall award, applying the principles of section 9(10(b) and (c) together, is one of £250,000. For the reasons I have stated, I do not propose to make an order for the sale of Woodlandbanks Farm. On the basis that the defender is best placed to determine the optimum way to mitigate the effect of the sale of any part of the estate, I leave it to him to decide how to realise the funds necessary to make that capital payment.
[59] In relation to the principles in section 9(1)(d) and (e), taken together and having due regard to the factors set out in section 11(4) and (5), I am satisfied that a further award is justified in relation to that which I intend to make to give effect to section 9(1)(b) and (c).
[60] In relation to the issue of serious financial hardship, I recognise that the appropriate assessment is by reference, in particular, to the circumstances of the pursuer and not to some undefined objective subsistence provision (Smith v Smith 2010 SLT 372, at para [13]). Applying that approach, I take into account that, at the latest, by the time L and R are 18 years of age, in late 2017, the pursuer’s earning capacity will no longer be restricted by the requirement to care for them. That being so, given her expressed intention in that regard and given the extent of her own resources, I consider that the extent to which she is likely to suffer serious financial hardship is minimal. However, I also recognise that she will require to adjust to a financially independent lifestyle. In terms of section 13(2)(b), I am satisfied that the order for payment of a capital sum which I propose to make is insufficient to satisfy the requirements of section 8(2). In coming to that view, I recognise that the determination of the level of the capital sum has involved, for the reasons I have stated, the need to take into account the defender’s financial position and the effect on the viability of the estate of realisation of capital by the sale of properties. In these circumstances, the order which I propose to make in this regard will be one for the payment of a periodical allowance for the limited period of three years. Taking into account the fact that, following the purchase of a suitable house, the pursuer will be relieved of the burden of paying her current rent, and having regard in particular to the respective resources of the parties, the amount of the periodical allowance will be £2,000 per month for the first year and £1,000 per month thereafter. The order which I will make in this regard will subsume the order which would otherwise have given effect to the agreement between the parties that the defender pay to the pursuer the sum of £2,000, payable monthly and in advance, until the date of payment of the capital sum of £250,000.
[61] There was broad agreement, reflected in the evidence, that a period of 6 months was a reasonable one within which the defender could realise capital by the sale of property. On the basis that it is recognised, therefore, that the delay in the receipt by the pursuer of the capital sum to which I have found her entitled will be for that legitimate reason, interest will run only from the date on which payment of the capital sum falls due.
[62] I shall therefore pronounce decree of divorce and make the following orders:
(i) an order for payment by the defender to the pursuer of a capital sum of £250,000 within the period of six months from the date of decree, with interest at the judicial rate from the due date until payment;
(ii) an order for payment by the defender to the pursuer of a periodical allowance, payable monthly and in advance for three years at the rate, in the first year, of £2,000 per month and thereafter at the rate of £1,000 per month, with interest at the judicial rate from the due date until payment.
(iii) an order for the transfer to the defender of the pursuer’s interest in the firm of X Farms;
(iv) an order for payment by the defender of the fees and invoiced expenses incurred and to be incurred in consequence of the attendance at school of the parties’ children.
[63] I reserve the question of expenses meantime.