F764/11
IN THE SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH
JUDGMENT
by
SHERIFF NMP MORRISON, QC
in the cause
HARRIS (AP)
Pursuer
against
HARRIS (AP)
Defender
__________________
Act: Harrison, Beveridge & Kellas, Solicitors, Edinburgh
Alt: Aitken, Thorley Stephenson, Solicitors, Edinburgh
EDINBURGH, 28 February 2013
The sheriff, having resumed consideration of the cause:-
Finds the following facts admitted or proved-
1. The pursuer, who was born on 14 June 1966, and the defender, who was born on 3 February 1968, were married in Edinburgh on 6 February 1988.
2. They have three children, namely, RE, who was born in July 1993; R, who was born in February 1996; and K, who was born in September 2001.
3. The pursuer and defender separated on 15 January 2009 when the pursuer left the defender. The pursuer and defender have not lived together since then. There is no prospect of a reconciliation.
4. The three children live with the pursuer. Each has a bedroom. They are happy and well-cared for.
5. Contact has always been agreed between the pursuer and defender. The arrangement is that, as a rule, R and K spend Wednesday, Thursday and Friday nights one week with the defender (their father) and, on alternate weeks, spend Wednesday and Thursday nights and Saturday night with their father.
6. Sometimes, because of the defender's work commitments, the arrangement is not adhered to. As a result, R and K spend more time with the pursuer (their mother) than with their father.
7. RE does not see her father.
8. No order for residence or contact is sought by either the pursuer or the defender in respect of K, who is the only child under 16 years of age, and none is necessary.
9. The matrimonial property at the relevant date, 15 January 2009, has a value of £478,208 of which the matrimonial home was and currently is valued at £420,000.
10. The matrimonial home is owned jointly by the pursuer and the defender.
11. The pursuer inherited £95,000 from her father and paid it into the parties' joint Virgin One account, an offset mortgage account, in March 2007. She inherited £78,000 from her mother and paid £30,000 of that in to the same account in three payments of £10,000 each in May 2008.
12. The pursuer received £2,000 from the Virgin One account on 23 January 2009.
13. The defender paid to the pursuer £215,000 to account of her claim for a capital sum in about November 2009. The pursuer used this sum to buy a house.
14. The pursuer bought a house near the matrimonial home for £296,000. The total cost of the purchase was £306,224.25. The pursuer has a house purchase loan of over £88,000 and the equity in the house is about £220,000.
15. The defender lives in the matrimonial home.
16. The defender is responsible for the loan for the matrimonial home. The offset mortgage account stood at a debit of £194,461 as at 28 September 2012 and £193,901.95 at 31 October 2012.
17. The defender's mother lent the pursuer and the defender £10,000 towards the purchase of the matrimonial home. The loan became a gift.
18. The pursuer was the homemaker and primary carer of the children during the marriage. In 1991 she became manageress of a ladies' fashion shop. She stopped working for about 18 months when she had each of RE and R. In about 2000, before K was born, it was agreed that the pursuer stop work completely in order to look after the children.
19. The pursuer currently works in a florist's earning £112 net a week. She works part-time in order to be at home when K finishes school.
20. The pursuer pays £5 week assessed by the Child Support Agency to the defender as child maintenance for R. The defender is supposed to pay child maintenance to the pursuer for K assessed by the Child Support Agency; as at October 2012 he was £1,880.20 in arrears.
Finds in fact and law that-
1. The marriage has broken irretrievably on the ground of non-cohabitation of the pursuer and defender for a period of two years or more.
2. An unequal sharing in favour of the pursuer is justified by the principles in sections 9(1)(b) and 10(6)(b) of the Family Law (Scotland) Act 1985.
3. The pursuer is entitled to a capital sum.
4. The matrimonial home should be sold and be marketed for sale in April 2013.
Therefore-
(1) sustains the pursuer's pleas-in-law and the defender's first plea-in-law; repels the defender's second, third and fourth pleas-in-law;
(2) divorces the defender from the pursuer;
(3) finds the defender liable to pay to the pursuer a capital sum of SIXTY FIVE THOUSAND SIX HUNDRED AND SEVENTY THREE POUNDS (£65,673) STERLING;
(4) orders sale of [the matrimonial home], grants warrant to Beveridge, Philp and Ross, Solicitors, 22 Bernard Street, Leith Edinburgh to dispose of that property heritably and irredeemably by private bargain, ordains the pursuer and defender to execute and deliver to the purchaser a valid disposition of their right, title and interest to the said heritable property and such other deeds as may be necessary to give the purchaser a valid right thereto and, in the event of either party failing to execute and deliver such disposition and other deeds, authorises the sheriff clerk at Edinburgh to subscribe on behalf of the defaulting party a disposition of the said property as adjusted at his or her sight together with such other deeds as may be necessary to give the purchaser a valid title thereto;
(5) appoints 5 March 2013 at 12 noon as a hearing on expenses.
NOTE
The issues
[1] The principal issue in the case was whether the pursuer should get back the money she inherited from her parents (£125,000) and which she paid into the matrimonial property. It was used to reduce the loan on the matrimonial home. For the defender, while it was accepted that a source of funds argument under section 10(6)(b) of the Family Law (Scotland) Act 1985 was open to the pursuer, it was submitted that she should get an equal sharing or less than the sum she sought. There was an issue about expressing the capital sum as a percentage of the matrimonial property. The pursuer also wants the matrimonial home to be sold. The defender seeks to postpone the sale of the house until K is 16. He did not pursue his crave for transfer of the home to himself.
The marriage and separation
[2] The pursuer, who was born on 14 June 1966, and the defender, who was born on 3 February 1968, were married in Edinburgh on 6 February 1988. They have three children, namely, RE, who was born in July 1993, R, who was born in February 1996, and K, who was born in September 2001. The pursuer and defender separated on 15 January 2009 when the pursuer left the defender. The pursuer and defender have not lived together since then. There is no prospect of a reconciliation. The marriage lasted almost 21 years.
Contact arrangements
[3] The three children live with the pursuer. Each has a bedroom. They are happy and well-cared for. Contact has always been agreed between the pursuer and defender on a shared arrangement. The arrangement is that, as a rule, R and K spend Wednesday, Thursday and Friday nights one week with the defender (their father) and on alternate weeks spend Wednesday and Thursday nights and Saturday night with their father. RE does not see her father. No order for residence or contact is sought by either the pursuer or the defender in respect of K, who is the only child of the marriage under the age of 16 years; and none is necessary.
[4] Sometimes the defender is not able to take the children because of his work commitments, and the pursuer looks after them. The children spend more time with the pursuer than with the defender. There was some evidence that the pursuer might have R and K for 70% of the time. Whether that is accurate or not, the defender clearly has the two younger children for a substantial amount of time and requires accommodation to enable the children each to have a bedroom of their own.
The evidence
[5] When the pursuer left the defender, she rented accommodation. She then bought the four-bedroom house that she presently lives in for £296,000. The total cost was £306,224.25. Her partner, M, has moved in with her and contributes to the household expenses. She has a house purchase loan of which £88,301.76 was outstanding at October 2011. She thought that the equity was about £220,000. She works in a florist's on Thursdays, Fridays and Saturdays and earns about £112 per week net unless she works overtime. Her total income is £1,870.75 a month and her total outgoings are £1,720.58 (no. 5/3-6 of process). During the marriage she worked, first as a hairdresser and, finally, from 1999, as a manageress in a ladies' fashion shop. She worked in the latter position from 1991 during which time she took time off to have the children. She did not think that she could get a managerial job straightaway because it took her time to work up to that position. In about 2000 the pursuer and defender agreed that she should stop work to look after the children as the defender had obtained a managerial position with better pay. The pursuer does not work full-time currently because she wants to be at home for K after school. The pursuer has a pension with AVIVA having a cash equivalent transfer value of £9,860 at the relevant date of 15 January 2009.
[6] The pursuer inherited £95,000 from her father who died in 2006. That money was paid into the parties' Virgin One offset mortgage account in March 2007. That account included the house purchase loan on the matrimonial home (which was purchased in May 2006). The debt on the account was thereby reduced to £6,602.52 (no. 6/2/3 of process). In 2007 a car was purchased for the pursuer, and the old one traded in, the value of the car being £7,000 at the relevant date. In 2008 the pursuer inherited £78,642 from her mother of which £30,000 was paid into the Virgin One account in three equal payments of £10,000 in May 2008. The debit balance on that account was reduced to £2,896.69 by 30 May 2008 (no. 6/1/3). At the date of separation in January 2009 the account was in credit at £9,602 (no. 5/2-3). The pursuer accepted in cross-examination that she paid the inherited funds into their offset mortgage account in order to reduce the loan for the matrimonial home for the benefit of the family. Some of the money was used to pay for family holidays. In or about November 2009 the defender paid to the pursuer £215,000 to account to her claim for a capital sum. It was to enable her to buy a house. That sum was paid out of the Virgin One account and is secured by a standard security in joint names over the matrimonial home. The pursuer also received £2,000 from the Virgin One account on 23 January 2009.
[7] The pursuer receives child benefit for K and the defender receives child benefit for R. Correspondence from the Child Support Agency indicates that the defender is in arrears of £1,880.20 to the pursuer. The pursuer pays £5 a week for R as assessed by that Agency. The pursuer gets child tax credit.
[8] The market value of the matrimonial home at the relevant date and currently is £420,000. The house was purchased for that amount; and the proceeds of sale of the previous home (£331,521) went, in effect, towards its purchase. The house is in their joint names.
[9] The pursuer gave evidence that the contents of the house, which she left behind, were worth £2,000; the defender says that they have no value. The pursuer considered that the value of the contents, which she removed from the house, would have been a couple of hundred pounds.
[10] The pursuer wished to have the matrimonial home sold now, or in April 2013 when the defender says that he would have access to loan facilities.
[11] Relatives lent money to the pursuer and defender when they purchased the matrimonial home. The defender's mother lent them £10,000. All were repaid except the defender's mother. The pursuer and defender gave evidence that they offered the money back to her. The pursuer said that the defender's mother told them to hold on to it; and indicated that they would probably get it anyway. The defender said that his mother said that she did not need it just now and that she would get it at a later date. The pursuer says it became a gift; the defender and his mother claim that it was a loan. In evidence the defender's mother denied that she was ever offered the money back and that she wanted to have the money back.
[12] The defender is a self-employed telecom engineer. He has been in telecommunications for 20 years and self-employed since 1993. All his earnings were paid into the Virgin One account. The defender has a pension with AVIVA having a cash equivalent transfer value of £20,996 at the relevant date. He has a car valued at £4,000 at that date and a van valued at £2,450 at that date. When he paid the pursuer £215,000 he had said that he would not sell the matrimonial home for less than £450,000 and that he would pay the pursuer half, that is £225,000. He has not paid the balance of £10,000. The debit balance on the Virgin One account secured by the security over the matrimonial home was £190,461 as at 28 September 2012 and £193,901.95 at 31 October 2012. The defender has made all payments to the Virgin One account since November 2009. The defender would like to stay in the house as long as possible; at least until K is 16. It was the children's home; it is close to where they live; it is close to their school. The matrimonial home is three streets away from the pursuer's home and the children can walk from one to the other. Both homes are in the catchment area of the school to which K will go and the older children went. If he had to move he would need a house with three bedrooms for the children. If he had to sell and move, he would not be able to afford a three-bedroom house which would cost about £240,000. The bank had refused to loan him money. The bank had told him that to get a loan of £215,000 he would need an annual profit of £40,000. He might be able to achieve such a profit by April 2013. He might be able to get a one-bedroom flat for £150,000 at present, but where the matrimonial home and school are.
[13] The defender produced statements of the offset mortgage account in support of his financial position.
The pursuer's submissions
[14] For the pursuer, it was argued that there were special circumstances for an unequal sharing of the matrimonial assets under section 10(6)(b) of the 1985 Act because the pursuer had contributed £125,000 of her inheritance which she should get back. I was referred to Jacques v Jacques, 1997 SC (HL) 20; Cunningham v Cunningham, 2001 Fam LR 12; R v R, 2000 Fam LR 43; and Whittome v Whittome, 1994 SLT 144. The proposition was, Cunningham being distinguished, that matrimonial property included only wealth acquired or generated by the parties' activity and efforts during their life together and did not apply to property acquired by one of them through gift or succession. The parties' matrimonial assets of £480,708 were subject to the deduction of the £125,000, giving each party a half share of the matrimonial assets (£355,708) of £177,854. The pursuer was, therefore, entitled to £177,854 plus £125,000, which totalled £302,854. The pursuer had received £215,000 and her own contribution to the matrimonial property was £20,931, which totalled £235,931. The pursuer was, therefore, entitled to a capital sum of £66,923, being the difference between £302,854 and £235,931. It did not matter, argued Miss Harrison, for the pursuer, whether one took the £125,000 off at the beginning of the calculation or at the end.
[15] If the source of funds argument were unsuccessful, Miss Harrison argued that the pursuer was entitled to a capital sum in the same amount under section 9(1)(b) of the 1985 Act on the basis of economic advantage to the defender of half of the pursuer's inherited funds and a corresponding economic disadvantage to the pursuer, and because she was the primary carer and homemaker.
[16] It would not be possible to make a specific order for the amount of the capital sum because it was not known for what price the house would sell. I should make an order of a percentage rather than a specific capital sum.
[17] As the defender would receive some £150,000 from the net proceeds of sale of the matrimonial home, and said that he could get a mortgage of £200,000 in April 2013, he could afford to buy a neighbouring three-bedroom house for £240,000. Sale of the matrimonial home should not be postponed until K was 16.
[18] In relation to the value of the contents of the home, Miss Harrison submitted that the value should be £1,800 after deduction of the property taken by the pursuer which was worth £200.
[19] As for the £10,000 loaned by the defender's mother, this had become a gift and should be treated as matrimonial property. The defender was not entitled to deduct anything in respect of his tax liability for which he held funds, because he had not proved that there was a tax liability as at the relevant date. The only document produced did not show a tax liability for the relevant year.
The defender's submissions
[20] Mr Aitken, for the defender, accepted that the use of the inherited money was a special circumstance and that a source of funds argument was open to the pursuer under section 10(6)(b) of the 1985 Act. It was accepted, therefore, that the inheritance was "used to acquire any of the matrimonial property" by reducing the loan and increasing the equity in the matrimonial home. If the source of funds argument did not exist, the pursuer would have been entitled to £3,173 as a capital sum on an equal sharing. The pursuer had already received about £60,000 of her inheritance back: her matrimonial assets of £20,931 (including the £2,000 paid to the pursuer on 23 January 2009) and the payment of £215,000 (£235,931) less her half share of the matrimonial assets (£176,604) equals £59,327. If she were to receive 100% of her inheritance back, the pursuer would be entitled to £65,673. Mr Aitken calculated the total matrimonial assets at £478,208 (the pursuer's calculation was £480,708) of which one half was £239,104 of which the pursuer had received £235,931 consisting of the £215,000 and the pursuer's own matrimonial property of £20,931 leaving £3,173 due on equal sharing.
[21] Mr Aitken submitted that the question was how much more, if any, than £3,173 was fair to give to the pursuer. The answer to that question he left to me to resolve as a matter for my discretion. The pursuer had paid into the matrimonial assets some of her inheritance for the benefit of the family. Part of the inheritance was used to keep the family afloat when the defender was not working. The defender did not work from November 2007 to March 2008. Some of the things spent on, such as holidays, would have been spent on even if there were no inheritance. The parties had an offset mortgage (the Virgin One account) into which everything was paid; the inheritance was not used to purchase a house but was used to reduce or clear the mortgage debt. The pursuer chose to spend some of her inheritance on the family. In Cunningham, above, Lord Macfadyen was not saying, at paragraph [25], that one could never get an inheritance back but that it was "less important".
[22] I was referred to Turner v Turner, a decision of Sheriff McCulloch on 6 August 2009, unreported, where, Mr Aitken submitted, there was an equal division notwithstanding a gift to the pursuer of £10,000 towards the purchase of the matrimonial home and the matrimonial home was, as here, the principal asset. Looking at the case in detail, I notice that the pursuer funded the purchase of all the matrimonial homes that the parties lived in from her savings, gifts and inheritance; she worked part-time and looked after the children of the marriage (which lasted 13 years). The homes were all in joint names and the last was purchased about six years before the separation. The issue in that case was whether an agreement entered into by the parties should be set aside, as the pursuer sought, as not fair and reasonable. The sheriff decided that the agreement was fair and reasonable and did not apply the section 9 principles in so deciding; he went on to consider what the position would have been if he had. He rejected the source of funds argument, indicating that he was following Cunningham, but would have allowed unequal sharing of 55/45% in favour of the pursuer because of the economic disadvantage to the pursuer in respect of the burden of child care and the need to provide accommodation for the children. In that event he would have awarded less to the defender, applying sections 9 and 10 principles, than under the agreement. In truth, that case is not an example of equal sharing.
[23] Mr Aitken argued that, if the pursuer was not entitled to exclude the inheritance under the source of funds argument, she could not get that amount under an economic advantage or disadvantage argument: the argument was the same, and if it failed on one it failed on the other.
[24] On the issues of the value of the contents and the defender's tax liability, Mr Aitken suggested that I could treat each as in effect cancelling the other out and that I ignore both. He argued that the defender did have a tax liability which would be a matrimonial debt; it would be, as the defender said, in evidence, roughly the same as that for the following year for which there was documentation (£2,284).
[25] In relation to the £10,000 from the defender's mother, Mr Aitken submitted that it did not become a gift and was to be repaid. If it were a gift, Mr Aitken adopted a source of funds argument on behalf of the defender.
Calculation of the matrimonial property
[26] Before calculating the matrimonial property it is necessary to deal with the issues of the contents of the matrimonial home, the defender's tax liability and the loan from the defender's mother.
[27] In relation to the contents of the house, each party's figures were plucked out of the air. I would have thought that parties should simply have agreed to split the difference. I am prepared to accept that the defender has some tax liability notwithstanding that he produced no vouching for the relevant year. The liability for the year 2009/10 was £2,284. Mr Aitken's suggestion was that I treat the contents and tax liability as cancelling each other out; a solution that I adopt.
[28] There is a presumption against gift; and it falls to the pursuer, as Miss Harrison accepted, to prove that the loan by the defender's mother became a gift. I believe the evidence of the pursuer and defender that they offered the money back to the defender's mother and that she did not want it back. Now that the pursuer and defender are getting divorced, it is being claimed that it remained a loan and never became a gift. The money was lent in 2006. I do not believe the evidence of the defender's mother that she was not offered the money back; both the pursuer and the defender said that they offered it back. All others who lent money were paid back. Clearly she never asked for the money back herself. I believe the pursuer that the defender's mother said that she did not want the money back. Accordingly, the £10,000 lent by the defender's mother to the pursuer became a gift. This was almost a wasted issue. If the money were a loan, it would be a matrimonial debt and taken out of the calculation of the matrimonial property. If it were a gift, the source of funds argument would come into play.
[29] Mr Aitken's calculation of the matrimonial assets differed slightly from the calculation for the pursuer because the pursuer divided the credit balance in the Virgin One account equally between the parties whereas Mr Aitken attributed £2,000 to the pursuer and the balance to the defender; Mr Aitken treated the contents as valued at nil whereas the pursuer's calculation treated the value as £2,500. Neither party made a deduction in the figures produced in respect of the defender's tax liability.
[30] It seems to me that the first thing to do in this case is to calculate the matrimonial property and then to determine what an equal share would be. In the case of property mostly derived from one party's funds I can see the attraction of deducting it first. The figures for the net matrimonial assets, as at the relevant date, look like this:-
| Property | Pursuer's | Defender's | Joint |
| | | | |
| Matrimonial home | | | £420,000 |
| Virgin One account | | | £9,513 |
| Pursuer's pension | £9,860 | | |
| Defender's pension | | £20,996 | |
| Pursuer's bank account | £2,071 | | |
| Defender's bank account | | £2,318 | |
| Pursuer's car | £7,000 | | |
| Defender's car | | £4,000 | |
| Defender's van | | £2,450 | |
| | | | |
| Sub-totals | £18,931 | £29,764 | £429,513 |
| Total | | | £478,208 |
[31] If the matrimonial property were to be shared equally, each would be entitled to £239,104. The pursuer has already received £215,000 and £2,000, that is, £217,000. The difference is £22,104. Of the matrimonial property, the pursuer has £18,931. That would mean that the pursuer would be due to receive £3,173 on equal sharing. If the pursuer were to be able to claim the whole of the £125,000 inherited funds back under the source of funds argument, she would receive a capital sum of £65,673.
Unequal sharing: source of funds
[32] The next question for me to consider is whether there should be an unequal division under section 10(6)(b) of the 1985 Act. Under section 9(1)(a) the property is to be shared divided fairly, which section 10(1) defines as equal sharing unless another proportion is justified by a special circumstance defined in section 10(6) such as a source of funds not derived from the income or efforts of the parties during the marriage. One must not overlook the fact, in addition to considering the principles in section 9 (which are affected by sections 10 and 11), that any order under section 8, such as a capital sum, must also be reasonable having regard to the resources of the parties (s. 8(2)).
[33] Having considered the authorities cited to me, which was not all of them, on this issue, there are some points to note from those authorities about the source of funds argument under section 10(6)(b). These are, therefore, not all that may be said about this issue.
(1) The distinction between section 10(4) (exclusion of property acquired by gift or succession from a third party) and section 10(6)(b) of the 1985 Act is that under section 10(6)(b) the inherited or gifted property is used to acquire matrimonial property: Whittome v Whittome, 1994 SLT 144, 124F per Lord Osborne. That case was concerned with the exclusion of gifted property under s. 10(4); and the passage in Lord Osborne's opinion about property acquired by gift or succession at page 126D was concerned with that provision.
(2) Even if there is a special circumstance, that does not mean that there has to be an unequal sharing: this was confirmed by the House of Lords in Jacques v Jacques, 1997 SC (HL) 20, 24 per Lord Clyde.
(3) The next point, made by Lord Clyde on the same page, is that it is not enough simply to identify a special circumstance; an unequal division must be justified by those circumstances.
(4) The broad policy underlying section 9(1)(a) is that equal sharing applies to the fruits of the economic efforts of the parties during the marriage (R v R, 2000 Fam LR, 43 47 per Lord Eassie at para.7.24); and, hence, there may be a special circumstance where the source of the funds or assets used to acquire matrimonial property was not derived from the income or efforts of the parties during the marriage (s.10(6)(b)).
(5) Cunningham v Cunningham, 2001 Fam LR 12, is not authority for the proposition that the source of funds argument never applies to the matrimonial home: what Lord Macfadyen said at paragraph [25] of his opinion is that "Money used to purchase the matrimonial home is, in my view, devoted in a particularly clear way to matrimonial purposes, and the source of funds so used is in my view less important than it would be in the case of other types of matrimonial property." (emphasis added). The facts in that case were not straight forward and the matrimonial home was not the only matrimonial property. Each party had contributed inherited funds of roughly equal amounts (about £1.4 million each) with the pursuer contributing £50,000 to matrimonial property and the defender contributing £100,000 to the purchase of the matrimonial home (worth £300,000). When it came to dividing the matrimonial property, Lord Macfadyen treated the whole of the value of the holiday home as falling to the defender's share because he had bought it with inherited wealth and, although the defender had contributed inherited capital of £100,000 to the purchase of the matrimonial home, the pursuer should receive not one quarter but one half of the value of the matrimonial home. Lord Macfadyen deducted from the matrimonial property the pursuer's £50,000 contribution (as also some funds of the defender) before equal division of the remainder of the matrimonial property.
(6) The justification for an unequal division will be very strong where the matrimonial property is to a large or substantial extent derived from the funds of one party before marriage or assets acquired by inheritance or gift of one party, or remains outside the common wealth of the family.
(7) It may be relevant, therefore, that one party retains title to matrimonial property acquired from that party's inherited funds.
(8) A relevant factor will be that matrimonial property was derived from a business carried on by one of the parties.
(9) The point at which the contribution of funds is made by a party may be relevant.
(10) The length of the marriage may be a relevant factor. The longer the marriage and the earlier the inherited funds are used to purchase matrimonial property may not favour the application of the source of funds argument.
(11) The extent to which the parties regarded the inherited money used to purchase matrimonial property as being just part of the general family funds may be relevant. The source of funds does not cease to be capable of being a special circumstance, however, because the surrogate of the inherited or donated asset is used to provide income for the family: R v R, above, at para. 7.27.
(12) There is no requirement that the sum paid in is the sum to be paid out on an unequal sharing.
[34] The matrimonial home in this case is the only significant asset. The pursuer's inherited funds, although used for the benefit of the family, were paid in to the family's offset mortgage account only in the last two years of the marriage. They were not used to purchase the family home, the current home being purchased in 2006; but they were used to reduce the loan. Their use did reduce the debt on that account to £2,896 at the time, and the account was in credit at the date of separation; but that was not the fruit of the economic efforts of the parties. I think also that, if the pursuer is entitled to have her inherited funds taken into account, then so also is the defender entitled to argue that his mother's gift of £10,000 should be taken into account. I do not regard the period of four months during which the defender was unemployed as being a factor of significance justifying the denial of the pursuer's inherited funds being taken account of. In all the circumstances, I consider that the pursuer is entitled to an unequal sharing because of the inherited funds of hers that she put to the matrimonial property. I deal with the amount in paragraph [44] below.
Economic advantage or disadvantage
[35] Miss Harrison presented an argument for an unequal sharing on the ground of economic advantage and disadvantage by virtue of section 9(1)(b) of the 1985 Act as an alternative to the source of funds argument. I was referred to Coyle v Coyle, 2004 Fam LR 2. It was submitted that there had been an economic advantage to the defender in that he had benefited by one half of the inherited funds that the pursuer put into the family funds, that is, £62,500. The pursuer had suffered a corresponding disadvantage which was not corrected by equal sharing. Furthermore, the pursuer was the primary carer of the children, the homemaker and gave up work to look after the children, and could not readily return to employment in a managerial capacity.
[36] Mr Aitken argued that the economic advantage argued for by Miss Harrison was the same as the source of funds argument. If the latter failed then so also must the former. He referred to what Lady Smith said in Coyle at paragraph [37] about the need for an identifiable economic advantage derived from an identifiable contribution. Any advantage gained by the defender was counterbalanced by the advantage the pursuer gained in having one half of the matrimonial property. I was referred to the definition of economic advantage in section 9(2) as including gains in capital, income or earning capacity.
[37] It is not necessary for me, in the light of my decision on the source of funds argument, to decide on the alternative submission about economic advantage, but I should deal with it.
[38] Economic advantage or disadvantage is not defined as a special circumstance justifying unequal sharing but, under section 9(1)(b) of the 1985 Act, the court is directed to take fair account of an economic advantage or an economic disadvantage as one of the principles in deciding what order to make. The result is that there could be unequal sharing. I do not accept Mr Aitken's submission that, if the pursuer were unsuccessful in a source of funds argument, she could not make an argument of economic advantage or disadvantage because the basis would be the same. It would not necessarily be the case, as suggested by Miss Harrison, that the result would be the same; the factors are not necessarily identical, although there is no reason why the pursuer could not argue that her inheritance resulted in an economic advantage to the defender. The argument is, however, less clear-cut, more problematic and more difficult to quantify. If a source of funds argument were available, I do not think that a party would argue inherited wealth under section 9(1)(b). What is clear is that the same factor could not be used to obtain an unequal sharing under both section 9(1)(b) and 10(6)(b) together; but the same factor could be used to justify one or the other argument. An argument about disadvantage because of looking after the home and children, and giving up a career or work, need not be an alternative to a source of funds argument.
[39] An economic advantage to one party must derive from contributions made by the other party. Lady Smith took a strict view in Coyle, at paragraph [37] of her opinion, and suggests that, in relation to an economic advantage, there must be an identifiable economic advantage derived from an identifiable contribution; and that there was none in that case where the pursuer managed the house and looked after the children leaving the defender free to work. She went on to say, at paragraph [40] of her opinion, that counsel for the defender wisely did not dispute that there was a disadvantage to the pursuer by giving up a career in order to run the house and look after the children. Whether or not there must be an identifiable economic advantage derived from an identifiable contribution, a spouse who gives up a career to run the home and look after the children (as the homemaker and primary carer) clearly suffers an economic disadvantage. In relation to economic advantage derived from the contributions of the other spouse, the term "contributions" is defined in section 9(2) as including looking after the family home or caring for the family. In the case before me, the pursuer gave up her work as a manager to look after the children and run the family home. Quite reasonably, she currently works only part-time while K is still at school. It is unlikely that she could jump into a managerial position on first going back to work full-time. It could not be said that the pursuer had given up a lucrative career.
[40] In section 11(2), however, the court has to have regard to the extent to which the economic advantage or disadvantage has been balanced by the economic advantage or disadvantage sustained by the other party. Lady Smith states in Coyle at paragraph [37], therefore, that the 1985 Act did not provide, whenever one spouse has been the breadwinner and the other the homemaker, that the latter must receive extra compensatory financial provision. I note, however, that the principle in section 9(1)(b) is a separate, distinct, and indeed additional, principle to that in section 9(1)(a), although the latter is regarded as an overarching principle.
[41] If the defender gained an economic advantage by receiving the benefit of £62,500, it could be said that this was balanced by the pursuer receiving the benefit of the increased equity in the matrimonial home. At the relevant date the offset mortgage account was in credit. It is now, of course, in debit again (over £190,000 in September 2012) primarily because the pursuer received an advance payment of matrimonial property of £215,000 to buy a house.
[42] Although the economic disadvantage to the pursuer appeared to be presented by Miss Harrison as the necessary derivation of the defender's economic advantage, it is in fact something that can stand alone as a ground for a compensating payment. The pursuer suffered an economic disadvantage by being the homemaker and primary carer. I do not think that that economic disadvantage would be balanced by an equal sharing. I do not know what the pursuer earned when she was a manager, what she lost in actual income, or what she could have earned had she still been a manager and could have earned potentially. Although it is not a loss of earnings claim, I have nothing to guide me in assessing the monetary value of the disadvantage to help me to reach a view about an appropriate compensating payment.
[43] There was mention for the pursuer of a possible argument under section 9(1)(c) in that the pursuer, as primary carer, bore the greater burden of looking after K; and the defender was in arrears of payments of maintenance to the tune of £1,880 in October 2012. I think that any such claim is met through maintenance payments.
The capital sum
[44] As it is not possible for me to do more than make a stab in the dark about an appropriate compensatory figure for economic disadvantage to the pursuer, and as Miss Harrison did not seek a capital sum of more than the balance of the inherited funds contributed by the pursuer, which I have calculated at £65,673, I consider, in all the circumstances of the case that I have mentioned, that that would be an appropriate and fair sum to award. That sum is in respect of the £125,000 inherited funds of the pursuer and her economic disadvantage. I would have given effect to the source of funds argument for the defender in relation to the gift of £10,000 from the defender's mother, but I add that amount back in respect of the economic disadvantage to the pursuer. I have considered whether that sum would be reasonable having regard to the resources of both parties. I think that it would be, including the fact that the defender considers that he could get a substantial loan in April. There will be over £219,000 net proceeds of sale of the matrimonial home available at a sale at £420,000 (no. 5/6-2 of process). After deduction of the capital sum, the defender would receive £153,767. The capital sum together with the sum already received by the pursuer of £217,000 means that the division of the matrimonial property of £478,208 is nearly 59% to the pursuer. Were one to take off the matrimonial property belonging to the pursuer (£18,931), the percentage is just over 55% that would be transferred to the pursuer.
Capital sum expressed as a percentage
[45] The next issue was whether the decision about the division of the matrimonial property and the capital sum should be expressed as a percentage rather that as an award of a capital sum of a specific amount. For the pursuer it was argued that it should be a percentage. That was 63% to the pursuer based on a division of £302,854 to the pursuer and £177,854 to the defender, on the pursuer's calculations. The defender would receive 37%. The reason for this was that it was not possible to make an order for a specific amount as it was not known what the matrimonial home would be sold for. A percentage meant fairness to both parties whether the property increased or decreased in price. Mr Aitkin argued that a percentage was difficult to enforce compared with a specific amount. The agreed value of the matrimonial home at the relevant date and currently should be used.
[46] It seems to me that the percentage approach elides the principle that the value of the property is taken as at the relevant date. The only statutory exception to that is where there is to be a transfer of property, that exception being created to deal with the value of the matrimonial property changing since the relevant date. I think also that enforcement of a specific amount is more readily enforceable than a percentage. I can see the attraction of the pursuer's argument, particularly if I were simply apportioning the matrimonial property or the proceeds of sale of the home. If parties had been agreed on a percentage method, I would have acceded to it; but they are not. The unequal sharing of the matrimonial property is, therefore, expressed as a specific amount by way of a capital sum.
Sale of house before or when K is 16?
[47] The final issue was when the matrimonial home should be sold. For the pursuer, it was argued that the home should be sold now or in April 2013 when the defender expects to be able to obtain a loan. There were suitable three-bedroom properties for sale in the same catchment area of the secondary school where K will go, which the defender could purchase for about £240,000 or less. These properties, in numbers 5/3-8 to 5/3-13 of process, were spoken to in evidence by the pursuer. There was equity in the matrimonial home for the defender of over £150,000. The defender stated in evidence that, if he were able to show a profit of £40,000 a year, the bank would lend him £200,000. He said in evidence that he thought that he could do that by April 2013. The sale of the house should not be postponed until K was 16.
[48] The defender argued that the home should be kept until K was that age because it was the home that she grew up in; it was near to the pursuer's house; and it was not possible for the defender to be able to afford to buy a three-bedroom house in the area for £240,000. The properties referred to by the pursuer were some distance from the pursuer's house.
[49] K will be 16 in September 2017. It seems to me, from the evidence, that it would be possible for the defender to buy a house in the same area as K's school; one of those in the productions was in the same street. Although the defender has not produced documentary evidence of the position, he indicated that he would to be able to get a loan of £194,000 (the balance of the loan at the end of October 2012: no. 5/4-1), possibly more, in April 2013. After deducting the loan and legal and other fees, and a capital sum of £65,673 to the pursuer, the defender's share of the matrimonial home will be over £153,000. I appreciate that a child would have an attachment to the home in which she grew up, but it seems clear that, whether or not she spends as much as 70% of her time with her mother, K spends most of her time living with her mother. In my opinion, there is no need to postpone the sale of the house until K is 16. I think that the matrimonial home should be put on the market in April 2013 when the defender should be in a position to obtain a substantial loan.
Expenses
[50] Expenses were not agreed and, accordingly, a hearing is necessary.
Edinburgh, 5 March 2013
Act: Harrison
Alt: Aitken
The sheriff, on parties' joint motion, in the interlocutor on page 3 of the judgment dated 28 February 2013, insert at the end of paragraph (4) after the word "thereto;" the words 'and thereafter to divide the net free proceeds of sale of the heritable property on the basis that the pursuer shall receive therefrom the said capital sum referred to in paragraph (3) above subject to a deduction from the capital sum of one half of the fees, VAT and outlays incurred in respect of the estate agency and conveyancing of the said property and further that the pursuer shall receive such sum due to her in respect of expenses as may be discerned for in this process and thereafter for the balance of the net free proceeds of sale to be paid to the defender'; on the pursuer's opposed motion, finds the defender liable to the pursuer, as an assisted person for the parts of process for which he was covered under the legal aid certificate, in the expenses of the action as taxed; allows an account thereof to be given in and remits same, when lodged, to the Auditor of Court to tax and to report.