Improving Scottish Family law :9

Improving Scottish Family law

8. MATRIMONIAL PROPERTY

8.1 Introduction

8.1.1 This part of the consultation paper seeks views on two potential changes to the Family Law (Scotland) Act 1985 (the 1985 Act). A minor amendment to the Sheriff Court (Scotland) Act 1907 is also proposed. All of these relate to how property may be handled at the time a court grants a financial provision order on divorce. It is first necessary to set out some background.

Financial provision orders

8.1.2 Under the terms of section 8 of the 1985 Act, in an action for divorce, either party to the marriage may ask the court to grant any of the following financial provision orders:-

for payment of a capital sum;
for the transfer of property;
for the award of a periodical allowance;
for the "earmarking" of a pension lump sum where the matrimonial property has included pension rights and where a capital sum order has been made.

Matrimonial Property

8.1.3 Scottish law provides the concept of "matrimonial property". This is defined in section 10 of the 1985 Act as all the property belonging to the parties at the "relevant date" (see below). This includes property acquired before the marriage for use as a family home or furniture as well as property acquired during the marriage but before the relevant date.

8.1.4 It is the net value (ie. after deduction of relevant debts) of the matrimonial property which is divided on divorce. Except in exceptional circumstances outlined in the 1985 Act, the presumption is that the net value of the matrimonial property should be shared equally between the parties.

Relevant date

8.1.5 The duration of the marriage is calculated by reference to the date of marriage and the "relevant date". The "relevant date" is the earlier of either the date of separation or the date of service of the summons for divorce. The purpose of the relevant date is to "fix" the point at which the marriage effectively ended.

Valuation of property

8.1.6 Essentially there are two possible purposes for which a court might wish to value property in a divorce action. The first, and main, purpose would be in calculating the net value of the matrimonial property to be shared fairly between the parties to the marriage under the terms of section 9(1)(a) of the 1985 Act ¹⁴. For this purpose it seems clear that the provisions of section 10(2) of the 1985 Act should apply:-

"[the] net value of the matrimonial property shall be the value of the property at the relevant date...".

8.1.7 The second reason why a court might wish to value a property is where the court needs to assess whether it is reasonable to make a financial provision order - having regard to the principles in section 9 and to the resources of the parties.¹⁵ There is nothing in the 1985 Act which requires the court to apply a specific valuation for this purpose. It is reasonable to assume that, in assessing the ability of either party to pay a capital sum or to make a property transfer, the court would use information which is current, ie values of property at the time the action is being considered by the court.

8.2 Increases in value of matrimonial property between the "relevant date" and the date of divorce

8.2.1 The 1985 Act does not provide for what should happen to increases in the value of matrimonial property after the relevant date. Therefore, the courts have decided that the common law rule should apply, that is any increase in the value of property between two dates should accrue to the benefit of the owner of that property.¹⁶ This was re-affirmed in the House of Lords decision in Wallis v Wallis.¹⁷

8.2.2 In his book, The Law of Husband and Wife in Scotland, Dr Eric M Clive describes another consequence of the House of Lords decision in Wallis v Wallis.¹⁸ This relates to the circumstance where a court is considering an order to compel one party to transfer property to the other and to make the recipient of that property pay a capital sum in exchange. The House of Lords held that, where the property to be transferred was matrimonial property at the relevant date, and the purpose of the transfer was to give effect to section 9(1)(a) of the 1985 Act, the capital sum to be paid in exchange for the transferred property must be calculated by reference to the value of the property at the relevant date, rather than at its value at the time of making the orders. The effect of this decision could be that one party to a marriage could be deprived of his or her share of the increase in value of that property under the common law rule described above. See below for potential options for reform.

8.3 Increases in the value of non-matrimonial property during the period of the marriage

8.3.1 The paragraphs above concentrate upon what might happen in the event of an increase in the value of matrimonial property after the relevant date. However, it has been suggested to the Government that there is another situation which can lead to unfairness at the time of divorce. This section of the paper concerns the situation where, during the marriage, property owned solely by one party (for instance a business) increases in value.

8.3.2 In such a situation, the property would not qualify as matrimonial property (the net value of which is to be shared at divorce). It would remain the property of its owner and the other party to the marriage would have no claim over it or a share of it. However, such as in the case of the property being a business, and although under the 1985 Act the court can take account of contributions made by the other party ¹⁹, it may be unfair not to treat increases in value of non-matrimonial property which take place between the date of the marriage and the relevant date as part of the total value of the matrimonial property. Leaving such increases out of the account can produce arbitrary results. For example, a great deal might depend on whether a business was owned by party immediately before the marriage or was acquired a week or so after the marriage. In the first instance it would not be taken into account, in the second it would. See below for potential options for reform.

8.4 Options for reform

Increases in value of matrimonial property between the "relevant date" and the date of divorce

8.4.1 In cases where it is thought that countervailing orders for the transfer of property and payment of a capital sum might reasonably be made, it is clear that there is now some difficulty and that amendment of the 1985 Act would be valuable to make it clear that the court should use the current market value of the property. A new section could be inserted into the 1985 Act as follows:-

"8(1A) Where it is necessary, for any purpose other than that of section 9(1)(a), to place a value on property ordered to be transferred under section 8(1)(aa) it shall be valued by reference to its market value at the date of the order.".

8.4.2 It should be made clear that there is no question of changing the 1985 Act in so far as it requires the net value of the matrimonial property which is to be shared fairly between the parties to be the net value as at the relevant date. That is seen as fundamental to the 1985 Act.

8.4.3 There may be alternatives to amending the 1985 Act. For instance, in cases such as that described above, the court might make incidental orders for the sale of property owned in common and for the division of the proceeds to be shared equally.

8.4.4 Views are therefore invited on whether the 1985 Act should be amended to require the court to value property to be transferred at the current market value.

8.4.5 It would also assist the Government's consideration to learn of mechanisms which might be employed, other than amending the 1985 Act.

Question 22 _ a - Should the 1985 Act be amended to require the court to value property to be transferred at the current market value?

b - Are there alternative mechanisms which might be employed, other than amending the 1985 Act?

Increases in the value of non-matrimonial property during the period of the marriage

8.4.6 As noted above, the 1985 Act already has the flexibility to enable a court to make financial provision orders which would reasonably take account of the circumstances of the case. The court may only make orders which are justified by the principles set out in section 9 of the 1985 Act and which are reasonable having regard to the resources of the parties.²⁰ The principles in section 9 also allow for "fair account [to] be taken of any economic advantage derived by either party from contributions by the other...".²¹ A range of factors to be taken into account by the court is also set out in section 11 of the 1985 Act. One factor supports that in section 9(1)(b). This requires the court to have regard to the extent to which "the economic advantages or disadvantages sustained by either party have been balanced by the economic advantages or disadvantages sustained by the other party". The provision also requires the court to regard the extent to which "any resulting imbalance has been or will be corrected by a sharing of the value of the matrimonial property or otherwise".²²

8.4.7 However, as indicated in paragraph 8.3.2, leaving out of account any increase in value of non-matrimonial property which occurs during the duration of the marriage can produce anomalies. Nevertheless consideration of the issue is not straightforward.

8.4.8 One drawback of taking account of increases in value in some way would be how the court might differentiate between general increases in value due to inflation and increases in value which might be due to the efforts of the parties (or either of them). Disentangling such increases would be difficult.

8.4.9 The Government would wish to learn the views of consultees on this complex issue and on potential options for change.

Question 23 - a - Does the 1985 Act take sufficient account of increases during the marriage (but before the relevant date) in the value of non-matrimonial property owned by one or both of the parties?

b - Should it be provided that any such increase in value is to be added to the value of matrimonial property?

8.5 Power of sheriff to order sheriff clerk to execute deeds relating to heritage

8.5.1 Section 5A of the Sheriff Courts (Scotland) Act 1907 ("the 1907 Act") gives power to the Sheriff to direct the Sheriff Clerk to execute a deed relating to heritable property in circumstances where the grantor of the deed cannot be found or refuses or is unable or otherwise fails to execute the deed. In an increasing number of matrimonial cases courts are being asked to make orders for the transfer of moveable property, for example insurance policies or pension plans. The only way forward for those seeking to have deeds relating to moveable property signed in the absence or refusal or inability of the person under an obligation to execute the deed is to petition the nobile officium of the Court of Session for an order to authorise the Deputy Principal Clerk of Session to execute the deed.

8.5.2 Section 5A of the 1907 Act is in the following terms:-

"5A.-(1) This section applies where -

(a) an action relating to heritable property is before the sheriff; or

it appears to the sheriff that an order under this section is necessary to implement a decree of a sheriff relating to heritable property.

(2) Where the grantor of any deed relating to the heritable property cannot be found or refuses or is unable or otherwise fails to execute the deed, the sheriff may-

(a) where subsection (1)(a) above applies, on application;

where subsection (1)(b) above applies, on summary application, by the grantee, make an order dispensing with the execution of the deed by the grantor and directing the sheriff clerk to execute the deed.

8.5.3 Where in pursuance of an order under this section a deed is executed by the sheriff clerk, it shall have the like force and effect as if it had been executed by the grantor.

(4) In this section-

"grantor" means a person who is under an obligation to execute the deed;

and

"grantee" means the person to whom that obligation is owed."

8.5.3 Section 8(1)(aa) of the Family Law (Scotland) Act 1985 ("the 1985 Act") provides:-

"8.-(1) In an action for divorce, either party to the marriage may apply to the court for one or more of the following orders-

(aa) an order for the transfer of property to him by the other party to the marriage; ..........".

8.5.4 Such an order could relate to moveable or heritable property. However, if such an order is not obtempered by the defender, then the court could not, given the terms of section 5A of the 1907 Act, authorise the sheriff clerk to sign a deed in relation to moveable property. A petition to the nobile officium of the Court of Session would be required.

8.5.5 Section 14(2)(k) of the 1985 Act gives the court wide powers to make ancillary orders not already defined in Section 14(2)(a)-(j). This might include an order directing the Sheriff Clerk to execute any deed required to give effect to any order made under section 8(2) of the 1985 Act. However, if there is any doubt, section 5A of the 1907 Act clearly makes provision for an application to be made for an order dispensing with the execution of the deed by the grantor and directing the sheriff clerk to execute the deed. However, the sheriff clerk has no power to execute deeds which relate to moveable property, in the absence of a provision similar to section 5A of the 1907 Act.

8.5.6 One possible solution to the problem would be to amend section 5A of the 1907 Act so that it applies to moveable as well as heritable property.

Question 24: Should section 5A of the 1907 Act be amended to allow the sheriff to direct the sheriff clerk to execute deeds relating to moveable as well as heritable property?

8.6 Summary of questions on matrimonial property

Question 22 - a - Should the 1985 Act be amended to require the court to value property to be transferred at the current market value?

b - Are there alternative mechanisms which might be employed, other than amending the 1985 Act?

b - Should it be provided that any such increase in value is to be added to the value of matrimonial property?

Question 24: Should section 5A of the 1907 Act be amended to allow the sheriff to direct the sheriff clerk to execute deeds relating to moveable as well as heritable property?