Horses make a clean break

The recent Court of Session case EG v GG [2016] CSOH 32 raised a number of interesting issues regarding financial provision on divorce. The arguments included whether special circumstances justified an unequal division; what constitutes dissipation of assets; and whether lengthy periodical allowance should be awarded.

Source of funds

The husband averred special circumstances in relation to source of funds, in terms of s 10(6)(b) of the Family Law (Scotland) Act 1985, pointing to the great disparity in the wealth each party had brought to the marriage. He was largely successful in that argument, this case perhaps representing a further progression in terms of the weight a court will readily give to converted assets from pre-marriage funds, and so may make similar arguments more difficult to counter in future.

The husband had a substantial pension lump sum which was received during the marriage (and therefore was matrimonial property), but which was mainly attributable to pre-marriage employment. This sum had not been kept as cash, but had been used to pay off the mortgage on the jointly owned matrimonial home and also to purchase two large bonds in joint names. Lady Wolffe considered that there was a high degree of traceability in respect of the assets thus acquired. She was not convinced that joint ownership of the assets was determinative, considering that legal title is simply one factor among many, the weight of which will necessarily vary from case to case. She accepted the husband’s evidence that following the banking crisis he had been keen to put the bonds into joint names, to secure maximum financial protection. She therefore excluded the entirety of their value. She did not give full credit to the husband in respect of his contributions to the family home, but did divide the value of the property substantially in his favour.

Dissipation

The wife contended that certain payments made by the husband to his two adult daughters constituted a dissipation of matrimonial property in terms of s 10(6)(c) of the 1985 Act, justifying an unequal division of the matrimonial property in her favour. There was evidence that these gifts had been a well considered financial decision to avoid inheritance tax, undertaken shortly after the husband had exercised an option on shares deriving from his employment.

Lady Wolffe gave the wife’s argument somewhat short shrift, holding that “dissipation” was suggestive of waste or loss of matrimonial funds, for example money lost by gambling. It was unlikely to include inter vivos inter-generational or tax planning gifts. A person of wealth was entitled to pass on some of their wealth, in a way intended to be tax efficient, to their children and s 10(6)(c) should not be used to penalise the generous. It will be interesting to see whether this decision influences more “tax planning” gifts by future spouses/parents contemplating separation and divorce.

Periodical allowance

The wife sought a periodical allowance in a reducing sum (starting at £2,750 per month) for around the next 20 years, effectively to finance her three stabled horses. There was expert evidence that the wife was emotionally dependent on the horses, that she suffered from chronic depressive disorder and that her return to employment was not possible. Lady Wolffe accepted that the wife’s ill health, age and lack of qualifications would militate against her gaining employment.

In terms of s 9(1)(d), Lady Wolffe noted that the purpose of this provision was to enable the claimant to “adjust” to the loss of support on divorce, rather than extend the matrimonial standard of living for an indefinite period. She ordered payments to the wife of £2,000 per month for one year and £1,500 per month for a further year. Given the capital assets retained by the wife, along with payments from her pre-marriage pension, Lady Wolffe considered that her circumstances could not be described as “financial hardship” in terms of s 9(1)(e) – and even if there had been such hardship, this would been caused by maintenance of the horses, not “as a result” of the divorce.

This is a rather stark reminder of the centrality of the “clean break” principle in Scots law, and a re-emphasis from previous case law that “serious hardship” means exactly what it says. It is interesting to contrast the possible outcome for the wife on the basis of “needs, generously interpreted” which would have been applied by the English court and which might well have seen her end up with a maintenance order for a number of years. The wife may perhaps now wish that her stables had been located south of the border.