Financial awards on divorce are beginning to recognise the effects of the slump in the property market

A recent opinion in a Court of Session divorce action, Smith v Smith [2009] CSOH 2 (Lord Malcolm, 6 January 2009) makes for interesting reading, since it has been heavily informed by current economic conditions.

The first issue in this case was the manner in which fair sharing of the matrimonial pot should be achieved. In many respects, the case was straightforward. There appears to have been no contention for any departure from 50-50 sharing. Values were agreed for most items of matrimonial property prior to proof.

Value in a falling market

The one imponderable, when it came to ascribing an accurate value, was the jointly owned matrimonial home in Edinburgh. Its value had been estimated at around £650,000 by a chartered surveyor in November 2008. However, evidence was led at proof that the market had already declined since that valuation had been prepared. How much the house might sell for, and when, was said to be highly uncertain.

Parties were agreed that the house should be sold in order to effect fair sharing. In the event that it ultimately achieved a sale price of around £650,000, then if the wife were to retain the net free proceeds with the other assets simply being retained in accordance with their existing ownership, this would result in something very close to 50-50 sharing. If however the sale price fell significantly below that figure, then in order for equal sharing to be achieved, the wife would need to retain the entire proceeds of sale and receive a further capital sum from the husband.

Counsel for the wife contended that, in the usual way, an order should be made for sale of the property and, in addition, an order should be made for payment of a specific capital sum by the husband. That way, she could be guaranteed to achieve 50-50 sharing regardless of the sale price. However, it was argued for the husband that the normal approach should be departed from: in the current market conditions, the wife should simply be entitled to retain the entire net proceeds of sale, whatever they might turn out to be, even though they might differ significantly from the valuation.

Lord Malcolm accepted this line of argument and concluded that in the “exceptionally uncertain state” of the property market, the wife should simply retain as her sole property the entire net proceeds of sale. He made an order for the sale of the home, with the free proceeds being vested in the wife.

Hardship in the circumstances

The other live aspect was periodical allowance and one might be forgiven for forming the impression that Lord Malcolm decided to compensate the wife for having to take on the risk associated with the matrimonial home, by making a comparatively generous provision for periodical allowance in her favour.

Parties were agreed that there was a requirement for some ongoing support pending the sale of the matrimonial home, but thereafter the husband sought a clean break whilst the wife contended for ongoing periodical allowance until her death or remarriage.

The justification advanced for this in terms of s 9(1)(e) of the 1985 Act was that the wife was nearly 58, was not working at the time of proof and had not worked for some considerable time. She suffered from rheumatoid arthritis such that she would have difficulty in working. Her only source of income until retirement age would be state benefits, investment income she might receive from her share of the capital, plus whatever she received by way of periodical allowance. It was not reasonable to expect her to deplete the capital she would realise from the sale of the matrimonial home, prior to her normal retirement date. Her retirement income would similarly be limited.

It was argued for the husband that, once the proceeds of the family home were made available to the wife, she would be able to invest a substantial proportion to generate income. Many families survived in far more straitened circumstances. Any financial hardship she might sustain in the future would be due, not to the fact of divorce itself, but instead to her illness.

Lord Malcolm did not accept that argument. It was by virtue of divorce that the wife lost the husband’s obligation of aliment. He concluded that “serious financial hardship” in terms of s 9(1)(e) should be assessed by reference to the circumstances of the parties themselves rather than some “undefined objective minimum subsistence provision”. On that basis, the wife was awarded periodical allowance for three years from divorce at £2,000 per month with a further £500 pending sale of the matrimonial home, and thereafter continuing periodical allowance at the rate of £1,500 per month until the defender’s retirement from paid employment (likely to be around 10 years after the proof).

The Author
Rhona Adams, Partner, The Morton Fraser Family Law Team
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