HM Insights

Can Current Economic Uncertainty be Taken into Account in Financial Orders upon Divorce?

Due to the impact of Covid 19 over the past year, we are all aware that many businesses and individuals face financial uncertainty.  Can such uncertainty be taken into account when financial matters are being resolved by way of an action of Divorce? 

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In terms of the Family law (Scotland) Act 1985 Section 8, the Court has to make an Order in respect of a capital sum and financial issues which is fair and reasonable, having regard to the parties' resources. 

It is sometimes forgotten that the issue of resources requires to be taken into account.  For example, in a situation where, on the face of it, one party is required to make a significant capital sum payment to the other party, it may be possible to argue that this should be paid over a period of time, by instalments, or even that the payment should be reduced if the payer's resources have diminished significantly since the date of separation.

Market uncertainty

The stock market has been fairly volatile over the past 12 months.  Although date of separation values are generally used when calculating the extent of matrimonial property, there can be situations where the values of stocks and shares, ISAs and other investments will have varied considerably over the past year.  For example, if parties separated in February 2020, it is likely that any valuations of investment assets would have been significantly higher than their valuations in April or May 2020.  Since that time, markets have recovered to some extent, but there is still a great deal of uncertainty.

In addition, whilst house values have held up reasonably well, there is still a great deal of uncertainty about what will happen with valuations over the next few months.  Both the Scottish and UK governments had restricted Land and Buildings Transaction Tax (LBTT) – to varying degrees – over the past few months, but these restrictions will come to an end at the end of March 2021.  Whether or not that will affect the valuations of heritable properties remains to be seen.

Matrimonial home

When a matrimonial home is held in joint names, the difference between the value at the date of separation and the current date is generally ignored.  It was previously the case that, when matrimonial homes were being transferred to one party, the value at the date of separation was used.  However, this often resulted in an injustice to the party transferring his or her interest in the matrimonial home as property values could continue to increase between the date of separation and the date of granting an Order, resulting in a windfall benefit to the transferee.  Over recent years, it has generally been deemed to be fair and reasonable that valuations of heritable properties are used at the date of making the Order to transfer or as near to the date of Order as is reasonable. 

There is, however, provision in the Family Law (Scotland) Act 1985 to argue that the Court should use an "appropriate valuation date" where the Court considers that there are exceptional circumstances.  In terms of the legislation, that date should be as near to the date of transfer "as the Court may determine".  That allows the possibility of arguing that a date nearer to the date of separation should be used in future if the effect of the pandemic on valuations has a significant impact. 

As indicated above, it is sometimes possible for a party to argue that payment of a capital sum should be by way of instalments as a result of the position relating to his or her current resources.  If payments are to be made by way of instalment, it is also possible for the payee to argue that he or she should receive interest on those payments.  I have been involved in an unreported case where interest was awarded on the capital sum payment due to the wife by the husband from the date of separation until payment was to be made.  Whether or not this is deemed to be reasonable in each case will depend upon the particular circumstances and whether it is deemed to be fair that interest should be paid, taking into account the parties' resources.  Changes in valuations of property between the date of separation and the date of Order could have an impact on the approach taken by Courts in this regard.

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