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OUTER HOUSE, COURT OF SESSION
[2009] CSOH 2
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OPINION OF LORD MALCOLM
in the cause
RUTH CRONIN
MACINNES or SMITH
Pursuer;
against
COLIN ANDREW SMITH
Defender:
________________
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Pursuer:
Innes;
Sheehan Kelsey Oswald
Defender: Hayhow;
Lindsays
6 January 2009
[1] In
this action of divorce, in which I heard a proof, the pursuer seeks decree of
divorce; an order for sale of the former matrimonial home; a capital sum
payable on the sale of the former matrimonial home; and a periodical
allowance. The action is not defended on
the merits, and I find that the marriage has broken down irretrievably. I will grant decree of divorce. On the matter of a capital sum it was agreed
that the former matrimonial home should be sold and that in order to achieve
the appropriate balance in the division of matrimonial property after the
divorce the defender should make a transfer based upon his share of the subjects. The issue between the parties was whether this
should be in the form of a specific capital sum quantified by reference to a
recently agreed valuation or whether, as the defender contended, in the current
unusual and very depressed state of the market the capital sum should simply be
the realised free proceeds of sale, which may differ considerably from the valuation. So far as periodical allowance is concerned,
Miss Innes contended that this is an appropriate case for an ongoing periodical
payment by the defender to the pursuer till her death or remarriage. The defender for his part accepted the need
for an element of continuing support until the former matrimonial home is sold,
after which the pursuer will have gained a substantial capital sum which she
can invest, and from which she will receive an income. Thereafter the defender's position is that
there should be a clean break.
Background
[2] The parties were
married in 1982. There is one child of
the marriage, who is now in his final year at university. The defender adopted his wife's children from
her first marriage. At the time of the
marriage the pursuer was a primary teacher.
In 1989 the defender took up employment in Germany
with the European Patent Office (EPO).
The family moved to Berlin. The pursuer obtained employment there as a
primary teacher. In about 1993 she was
diagnosed with rheumatoid arthritis. The
symptoms caused her to give up teaching.
The parties decided to move to The Hague,
where the EPO has an office. The pursuer
subsequently undertook a five year degree course in art at The Royal Academy, The
Hague. In 1996
the marriage was in difficulties because the defender was having an affair. However the parties continued to live together
trying to make the marriage work. In
2001 they purchased a substantial property in Edinburgh
as the matrimonial home. The pursuer and
the parties' youngest son, who finished his secondary education in Scotland,
moved back to Edinburgh. Though the defender continued his employment
in the Netherlands,
he lived in the matrimonial home for a long weekend each fortnight and during
holidays. The problems with the marriage continued and in January 2006 the
parties finally separated. Since then
they have not lived together as man and wife.
[3] Since 1993 the pursuer has not been in employment. She has continued to suffer serious health
problems mainly as a result of her rheumatoid arthritis. Recently her condition has deteriorated. She has been prescribed a new form of
treatment which it is hoped will keep the condition under control. However the medical evidence demonstrated
that even if full or part time teaching was available to her, which must be
doubtful, she would be unable to perform such duties. Given her health problems
and her age (next year she will be 58) the pursuer's only hope for income
producing employment is the sale of her paintings. She did sell some of her student artwork in
the Netherlands,
and she has recently returned to an art course on Saturday mornings. However, at best, this prospect is highly
speculative. Meantime the defender, who
is 50 years of age, continues to work with the EPO in the Netherlands. After the divorce he will have a net monthly
income in excess of 10,000 euros. He has
built up a substantial pension provision with the EPO. In due course he will also have access to a
smaller pension from his past employment in Scotland.
[4] Since
the final separation the pursuer has lived in the Edinburgh
property. The defender has alimented
her, the exact amount depending upon the exchange rate. In recent times its
value has been about £4250 per month, though it was previously in the region of
£3600 per month. The pursuer's
outgoings, which have included costs relating to the former matrimonial home,
have matched her income. However she
indicated during her evidence that after the sale of the former matrimonial
home there would be scope for a substantial reduction in her monthly outgoings,
perhaps to something in the region of £2/2500.
At present, in addition to aliment she receives disability living allowance
of £71 per month and a mobility allowance which funds her car. In July 2011 the pursuer will become entitled
to a state pension of about £400 per month and a pension from Legal and General
of about £165 per month.
[5] Once
the former matrimonial home is sold the pursuer intends to purchase a smaller
two bedroomed house, hopefully in the same area. She has been looking at properties in the
£265/325,000 price range. She will
invest the bulk of the balance of the proceeds of the sale of the former
matrimonial home, keeping some £20,000 in readily available cash for unplanned
costs, and obtain an income from her investments. Ms Sarah Hughes, a financial
adviser, estimated a return of some 5% per annum over the medium to long
term. She did not recommend the purchase
of an annuity. Later in the pursuer's
life it might be appropriate for her to deplete capital, for example by
borrowing against the equity in her new house, perhaps for nursing or other
medical costs. If the pursuer was able
to invest about £300,000, the estimated income therefrom would be about £1,200
per month.
Matrimonial Property
[6] The parties are agreed
that when valuing the matrimonial property the contents of the house in Scotland
and the flat in the Netherlands
can be ignored. For the rest, and leaving
aside two motor cars, the agreed matrimonial property is as follows:
a. The jointly owned
matrimonial home in Edinburgh, which as at November 2008 had an estimated
value of £650,000, and is subject to a mortgage of £65,729.
b. A flat in the sole name
of the defender in the Netherlands
with an estimated value at the relevant date of 135,000 euros, and which is subject
to an outstanding loan of just under 138,000 euros.
c. An endowment policy with
Abbey Life in the joint names of the parties, worth just under £17,000 at the
relevant date.
d. A policy with the
Prudential in the joint names of the parties which matured in 2007. The policy has not been encashed and its
current value is £35,376.
e. A Standard Life five year
plan in the sole name of the pursuer which had a surrender value at the
relevant date of £29,353.
f. The parties' bank
accounts, namely a Lloyds TSB account in the joint names of the parties; a Lloyds TSB savings account in the sole name
of the pursuer containing just under £32,000 at the relevant date (now split
into two accounts with a combined value of about £26,000); and a Fortis bank account in the Netherlands
in the joint names of the parties, with a balance of just under £10,000 at the
relevant date.
g. The pursuer's interest in
a personal pension plan with Legal and General, with a total cash equivalent
transfer value at the relevant date of £39,370.
h. The defender's pension
with Ferranti plc based on his service with that company between 1979 and 1989,
with a transfer value of just over £74,500 at the relevant date.
i. The defender's non-transferable
and non-shareable European Patent Office pension, with a value at the relevant
date of just under £562,000.
Discussion
[7] Leaving aside the bank accounts
and the policies, the parties' assets, in the widest sense, fall into three
main categories. Firstly there is the
former matrimonial home in Edinburgh. It is presently in joint names. However it is agreed that broadly speaking
the defender's share of the equity in this house will be transferred to the
pursuer. As mentioned above there is an
issue as to how this is to be achieved. The
housing market is very depressed because of the poor economic situation. A
chartered surveyor advised that even since the recent valuation of the Edinburgh
property the market has fallen. The
second main category of the parties' assets relates to pension provision built
up since the marriage, which as at the relevant date had a total value of about
£650,000. Almost all of this belongs to
the defender. There is no scope for a
pension sharing order in respect of the EPO pension. Thirdly the defender will continue to receive
a relatively high after tax income of over 10,000 euros per month. On the other hand the pursuer's earning
capacity is likely to be nil or close to nil, subject to any profits from any
sales of her artwork. In practical terms,
and leaving aside any periodical allowance, she is likely to be dependent upon
investment income; state benefits; any depletion of capital to supplement
income; and in due course the state and
private pensions.
[8] Most
of the parties' realisable capital is vested in the former matrimonial home,
and will be transferred to the pursuer.
Thus the defender will lose the bulk of his existing capital, but he
will continue to enjoy a good income until he retires, and thereafter he will
have the benefit of a substantial pension pot.
The main issue before me is whether, following transfer of the equity in
the former matrimonial home to the pursuer, and thus after more or less a 50/50
split of the matrimonial property, there should be a clean break between the
parties, or whether there should be ongoing periodical payments to the pursuer
by the defender. After the sale of the
house in Edinburgh the pursuer will
have substantial capital, though she will require to purchase another house at
a probable cost within the region of £280/£320,000. Most of her income thereafter, leaving aside
any periodical allowance, will be investment income, which, depending on the
economic situation, may amount to a little over £1000 per month. After her sixtieth birthday the pursuer will
have her state and private pensions, which will add income of about £600 per
month. In the meantime, unless he retires
early, for the next nine years the defender will have a net income in excess of
10,000 euros per month.
[9] For
the defender Mr Hayhow stressed that the policy underpinning the Family Law (Scotland)
Act 1985 is a clean break by virtue of an appropriate division or transfer of
capital. He observed that the pursuer
could borrow against the equity in her new home, and that it is common for
older people to use their capital to supplement income, though I note that the
expert in financial planning commented that this is most often done for
medical/nursing home costs and the like.
In the course of the submissions I was referred to Bell v Bell 1988 SCLR
457; Johnstone
v Johnstone 1990 SLT (Sh Ct) 79; McKenzie
v McKenzie 1991 SLT 461; and Haugan
v Haugan 1996 SLT 321 and 2002 SC
361 (IH).
[10] It is necessary to have regard to the relevant statutory provisions
in the 1985 Act. So far as relied upon, and
with regard to the circumstances of this case, they can be summarised as
follows. The net value of matrimonial
property should be shared fairly. As a
generality this means equally. If a capital
sum or transfer of property would be insufficient to meet the requirements of
section 8(2) of the Act, which include achieving a reasonable outcome according
to the resources of the parties, an order for a periodical allowance can be
made. In that regard, in terms of
section 9(1)(d) if one party has been financially dependent on the other,
reasonable provision can be made over a period of up to three years to allow
that party to adjust to the loss of that support. In determining whether to make such an order,
regard should be had to the age, health and earning capacity of the person claiming
the periodical payment; the duration and
extent of the dependence; any intended
course of training or education; the needs and resources of the parties; and
all other relevant circumstances of the case.
Section 9(1)(e) provides that if divorce is likely to cause a party
serious financial hardship, this can be alleviated by ongoing financial
provision over a reasonable period, all having regard to much the same
factors. The reasonable period is not
subject to the three year limitation contained in section 9(1)(d).
[11] The key facts which strike me as particularly relevant in the
present case are as follows:
(i) Throughout much of a
long marriage, and largely because of health problems, the pursuer has been totally
reliant on the support of her husband.
(ii) The parties have enjoyed
a reasonably high standard of living.
(iii) The pursuer has no, or at
least very limited earning capacity because of her health problems and her age.
(iv) For the next nine years
the defender is likely to receive a net income in excess of 10,000 euros per
month.
(v) The capital sum payable to
the pursuer will give the pursuer the means to buy a new home and additional capital
which will provide an estimated investment income of about £1200 per month over
the medium to long term, though the actual return is inherently uncertain.
(vi) It would be unreasonable
to expect the pursuer to deplete her capital in the near future in order to
supplement her income.
(vii) When she reaches 60 years
of age the pursuer will receive a state pension plus a small amount from a
private pension; while, on the other hand, on his retiral the defender will
receive the benefit of the substantial pension provision built up as a result
of his employment during the marriage.
[12] The pursuer has been dependent upon the defender for a long
time. Since the separation she has
received aliment of approximately £4,000 per month. Given the pursuer's age and poor health, and
having regard to the income likely to be available to her, which will be far
below the income of the defender, it seems to me that a case has been made for
an order which is justified under section 9(1)(d) of the Act. The resources available to the parties after
the divorce, especially in respect of income, will be markedly different; and without
a periodical allowance the pursuer will undergo a very significant reduction in
income. I therefore consider that it
would be reasonable to order the defender to pay to her a periodical allowance
for a period of three years in the sum of £2,000 per month, which is about
half the current alimentary payments. In
addition there will be an extra £500 per month payable until the sale of the
former matrimonial home, after which the pursuer will have an income from her
investments. All of this is on the
understanding that the defender has undertaken to meet ongoing payments for their
son at University, and also the mortgage and household insurance payments in
respect of the former matrimonial home until it is sold.
[13] There remains the question of whether any further award of
periodical allowance should be made under the serious financial hardship principle
in section 9(1)(e) of the Act. The statutory provisions in the part of the
Act concerning financial provision make specific mention of the needs of the
parties; fairness; the parties standard of living during the
marriage; any party's financial
dependence upon the other; reasonableness
having regard to the present and foreseeable resources of the parties; and all the particular circumstances of the marriage
and the parties, including their health and earning capacity. This suggests to me that "serious financial
hardship" in terms of section 9(1)(e) should be assessed by reference to the
circumstances of the parties, particularly those of the claimant herself, and
not according to some undefined objective minimum subsistence provision. When submitting that there should be no
periodical allowance, Mr Hayhow observed that many families survive in
much more straitened financial circumstances than those which will face the
pursuer. No doubt that is true. However the pursuer has been used to a high
standard of living and with regard to earning capacity she is severely disadvantaged
by her age and her serious ongoing health problems. The divorce causes her to lose the defender's
obligation of aliment, which both before and after the separation has been of
considerable value to her. Thus, with
reference to the terms of section 9(1)(e) of the Act, I am not persuaded that
any disadvantage to the pursuer must be attributed to her illness rather than
the divorce. The pursuer does not ask
for a level of support which would maintain her income at the pre-divorce
level, even after regard is had to likely future returns on capital. In any event, while a substantial amount of
money will be available for investment, the income to be generated therefrom is
uncertain and no doubt will fluctuate.
[14] The order under section 9(1)(d) will provide a buffer until,
hopefully, the current economic situation improves. Nonetheless I am satisfied that thereafter it
is likely that there will be a continuing element of serious financial hardship
which justifies a periodical allowance under section 9(1)(e) at the rate of £1,500
per month. This sum will be payable on the
expiry of the earlier order of £2,000 per month, and, barring a material change
in circumstances, will continue until the defender's retirement from paid
employment. Thereafter there will be no
further periodical payments. It was not
suggested that the defender is likely to retire before his sixtieth birthday,
when he will be entitled to a full pension.
There is a significant difference in ages, and it can be anticipated
that the defender will continue earning and therefore supporting the pursuer
until she is of an age when it would be reasonable to expect her to deplete her
substantial capital in order to supplement income, should that be necessary. From then that capital can be seen as the
equivalent of the large pension provision available to the defender. I am conscious that the sums awarded by way
of periodical allowance are higher than the monthly figure suggested by counsel
for the pursuer at the close of the proof.
However that figure was put forward in the context of payments to be
made until the death or remarriage of the pursuer, whereas I have imposed a cut
off on the defender's retiral. Further I
have not acceded to the pursuer's request that the existing alimentary
provision of £4.250 per month be maintained pending the sale of the former
matrimonial home, nor to her desire for a specified capital sum based on the
valuation. I have also had regard to the
fact that the provision made under section 9(1)(e) will not apply until 2012.
[15] As will be apparent from the above discussion, and under reference
to section 13(2) of the Act, I am satisfied that these periodical payments are
justified by the appropriate principles in section 9 and that the order which I
will make in respect of capital is insufficient to meet the requirements of
section 8(2). While the 1985 Act
implicitly proclaims the virtues of a clean break, there is more than enough in
it to allow the court to do what is fair, reasonable and just, even if it comes
at the expense of mutual self-sufficiency.
[16] As to a capital sum I am not persuaded that a fixed sum should
be specified. In the current
exceptionally uncertain state of the market I regard it as fair and reasonable
that the pursuer should be provided with whatever free proceeds are achieved by
the sale of the former matrimonial home.
I shall therefore make an order requiring the sale of the former
matrimonial home, with the free proceeds of the sale to be vested in the
pursuer.
[17] With regard to the remaining matrimonial property, though the
defender sought certain ancillary orders, in my view it should be dealt with
according to the current ownership, thus I need make no order in respect of it.
This will be of some assistance to the
pursuer should the sale price of the former matrimonial home be disappointing, in
that she owns the Standard Life plan and the bulk of the cash in the bank
accounts.
[18] In summary, I shall pronounce decree of divorce; make an order for the sale of the former
matrimonial home with the free proceeds to be vested in the pursuer; order payment of a periodical allowance in
favour of the pursuer at the rate of £2,000 per month for a period of three
years from the date of decree, subject to an additional £500 per month until
the former matrimonial home is sold; and
after three years at the rate of £1,500 per month until the defender's
retirement from paid employment. If any
difficulties are encountered in relation to the sale of the former matrimonial
home, the ascertainment and payment of the free proceeds to the pursuer, or any
other related matter it will be open to parties to apply for an appropriate
order.
