Cronin Macinnes or Smith v Smith [2009] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2009] CSOH 2

OPINION OF LORD MALCOLM

in the cause

RUTH CRONIN MACINNES or SMITH

Pursuer;

against

COLIN ANDREW SMITH

Defender:

________________

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.

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