Introduction

The case of Sarah Louise Gunn or Foster against Ross Stewart Foster ([2023] CSIH 35) adjudicated by the Scottish Court of Session's Inner House represents a significant development in family law, particularly concerning the fair division of matrimonial property in divorce proceedings. Married in 2004, Mrs. and Mr. Foster separated in 2019, leading to a dispute over the valuation and transfer of Mrs. Foster's 30% shareholding in a private limited company, RRR Holdings Limited. The central legal issue revolves around the treatment of non-liquid assets—in this case, company shares—in the fair sharing of matrimonial property under the Family Law (Scotland) Act 1985.

Summary of the Judgment

The Scottish Court of Session, Inner House, upheld and expanded upon the Lord Ordinary's decision by allowing an installment-based payment plan for the transfer of Mrs. Foster's shares in RRR Holdings Limited. The court determined that it was reasonable to order a capital sum payable in instalments, coupled with an ancillary order requiring Mrs. Foster to transfer her shares to Mr. Foster. This decision rectified the Lord Ordinary's earlier ruling, which had failed to consider installment payments and the prospective financial resources necessary to facilitate a fair division of assets without necessitating a company sale.

The court also addressed issues related to the husband’s criminal conviction for abusive behavior, recognizing the necessity of finality and a clean break to prevent future financial entanglements between the parties.

Analysis

Precedents Cited

The Judgment referenced several key cases that shaped the court’s reasoning:

• Little v Little (1990 SLT 785): Emphasized the court's flexibility in adjusting capital sums to reflect the parties' resources, including payment by instalments.
• Sweeney v Sweeney (No.2) (2006 SC 82): Demonstrated the court’s willingness to modify capital sums and allow installment payments to balance business interests and financial fairness.
• W v W (2013 Fam.LR 85): Highlighted the desirability of a clean break by ordering the transfer of shares against the backdrop of financial provision.
• Murdoch v Murdoch (2012 SC 271): Reinforced the principle against procedural barriers that could prevent the fair division of matrimonial property.
• Jacques v Jacques (1995 SC 327): Provided additional context on fair financial provision and the court's role in ensuring equitable outcomes.

These precedents collectively underpin the court's authoritative stance on maintaining flexibility and ensuring fair financial distribution, especially when dealing with non-liquid assets like business shares.

Legal Reasoning

The court's legal reasoning focused on adhering to Section 9 of the Family Law (Scotland) Act 1985, which mandates fair sharing of matrimonial property, considering both present and foreseeable resources. The Lord Ordinary's initial failure to consider installment payments and the prospective profitability of the company was identified as a legal error. The Inner House emphasized:

• The necessity to explore all available mechanisms within the Act, including payment by instalments.
• The importance of recognizing future profitability and resources, not just present assets.
• The need for finality and a clean break in cases where one party has engaged in abusive behavior, impacting future financial dealings.
• The application of recent legislative amendments, specifically the Finance (No.2) Act 2023, which alter the tax implications of asset transfers post-divorce, thus facilitating more flexible financial arrangements.

The court concluded that with proper installment arrangements, a fair division could be achieved without destabilizing the business operations or forcing an unfavorable sale.

Impact

This Judgment sets a noteworthy precedent in Scottish family law by:

• Affirming the court's ability to order installment-based payments for asset transfers, thereby preventing the forced sale of business interests.
• Highlighting the importance of considering future resources and profitability in financial provision decisions.
• Emphasizing the need for finality in divorces involving abusive behavior, ensuring that financial arrangements do not perpetuate further conflicts.
• Interpreting legislative amendments to facilitate more nuanced financial provisions in divorce cases.

Future cases involving non-liquid assets will likely reference this Judgment to justify installment arrangements, promoting fairness without compromising business stability.

Complex Concepts Simplified

Fair Sharing of Matrimonial Property

Under Scottish law, the net value of matrimonial property is divided fairly, which doesn't always mean equally. Factors like each party's economic contributions and disadvantages are considered to determine a just distribution.

Installment-Based Payments

Instead of paying a lump sum, the court can order that one party pays the other in scheduled payments over time. This approach is particularly useful when dealing with non-liquid assets like business shares, where immediate sale could be impractical or detrimental.

Clean Break Principle

The idea that divorce financial arrangements should conclusively separate the financial ties between spouses, preventing future financial claims or dependence.

Capital Gains Tax Relief

Recent legislative changes allow the deferment of capital gains tax on asset transfers in divorce, encouraging more flexible financial arrangements without immediate tax burdens.

Conclusion

The Judgment in Gunn or Foster v Foster [2023] CSIH 35 marks an important evolution in the approach to financial provisions in Scottish divorces, especially concerning non-liquid assets like business shares. By endorsing installment-based payments, the court provided a pragmatic solution that aligns with the principles of fair sharing while recognizing the complexities of business ownership and future profitability. This decision not only rectifies previous legal oversights but also sets a flexible framework for future cases, balancing both fairness and practicality. The emphasis on finality and clean breaks in the context of abusive behavior further underscores the court's commitment to protecting the welfare and independence of the aggrieved party. Overall, this Judgment reinforces the adaptability of the Family Law (Scotland) Act 1985 and highlights the judiciary's role in evolving legal interpretations to meet the nuanced needs of divorcing parties.