F v F and A [2025] CSOH 99: The Section 18 Tripartite Test Confirmed, and a Fair‑Value Transfer Method for Part‑Inherited Homes

Introduction

In F against F and A [2025] CSOH 99, Lord Stuart (Outer House, Court of Session) delivered a detailed judgment in a financial provision on divorce action following earlier child-related proceedings between the same parties ([2025] CSOH 13). The pursuer (husband) and defender (wife) married in 2014 and separated on 5 February 2019 (the “relevant date” under section 10(3) of the Family Law (Scotland) Act 1985, “the 1985 Act”). A third party, A, entered the process as a minuter after the pursuer sought to set aside a loan and standard security granted by the defender in A’s favour.

Although the pleadings were wide, by submissions the issues were sharply crystallised. The court was asked to rule on:

The title structure and valuation of the heritable property 13b and whether to order sale or transfer of the defender’s one half pro indiviso interest to the pursuer.
How to treat inherited funds (notably in relation to the home, pension, director’s loan account, and a La Mondiale investment) within the statutory “fair sharing” scheme.
Whether either party had sustained a net economic disadvantage or conferred a net economic advantage justifying an award under section 9(1)(b) of the 1985 Act.
Whether the defender should receive a periodical allowance under section 9(1)(d).
Whether the standard security granted by the defender in favour of A should be set aside under section 18.
Expenses as between the parties and as between the pursuer and the minuter.

Summary of the Judgment

Divorce granted.
Property 13b: Only the defender’s half share was matrimonial property; the pursuer’s half was inherited and remained non‑matrimonial. The court preferred transfer of the defender’s share to the pursuer over sale, at a price equivalent to the defender’s free equity were there to be an open-market sale. Using a current valuation of £530,000 and deducting the secured debt (£215,852) and the pursuer’s non‑matrimonial half (£265,000), the defender’s free equity was £49,148.
Inherited assets and special circumstances:
- Pursuer’s pension (matrimonial CETV element £5,397) excluded from sharing under section 10(6) given its pre‑relationship source.
- Pursuer’s director’s loan account: the entire marriage‑period increase (£83,215) excluded from sharing, in part because £45,000 was shown to be inherited funds lent to the company (thus not matrimonial property) and, in any event, fairness and special circumstances justified exclusion. By contrast, the defender had already recovered the entirety of her own director’s loan account from the company.
- Joint account no. 4325 at separation (£15,723) remained matrimonial property (the encashed segments that funded it had been assigned to the defender during marriage). However, the defender’s un‑encashed assigned segment (encashed post‑separation) was treated under special circumstances so that the defender owed the pursuer one half of the net encashment (£26,107 → £13,053) to reflect its inherited origin.
Post‑separation costs for 13b: The pursuer had single‑handedly carried significant ownership costs after separation (approximately £105,484 by mid‑2025). One half (£52,742) was payable by the defender to the pursuer, reflecting the principle that a co‑owner seeking to share in capital uplift should also meet their share of ownership costs.
Section 9(1)(b) (economic advantage/disadvantage): No net economic disadvantage was established by the defender. The asserted loss of dividends and career decisions did not meet the statutory threshold on the facts. Any enduring benefit to 13a from the defender’s spending was marginal (about £10,000) and outweighed by her rent/mortgage‑free occupation of 13a for years.
Section 9(1)(d) (periodical allowance): Refused. The defender was not “dependent to a substantial degree” on the pursuer, considering salaries and distributions during marriage and substantial post‑separation sums received (settlement and director’s loan account).
Section 18 setting aside: The court confirmed a tripartite test under s18. On the facts, the standard security did not defeat the pursuer’s claims (subsection (2) not met); therefore, no need to move to subsections (3) and the residual discretion. The pursuer’s motion to set aside was refused.
Orders ultimately made:
- Transfer of the defender’s one half share of 13b to the pursuer,
- Payment of a capital sum of £30,000 by the defender to the pursuer (a moderation from the notional balancing figure of £59,171, having regard to resources under section 8(2)).
Expenses:
- Between the parties: No expenses due to or by either party up to proof; the pursuer entitled to half his expenses of proof, but the defender’s liability modified to nil owing to legal aid and the section 18(2) Legal Aid (Scotland) Act 1986 factors.
- Between pursuer and minuter: No expenses due to or by either, save that the pursuer must meet the minuter’s expenses for the 15 August 2025 by‑order hearing (continuation sought by the pursuer).

Analysis

Precedents and Authorities Cited

Wilson v Wilson [2008] CSOH 161 (Lord Drummond Young, para 28): Used to support the proposition that inherited funds do not become matrimonial property merely because they passed through a joint account. Lord Stuart expressly agreed with this analysis in excluding the £45,000 inherited portion of the pursuer’s loans to the company from matrimonial property.
Sweeney v Sweeney (No 3) 2007 SC 396: Cited in expenses analysis. The Outer House accepted the general caution against applying “expenses follow success” with full rigour in consistorial disputes between spouses, but distinguished third‑party participation, indicating that the court should exercise discretion by reference to “substantial justice” across all the circumstances.
Scottish Law Commission, Report on Aliment and Financial Provision (No 67, 1981): Cited to underline that the 1985 Act is about redistribution of the net value of matrimonial property in pursuit of fairness—not the vindication of strict property rights. Lord Stuart’s two hypothetical illustrations vividly demonstrate why the statute’s aim is fair sharing rather than title formalism.
Family Law (Scotland) Act 1985: Multiple provisions govern the analysis—sections 8, 9, 10 (including s10(3A) on appropriate valuation date for transfers), 11, 15 (consents for transfer orders), and 18 (setting aside transactions).
Legal Aid (Scotland) Act 1986, s18(2): Applied to modify the assisted defender’s liability in expenses to nil.

Legal Reasoning

1) Identifying and Valuing Matrimonial Property

The court carefully separated the heritable subjects at No 13 into two titles (13a and 13b) with assistance from a conveyancing expert. 13a (upper two floors) was always the pursuer’s non‑matrimonial asset (gift from parents in 1995). 13b was fully inherited by the pursuer after his parents’ deaths; the pursuer then gifted a one half share of 13b to the defender in December 2014. Only that gifted half share constituted matrimonial property.

On valuation, the court preferred the evidence of the pursuer’s valuer (who inspected) over the defender’s desktop valuation, while taking the defender’s valuer’s “fair value” for the conservatory. The relevant date (5 February 2019) value adopted for 13b (including conservatory) was £515,000; the “current” value at October 2024 was £530,000. With an interest‑only mortgage of £215,852, the matrimonial element is only the defender’s free equity after returning the pursuer’s non‑matrimonial half share.

2) Transfer vs Sale: A Fair‑Value Transfer Method When Only One Half is Matrimonial

The defender sought sale; the pursuer sought transfer. Lord Stuart conducted a clear “what would sale mean in practice?” analysis. On a sale at £530,000:

First, repay the secured loan (= £215,852) → £314,148 left.
Then, return the non‑matrimonial half share (£265,000) to the pursuer → leaves £49,148 as the defender’s free equity.

The court held that a transfer to the pursuer at the equivalent of the defender’s free equity (£49,148) was fairer and more efficient than a sale (fewer costs, no need to physically sever 13a/13b arrangements). This is a noteworthy template for cases where only one co‑owner’s share is matrimonial property and the other’s is clearly ring‑fenced by inheritance.

3) Pensions and Special Circumstances (s10(6))

The parties agreed the matrimonial CETV element of the pursuer’s pension at £5,397. The court excluded it under s10(6) because contributions derived from pre‑relationship employment income. The judgment emphasises the Act’s flexibility to secure an objectively fair sharing where pension accruals do not reflect the wealth created during marriage.

4) Directors’ Loan Accounts and Inherited Funds

The pursuer’s relevant date balance was £441,540; his “marriage‑period” increase was £83,215 (after reconstructing pre‑marriage entries). Of this:

£45,000 proven to be inherited funds lent by the pursuer to the company—not matrimonial property (per Wilson v Wilson), notwithstanding transit through a joint account.
The balance was also excluded because fairness demanded it: the defender had received the whole of her own director’s loans back post‑separation, while the pursuer remained out of pocket with a large, apparently irrecoverable balance.

Importantly, the court treated the parties’ companies as separate legal persons: the 1985 Act does not underwrite the outcome of the parties’ commercial ventures, but it can reflect inequities in the division of matrimonial property that those outcomes produce.

5) Joint Account no. 4325 and the La Mondiale Investment

The defender had been assigned three investment segments during marriage to secure tax efficiency when encashed—upon assignation they became matrimonial property. Consequently, the account balance at separation (£15,723) remained matrimonial property.

A crucial distinction was drawn for the un‑encashed segment retained by the defender at separation (and encashed post‑separation for a net £26,107): the inherited origin justified an adjustment under s10(6), awarding the pursuer one half (£13,053).

6) Post‑Separation Ownership Costs for 13b

The pursuer had alone met post‑separation mortgage interest, council tax, utilities and repairs (~£105,484 by mid‑2025). The court articulated a simple, principled rule: if a co‑owner seeks to share in the upside (capital value increases or rental profits), that co‑owner should bear a fair share of the ordinary costs of ownership. The defender was ordered to reimburse one half (£52,742).

7) Economic Advantage/Disadvantage (s9(1)(b), s11(2))

The defender’s claims failed. Lord Stuart emphasised:

Any “loss of dividend” was not proved as a detriment “in the interests of” the pursuer or the family; moreover, shareholdings had nil value on unchallenged expert evidence.
Career choices (leaving medicine) were not credibly shown to have been made in the interests of the pursuer/family; the defender had agency and had not retrained in the six years since separation.
Expenditure on 13a created only marginal and diminishing capital improvement; in the round this was outweighed by years of rent/mortgage‑free occupation of a valuable home.

The balancing required by s11(2) yielded no net detriment/advantage for which an award was justified.

8) Periodical Allowance (s9(1)(d), s11(4))

The defender was not “dependent to a substantial degree” on the pursuer’s support either during marriage (both drew broadly similar remuneration from the companies) or post‑separation. Post‑separation she received about £148,575 (settlement sums and her director’s loan account), in addition to owning a property with significant equity. No award was justified.

9) Section 18: A Tripartite Test Confirmed, No Onus on Pursuer to Prove Bad Faith

Lord Stuart endorsed a three‑stage approach:

Threshold (s18(2)): Did the transfer or transaction have (or is likely to have) the effect of defeating, in whole or in part, a relevant claim?
Third‑party protection (s18(3)): If the threshold is met, are the third party’s rights protected (good faith acquisition for value)? If so, the court “shall not” prejudice those rights.
Residual discretion: Even if (1) is met and (2) does not protect the third party, the court still has discretion whether to make an order.

On the facts, step (1) failed because even after deducting the minuter’s secured loan, the defender retained substantial equity; therefore, the security did not defeat the pursuer’s claim. Notably, the court observed that section 18 does not require the pursuer to prove bad faith (the law does not generally require proving a negative); rather, if the threshold is crossed, it is for the third party to explain the circumstances and good faith. This allocation of analytical burden is a helpful clarification for future section 18 disputes.

10) Resources (s8(2)) and the Calibrated Capital Sum

After netting off all elements, the arithmetic suggested a balancing payment of £59,171 in the pursuer’s favour. However, section 8(2) requires orders to be reasonable having regard to resources. On the (imperfect) evidence of both parties’ current resources, the court moderated the award to a £30,000 capital sum, aligning with the Act’s “clean break” emphasis and the reality of available means.

11) Expenses: Parties and Minuter

Between the spouses, the court applied the general matrimonial approach (no expenses) pre‑proof, with a tempered award post‑proof that was ultimately modified to nil due to legal aid considerations. Between the pursuer and the minuter, the court rejected a rigid “expenses follow success” rule for third parties in consistorial actions. Instead, it adopted a holistic “substantial justice” test, taking account of:

The reasonableness of the pursuer’s apprehensions when he convened the minuter.
Delays in the minuter’s document disclosure that drove costs.
That the pursuer offered to abandon against the minuter on a no‑expenses basis once he had the key documents.
That the proof could have been avoided had the defender accepted a settlement offer matching the eventual outcome.

The result was no expenses due to or by between the pursuer and the minuter, save that the pursuer must pay the minuter’s expenses for the first by‑order hearing (which he had sought to continue).

Impact

Section 18 road‑map: The judgment provides a concise and practical tripartite structure for s18 applications and clarifies that the pursuer need not prove bad faith. Practitioners should frame pleadings and evidence accordingly: establish “defeating effect” first; then anticipate good‑faith responses; finally address discretion.
Inherited funds through corporate channels: The decision re‑affirms that inherited monies lent to a third‑party company do not become matrimonial property merely by passing through joint accounts. If needed, s10(6) supplies a fair‑sharing adjustment.
Transfer vs sale when only one share is matrimonial: The court’s method—pricing a transfer at the defender’s free equity after returning the non‑matrimonial half—offers a replicable template that avoids unnecessary sale costs and reflects the genuine matrimonial stake.
Post‑separation cost sharing for interest‑only mortgages: Where capital does not reduce, and any upside is in capital value, a co‑owner’s claim to benefit engages a corresponding obligation to share ownership costs. Expect more claims for reimbursement on this footing.
Economic advantage/disadvantage and periodical allowance: The decision underscores the evidential rigour required. Career decisions must be shown to be in the interests of the other or the family, and claims to dependency must be tested against actual post‑separation receipts and resources.
Expenses with third‑party minuters: The court’s “substantial justice” approach—eschewing a bright line between spouse and third party—signals that disclosure conduct and settlement dynamics will influence orders. Early, complete compliance with diligence can be outcome‑determinative on expenses.

Complex Concepts Simplified

Matrimonial property: Property acquired during marriage (before the relevant date), except by gift or succession from a third party. The non‑matrimonial half of 13b remained the pursuer’s because it was inherited and never converted into matrimonial property except for the half he gifted to the defender.
Relevant date: Generally the separation date (here, 5 February 2019). Values are typically fixed at this date for identifying the net matrimonial property to be fairly shared.
Special circumstances (s10(6)): A discretionary tool to justify unequal sharing—for instance, where the source of funds was inheritance, or where strict equal division would be unfair.
Standard security: A heritable security (akin to a legal mortgage) over land in Scotland. Here, the defender granted a standard security to the minuter.
Section 18 applications: A statutory mechanism to set aside (or interdict) pre‑claim transactions that defeat financial provision claims. The court follows a three‑step analysis: threshold effect, third‑party good faith, residual discretion.
Director’s loan account: A running account between a director and their company. Sums advanced are debts due back from the company; repayments to a spouse post‑separation may be highly material to fair sharing.
CETV: Cash equivalent transfer value of a pension. Only the portion attributable to marriage is potentially matrimonial property, and even then may be adjusted under special circumstances.
Periodical allowance (s9(1)(d)): Short‑term support (maximum 3 years) to adjust to the loss of financial support on divorce. It is available only if a spouse was substantially dependent on the other.
Minuter: A third party formally entering the process to protect their interests when orders are sought against them or their property.
Section 15 FL(S)A 1985: Practical safeguards for transfer orders—necessary consents (e.g., from lenders) must be in place before transfer is ordered.

Conclusion

F v F and A is a careful, worked example of the 1985 Act in action, illustrating that fair sharing is about redistribution of the net value of matrimonial property, not the vindication of raw title. Three aspects stand out:

Section 18 clarity: The court confirms a structured, three‑stage approach and emphasises that a pursuer need not prove bad faith—sharpening the analysis for future attempts to set aside third‑party securities.
Fair‑value transfer method for mixed‑source homes: Where only one half share is matrimonial, the price of transfer should reflect the genuine free equity attributable to that share, rather than trigger a blunt sale.
Robust application of special circumstances: Inherited funds used via corporate channels remained non‑matrimonial, and post‑separation cost sharing was enforced to prevent windfalls for non‑contributing co‑owners.

The decision will be practically influential in Scottish family law for its clear valuation method, its principled handling of inherited assets and corporate loans, its disciplined approach to section 9 claims, and its nuanced treatment of third‑party expenses. Family practitioners and litigants alike should note the court’s emphasis on evidence, resources, and the clean‑break objective animating the 1985 Act.