SARAH LOUISE GUNN OR FOSTER AGAINST ROSS STEWART FOSTER

Factual and Procedural Background

This appeal concerns the financial provision on divorce between the parties who married in 2004 and separated in 2019. The dispute centers on the fair sharing of matrimonial property, particularly the wife's shares in a private limited company operated by the husband. The parties have three children, with the youngest aged 15 at separation. The parties were unable to agree on financial provision and litigated the matter at proof in May 2022 before the Lord Ordinary. The principal matrimonial assets included two jointly owned heritable properties and shareholdings in a company ("Company A") and its subsidiaries engaged in housing development.

At first instance, the Lord Ordinary found the wife's 30% shareholding in Company A valued at £858,547 at the relevant date, increasing to £1,216,224 by proof, and the husband's 70% shareholding valued correspondingly higher. The wife had been a director of Company A and its subsidiary but claimed exclusion from management post-separation. The Lord Ordinary concluded she remained a director despite the husband's attempts to remove her.

The Lord Ordinary held that while the wife had remedies under company law for unfair prejudice, such proceedings would be expensive and complex. The court found no proper basis under the Family Law (Scotland) Act 1985 to order a capital sum payment reflecting the value of the wife's shares or to order their transfer to the husband. Instead, a periodical allowance and an adjustment to the balancing payment were made to reflect economic disadvantage. The wife appealed this decision.

Legal Issues Presented

1. Whether the court has power under the Family Law (Scotland) Act 1985 to order payment of a capital sum in exchange for transfer of a spouse’s shares in a private limited company as part of financial provision on divorce.
2. Whether the Lord Ordinary erred in concluding that it was not reasonable to make such an order having regard to the parties' resources.
3. Whether the court should consider instalment payments as a method to facilitate fair sharing of matrimonial property where immediate payment is not feasible.
4. How to assess present and foreseeable resources, including future profits and dividends, in determining the reasonableness of financial provision orders.
5. The impact of the husband's criminal conviction and conduct on the desirability of achieving finality and a clean break in financial and business relations between the parties.
6. The appropriate valuation date for the shares in light of statutory provisions and recent amendments to tax law.

Arguments of the Parties

Appellant's Arguments

• The court should recall the Lord Ordinary’s interlocutor for failing to provide for payment of a capital sum in exchange for transfer of the wife’s 30% shareholding in Company A.
• There is statutory power under the Family Law (Scotland) Act 1985 to order payment by instalments, facilitating a clean break despite the asset’s illiquidity.
• The Lord Ordinary erred in law and fact by not properly assessing the husband’s resources or considering instalment payments.
• The husband’s criminal conviction and attempts to remove the wife as director justify securing her early exit from the company for finality and safety.
• It is unreasonable to expect the wife to pursue complex and costly company law remedies post-divorce.
• The recent amendments to the Taxation of Chargeable Gains Act 1992 remove the prior tax concerns regarding transfer of shares by court order.
• The wife offered an undertaking to transfer her shares to the husband upon payment of the capital sum, and instalments could be structured over four years.

Respondent's Arguments

• The Lord Ordinary’s decision to leave both parties with their shareholdings was within her wide discretion and should not be disturbed absent material error.
• The evidence of the company’s financial position was outdated and uncertain, with no current projections provided.
• The preferred method for the husband to acquire the wife’s shares was via a new company or buy back, not by dividend payments to fund instalments.
• Declaring dividends sufficient to fund the capital sum would have significant tax implications and was not supported by the evidence.
• There were no exceptional circumstances to justify altering the valuation date from the relevant date or date of proof.
• The husband’s conduct, including the domestic abuse conviction, was not pleaded or argued as relevant under section 11(7) of the 1985 Act for financial provision purposes.
• The husband did not assert inability to pay but maintained a commitment to acquire the shares by other means, and the court should respect the discretion exercised at first instance.

Table of Precedents Cited

Court's Reasoning and Analysis

The court confirmed that the Family Law (Scotland) Act 1985 provides a statutory framework enabling the court to make flexible orders concerning financial provision on divorce, including payment of capital sums and transfer of property such as shares. Sections 8, 9, 10, 11, 12, and 14(2)(k) collectively empower the court to order capital sums payable by instalments and ancillary orders for transfer of shares to achieve fair sharing of matrimonial property.

The court found that the Lord Ordinary erred in failing to consider instalment payments as a viable method to enable the husband to pay the wife for her shares. There was no explicit analysis in the Lord Ordinary’s opinion regarding instalments or future profitability of the company as resources to meet the capital sum.

The evidence indicated that the company remained profitable with significant reserves and ongoing projects likely to generate profits. Although no updated projections were provided at proof, the court took into account later tendered accounts suggesting continuing profitability sufficient to fund payments over time.

The court rejected the notion that only immediate resources at the relevant date should be considered, emphasizing the importance of present and foreseeable resources, including future dividends and profits.

The husband’s conduct, including a criminal conviction for abusive behavior and attempts to remove the wife as director, while not relevant to the quantum of financial provision, was relevant to the desirability of finality and a clean break to avoid ongoing business entanglement.

The court also addressed the effect of recent amendments to the Taxation of Chargeable Gains Act 1992, which remove immediate capital gains tax charges on share transfers made pursuant to court orders, alleviating earlier tax concerns.

The court concluded that the Lord Ordinary’s refusal to make an order for capital sum payment in exchange for transfer of shares was not justified by the evidence or law, and that the matter should be reconsidered with proper regard to instalment payments and prospective resources.

Holding and Implications

The court allowed the reclaiming motion, recalled the Lord Ordinary's interlocutors of 3 May 2023, and made fresh orders including:

• Granting decree of divorce and making other intended financial provision orders.
• Ordering payment of a capital sum of £1,100,000 in four equal annual instalments to the wife commencing 31 January 2024, with interest on unpaid amounts.
• Ordering an ancillary transfer of the wife’s entire 30% shareholding in Company A to the husband within 28 days of decree of divorce.
• Adjusting periodical allowance payable to the wife to bridge financial independence until instalments progress.
• Recording an undertaking by the wife regarding shareholder agreements and ordering the husband to indemnify her under those agreements.

This decision resolves the principal matrimonial property dispute by facilitating a clean break through structured payments and share transfer, reflecting the court’s flexible powers under the 1985 Act. No new precedent was set; rather, the court applied established principles to correct errors of law and fact at first instance. The case underscores the importance of considering instalment payments and prospective resources in financial provision cases involving illiquid assets such as private company shares.