Financial awards in Scottish divorce actions

26 June 2012

A new rule for Scottish divorce actions will soon come into force which will dramatically change how financial awards will be dealt with.
Basically, if a party is making a claim or defending a financial claim, the party will have to sign a declaration at the outset listing what he or she believes the assets and debts were when the separation took place.
The Act of Sederunt was made on 6th June 2012 and is due to come into force on 1st August 2012. The change to the rules will only affect actions raised after 1st August.
In the usual way, there are a range of miscellaneous changes made to the Court rules, but paragraph 4 makes a key change to how financial claims are to be handled.
(There are also changes which relate to financial claims on the dissolution of civil partnerships – please contact us for specific advice on that, but we’ll assume here that the action is one of divorce where a financial claim is being sought.)
In divorce actions where a financial award is sought, one of the biggest issues is identifying which assets and debts should comprise matrimonial property.  
In any family matter (with or without a court action) where spouses are endeavouring to split their finances, there are usually three key steps which have to be undertaken:-
  1. Identifying the assets and debts which fall within the definition of “matrimonial property”;
  2. Valuing those assets and debts as at the “relevant date” (usually the date of separation, but some values are to be after the relevant date, say, the matrimonial home or certain policies); and
  3. Assessing what would be a fair division of the matrimonial property, taking into account the resources of the parties. 
The trouble is that often actions are raised or negotiations undertaken without the assets and debts first of all being identified.  Unless they are identified, it is impossible to tell which assets and debts should form matrimonial property, or which assets and debts should be valued, or what a fair division of matrimonial property would be.  (Of course, parties may “do a deal” at any time without going through that full process, as long as they know that it may or may not be a fair division of matrimonial property and that they may be losing out.)
We have other pages which help explain the whole process a little further – see our articles on financial claims and separation agreements, and family law resources for further information. 
The new rule due to come into force on 1st August 2012 seeks to remedy the common problem of a failure to identify assets and debts at an early stage in a divorce action. For a court to make a financial award there needs to be information regarding which assets and debts should be taken into account. However, actions are often raised or defended where the information about matrimonial property is vague or incomplete.
Therefore, the new rule states that in family actions where someone seeks an order for financial provision (either at the outset or later during the action), the party must lodge a completed Form F13A. (You can see the style of the form here.)
If, for example, a party was to raise an action of divorce and seek a capital sum, then before the paperwork is even lodged with the Court to start the action, the party would require to complete and sign a Form F13A.
The rule goes on to state that if an action has been raised against a Defender, and the Defender either opposes a financial award or wants to make their own claim for a financial award, then the Defender must complete and sign their own Form F13A, which is then lodged with the Court. This is at the time when the Defender lodges written Defences (or, less often, later in the action when responding to or making a claim after the action has been raised).
The aim of the new rule is a good one, and we have always encouraged the early disclosure and identification of assets and debts to be taken into account. We hope that the new rule will allow the whole process to work more effectively and with greater transparency.
However, there are a few issues with this new rule. 
The first issue is a practical one. If a party wishes to make a financial claim in an action, the party will have to disclose to their solicitor, prior to an action being raised, all of the information they have regarding assets and debts which were in their sole name or in the joint names with their spouse.  Actually, this is good practice and one which we adopted long ago, but it should certainly be borne in mind. No longer can actions simply be lodged in Court with a half-hearted approach to identifying assets and debts or by addressing it later once the action is up and running. The matter must be addressed before the action is even booked into Court.
The second issue is for those who have actions raised against them. A Defender may have had no warning that an action was going to be raised. Therefore, a Defender is somewhat on the “back foot”, having to respond very quickly by completing a form listing assets and debts.  Sometimes a process of investigation has to take place and it often takes time to pin down what the assets and debts actually were. Therefore, for those who have actions raised against them, they will be under some pressure to complete the form. It is unclear if a Defender will be specifically told that a Form F13A needs to be lodged (in the service papers received or in the Form G5, which gives the date for lodging Defences, but may not state a Form F13A should be lodged along with the Defences). It is also not clear if a sheriff clerk will refuse to accept the lodging of Defences without a Form F13A, or if the other side may make a motion for decree by default if no Form F13A is lodged, which will probably be responded to by the lodging of the form or time allowed for it to be lodged.  In situations like that, it is imperative that someone instructs a solicitor as soon as they receive service of court papers against them.
The next issue is in relation to what it is to be put into the form, especially when a party is uncertain about which assets and debts make up matrimonial property.
The form states in its heading that it is a “statement of matrimonial property”. The phrase “matrimonial property” has a specific definition in the relevant legislation, and does not include certain items even if they are owned by a party. This could include an item which was a gift from a third party or which was inherited. However, the relevant new rule does not state what is to be in the form. The relevant box in the form simply states that a party is to list all assets “owned by you”. Should this just be limited to the definition of what is “matrimonial property” (potentially narrower than what is actually “owned by you”), or should it be everything “owned by you”, even if not “matrimonial property”?  Although the form’s heading tends to suggest that it is a “statement of matrimonial property”, the boxes to be completed are to detail your “financial position”. Your “financial position” or what was “owned by you” may or may not be anything like what a party had by way of “matrimonial property”, and the phrases are not synonymous. We have been involved in one case where the other spouse inherited almost £1M. None of that money was strictly “matrimonial property”, but was part of the person’s “financial position” and it was “owned” by them. Would that person be justified in leaving the £1M out of the new form, if it is simply to be a “statement of matrimonial property”? The £1M was, after all, not matrimonial property.
A further point is that the form is to state what the assets and debts of the individual were at “the relevant date”. That date is most often the date when the parties separated and ceased to cohabit. However, the definition can also include the date when the action is served, if the parties have not yet ceased to cohabit. We were involved in one such case last year. Therefore, in a case like that, the relevant date has not yet taken place, yet a party is to list the assets and debts as at the relevant date, in advance of the relevant date taking place. A small point, but potentially important in rare cases.  
Also, the form specifically states that a party need not list the assets and debts in the sole name of the other party. A party only need list the assets and debts in his or her sole name, or in joint names with the other party. Without the assets and debts in the sole name of the other party, the information regarding which assets and debts which make up matrimonial property is necessarily incomplete.
Thankfully, even in relation to the party lodging the information about their own assets and debts, the form states that “this information is correct to the best of my knowledge and belief”. This should rule out anyone being tempted to provide false information or failing to disclose assets or debts which they are aware of, but there may be occasions when a party is simply unaware of certain items, or perhaps the other party dealt with all the financial arrangements or has retained all the paperwork and has refused to communicate about financial arrangements of the relationship. 
It is not yet clear what consequences a false declaration in the form may mean for a party (either putting down false information or failing to disclose an asset or debt which they are well aware of). It is also not clear what weight a sheriff may give to the form once the action is up and running, and the written pleadings then begin to expand on the financial background in greater detail. No doubt it will not be too long before a solicitor for the other side points to the form to suggest false information or concealment by a party, or tries to use it to affect the credibility of a spouse under cross-examination, or as the basis to recover documents to back up the information in the form. It may even be only a matter of time before some solicitor raises the prospect of “contempt of court” in relation to a party who has deliberately made a false declaration or a failure to disclose.
Another issue which comes to mind is that although one has to list assets and debts, it is not clear how specific the information has to be.  (For example, there is a big difference between an entry which states “Joint current account with AB plc, High Street Bank, Any Town, Sort Code: 80-12-34, Account Number: 00123456,  with credit balance £2,645.23” and an entry which simply states “Joint bank account” without any further detail.) It is also not clear if valuations should be provided, or if an asset or debt should just be identified.  Valuations are vital to assessing what a fair division of matrimonial property should be, but it is not clear that valuations are necessary. We have heard that valuations will not be expected, and hopefully sheriffs will agree.

Also, in making an assessment regarding a fair division of matrimonial property, both present and foreseeable resources of each party should also be taken into account. However, there appears to be no expectation that present and foreseeable resources are to be listed anywhere, unless the form is not to state “matrimonial property” but everything “owned by you” - but even that is to be at “the relevant date” and not at the present time.  A “Section 20 Motion” can be made seeking the other party to disclose their resources but, again, due to the wording of the relevant provision, it is rarely used, and largely because of all of the reasons listed above. There is little sanction for failure to disclose, and no compulsion to provide specific details or any valuations. There is the potential for the new Form F13A to fail to fulfil its aims because of these same issues.  Having said that, the intention behind the new rule is a good one, and goes some way towards greater clarity and transparency in assessing financial awards. Hopefully, the affect of the new rule will be positive and lead to better practice in the conduct of family law actions. Clarification as to how the new form is to be used would be helped if a sheriff principal’s practice note could be issued (during July).

The Form F13A is the beginning of a process of a better exchange of information and will no doubt be subject to amendments or guidance in due course. How it is used by solicitors and viewed by sheriffs will refine its use in practice. We understand it is already acknowledged that the reference to section 11 cases (with no financial craves) should not be there, and there may be a minor amendment soon to clear that up.
If you require further advice regarding divorce, separation, financial awards or any other family law matter, please do not hesitate to get in touch with our Gus Macaulay by sending Gus an e-mail or telephoning him on 0141 229 0880.

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