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When spouses separate and require financial resolution between them as a result, in Scotland they will be advised by family lawyers that they are entitled to fair division of the net matrimonial property.  In general terms matrimonial property includes all assets belonging to the parties individually or jointly which was acquired during the period of marriage and held as at the date of separation, less any debts similarly held by the parties individually or jointly as at that date, subject to a few exceptions.                                                                                                                                                                                                                                

A pension will quite often fall into the definition of matrimonial property.  It is necessary to obtain a cash equivalent transfer value of the pension to determine its capital value.  Thereafter a calculation is carried out in terms of Regulation 4 of The Divorce etc (Pensions) (Scotland) Regulations 2000 to determine how much of the pension is attributable to the period of the parties’ marriage.  Regulation 4 provides us with the following formula to aid calculations:

formulae

  • A is the value of the rights/interests in any benefits under the pension arrangement;
  • B is the period of C which falls within the period of the marriage of the parties before the relevant date;
  • C is the period of the membership of that party in the pension arrangement before the relevant date.

Whilst this seems a fairly straight-forward formula the interpretation of the phrase “period of membership” has resulted in differing opinions over the years.  Should “period of membership” include a person’s period of active membership in a scheme only, or should all other types of membership such as deferred or pensioner membership also be encompassed in that definition? This matter was raised in the case of McDonald v McDonald where some direction and clarification was ultimately provided for family law practitioners from the Inner House on appeal.  However, with the decision having been further appealed to the UK Supreme Court in May 2017, we presently await that decision and confirmation as to whether this will indeed unravel our current interpretation of the Regulations.

Facts

Mr McDonald became a member of the British Coal occupational pension scheme in 1978.   The parties married in 1985.  Just five months into the marriage Mr McDonald required to retire on the grounds of ill health.  This resulted in him ceasing to contribute to his pension and instead he began to receive an income from it, thereby making him effectively a pensioner member of the scheme.  The parties separated in 2010.  A pension sharing order was sought by Mrs McDonald in the divorce proceedings.  A dispute arose as to the correct interpretation of Regulation 4 and the corresponding calculation for apportionment.   Mr McDonald submitted that the period of membership meant his “active membership” in the scheme only, ie the time during which the benefits in the pension were accrued.  Using this interpretation, Mr McDonald’s pension rights were calculated at £10,002.  Mrs McDonald however submitted that her husband had been a member of the pension scheme for the entire period of their 25 year marriage.  Using her interpretation, Mr McDonald’s pension rights were calculated at £138,734 – a significant difference.   The Sheriff at first instance agreed with Mr McDonald that the period of membership must mean the period of “active” membership in the scheme.   

Mrs McDonald appealed to the Inner House of the Court of Session in 2015.  By majority decision, the Inner House agreed with the Sheriff and determined that the phrase “period of membership” referred only to the period when contributions towards a pension are being made. It was considered that interpreting it another way would go against the grain of the principles of Scottish family law legislation.

Whilst family practitioners conceivably thought we now had some clarification following the Inner House decision, Mrs McDonald perhaps unsurprisingly appealed further to the Supreme Court.  The appeal was heard on 11th May 2017 and we await the decision with baited breath.  Will the Supreme Court overturn the decision of the Inner House?  Will this leave us with more or less clarity?  It is an important time for family practitioners and clients going through a separation.  Watch this space!

Michelle Fearn, Associate

Chambers UK 2018

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