Sell or transfer?

Family law practitioners will be familiar with the problem. The parties separated some time ago. It might have been some months, and not unusually, some years. No advice was taken at the time of the separation (because "there were enough problems at the time without introducing lawyers into the situation"). The parties (often by default) do what they feel is the right thing at the time. The wife/mother typically continues to reside in the matrimonial home; the husband/father continues to pay the mortgage premiums because statistically he is likely to have the larger income; life more or less continues as it was before except that the couple are living apart and there is less money available because now two homes are being maintained (one of which is often rented on a temporary basis). A point arrives when one or both of the parties want to "sort things out" – so what happens next?

The family lawyer will go through the required process of explaining the principles and guidelines of the Family Law (Scotland) Act 1985 to the client and, in particular, the need to identify and value the matrimonial property at the relevant date (which will usually be the date of separation). It will be explained to the client that there are five principles of fairness built into the legislation, the purpose of which is to ensure that a fair and viable outcome will be achieved for both parties. A start will be made to compiling a draft schedule of matrimonial property and it is usually at that point that the client will direct your attention to the important fact that the jointly owned matrimonial home was worth, say £250,000 when they separated but will now be worth around £400,000 two years later. If your client is the husband who has followed the typical path in the previous paragraph, he will often say that he would now like to sell the home with a view to shaking out some capital to enable him to put down a deposit on another property because he is fed up renting and wants a better home in which to accommodate his children during contact visits. He may say that his wife wants to stay in the house and he will tell you that she is being unrealistic. He explains that a transfer will not be possible because the house is the most valuable asset and the time has now come for both parties to have the benefit of a decent home and move on.

You tell him about the Wallis case and explain that the court has power to make a transfer order, which requires to take account of the relevant date value, and that if his wife succeeds in convincing the court that a transfer order is appropriate, she will receive a windfall of £150,000. He looks at you in disbelief and wails "But that’s just not fair!" More colourful responses have been known. You then tell him that the court also has the power to order a sale. He brightens and tells you quickly that’s exactly what he wants, now get on with it: you tell him it’s not so simple. You then explain the nature of the debate thrown up by Wallis 1993 SC(HL) 49, Jacques 1997 SC(HL) 20, Christie 2004 SLT (Sh Ct) 95, AM or W 2004 Fam LR 54, Kennedy 2004 SLT (Sh Ct) 102, Dudley (Edinburgh Sheriff Court, March 2004, unreported) and now McCaskill 2004 Fam LR 124. He looks at you in disbelief and as if the world has gone mad. He says weakly "I thought you said the 1985 Act was supposed to ensure a fair outcome for both sides"? You are now on the back foot. He asks you for a risk assessment in his case. How do you answer?

The reality of course, is that while family lawyers know that there is as much art as there is science in dealing with this issue, clients nevertheless expect clear answers. The issue of "fairness" is subjective to clients, although for lawyers the 1985 Act tells us that fair means equal unless there are special circumstances justifying an unequal yet fair split. However, the issue of fairness is further complicated by the valuation process itself. Surveyors are typically invited to value the matrimonial home at the relevant date and also at a date proximate to the proof so that the difference in value (if any) can be thrown into stark relief. The basis of valuation is as between a hypothetical willing purchaser and willing seller. There is a widespread view amongst practitioners that such valuations will always be behind the true market because valuations inevitably (and quite properly) are reliant to some extent on historical data. Surveyors know that their reports will require to be justified by evidence at proof. No prudent surveyor is going to give an extravagant (or even optimistic) valuation that contradicts historical data even although the surveyor may believe that with the right buyer, the property could sell for significantly more than the valuation provided. In Edinburgh, where there has been an inflationary property market for years, this is a particular problem. Other areas of the country are similarly afflicted. Most people know of instances where properties sold for double the asking price. When this is factored into the transfer/sell debate, it can lead to a "double whammy", i.e. not only is the property transferred at the relevant date value, the value proposed may be too low. A sale of the property avoids such a difficulty. Property prices can of course also go down, but that tends not to be the situation in the reported cases largely because any decline in the property market has tended to be temporary and is overtaken by the timescale of litigation (with most proofs reaching court at least two years after the relevant date).

There is no straightforward answer to this dilemma, which, in the absence of legislative reform, is likely to continue. (There is an opportunity here for the Scottish Executive with the proposed family law reforms.) However, some clarification is at hand. I would respectively suggest that the appeal decision in McCaskill goes far in assisting family law practitioners in dealing with the hypothetical scenario set out above. The Sheriff Principal has made a number of important observations. At [13] he states: "It is important to notice at the outset that the parties are the pro indiviso proprietors of the flat. On the ordinary principles of the common law of property, any increase in the value of jointly owned property enures to the benefit of all the joint owners".

In this case the property had increased in value by 122% between the relevant date in August 1998 and the proof in January 2004. The husband was in residence and sought a transfer to himself subject to payment of a capital sum to his wife calculated by reference to the overall value of the matrimonial property at the relevant date and which would have resulted in (more or less) equal sharing of the relevant date values. He went on to say: "there is nothing in the whole circumstances of this case to indicate that that would be an appropriate result. It could not reasonably be described as fair, practicable, and in accordance with common sense. It would be so inequitable that no reasonable sheriff properly exercising his discretion could conceivably make such an order".

The Sheriff Principal suggests a structured approach to the problem:

In McCaskill the Sheriff Principal considered that all the sheriff at first instance needed to do, in relation to the home, was "to consider the two options offered by the parties in their pleadings and then decide in the exercise of proper judicial discretion which of them would achieve a fair and practicable result in accordance with common sense". The court was less concerned with an exploration of "special circumstances".

He concludes famously by observing: "The correct reason for not making a transfer order in this case is simply that it would have led to a wholly unjust result". Never was a truer word spoken!

We can learn a lot from McCaskill. We will do well to remember that a structured approach to the application of the principles of the 1985 Act will usually lead to an acceptable outcome to both sides (whether or not my view of "fairness" is the same as yours); we should not forget that common sense has a role to play; and, finally, the court continues to have a considerable measure of discretion. In this connection there is a tendency sometimes to overlook Lord President Hope’s dicta in Little (possibly because it was decided some years ago), but in my view it remains a benchmark case for practitioners in terms of offering guidance to the correct approach. The decision in McCaskill follows this excellent tradition.

Leonard Mair, Head of Family Law, Morton Fraser