This case examined the financial provision for divorce under the Family Law (Scotland) Act 1985, focusing on the valuation and division of business assets, specifically Sarah Gunn or Foster’s 30% shareholding in RRR Holdings Limited, and the principles surrounding the allocation of legal expenses.
Background
Sarah Gunn or Foster and Ross Foster were married for 15 years before separating on 15 October 2020, which was established as the relevant date under Section 10(3) of the Family Law (Scotland) Act 1985. The primary matrimonial asset was Sarah’s 30% shareholding in RRR Holdings Limited, a private limited company controlled by Ross, who owned the remaining 70%. At the relevant date, Sarah’s shares were valued at £858,547 but grew significantly due to retained earnings and business growth.
The couple’s dispute centred on the valuation method for the shares, the payment structure, and whether Sarah was entitled to recover her legal expenses.
Key Issues
- Valuation of Business Shares:
Valuation of matrimonial property is governed by Section 10(4) of the Family Law (Scotland) Act 1985, which specifies that the property should be valued as at the relevant date. Ross argued that the valuation should exclude retained earnings accrued after the relevant date, while Sarah maintained that the full growth potential of the company should be included. - Payment Mechanism and Liquidity:
Section 8(1)(a) of the Act allows for orders of payment in respect of matrimonial property. Ross claimed he lacked liquidity to pay Sarah the full value of her shares immediately and proposed payment in instalments over five years. Sarah argued that this delayed payment posed significant financial risks to her. - Legal Costs:
Sarah sought full recovery of her legal expenses under Rule 42.1 of the Rules of Court, arguing that she was forced to litigate to secure a fair outcome. Ross contended that costs should be shared, given his partial success on valuation issues.
Court’s Findings
The Inner House overturned the earlier decision of the Lord Ordinary, siding with Sarah on the valuation issue and determining:
- Sarah was entitled to a capital sum of £1,100,000 for her shares, reflecting expert valuations that included retained profits and the company’s potential growth.
- The payment was to be made in four annual instalments, balancing fairness to Sarah with Ross’s liquidity concerns.
- On legal costs, Sarah was awarded full recovery for the reclaiming motion and 50% of the costs incurred during proof, reflecting her partial success.
The court highlighted that Section 9(1)(a) of the Act—promoting fair sharing of matrimonial property—was central to its reasoning. It acknowledged that Sarah’s exclusion from the company’s operations post-separation and the retained profits warranted adjustments to ensure fairness.
Significance for Family Law
This judgment demonstrates how Scottish courts address disputes involving business assets, balancing the principles of fair sharing under Section 9(1)(a) with practical considerations, such as liquidity. It reinforces the importance of robust expert evidence in valuing business interests and the strategic use of legal mechanisms to secure equitable outcomes.
For tailored advice on financial provision and matrimonial property disputes, contact Rooney Family Law.