This case centred on the division of matrimonial property under Section 10 of the Family Law (Scotland) Act 1985, focusing on the valuation and transfer of shares in a private company as part of the matrimonial estate.
Background
Sarah Louise Gunn or Foster and Ross Stewart Foster separated in October 2019 after 16 years of marriage. The relevant date was set as 15 October 2019. Their primary asset was RRR Holdings Limited, jointly owned by Sarah (30%) and Ross (70%). By the relevant date, Sarah’s shares were valued at £858,547 but increased significantly due to retained earnings.
Sarah sought an order under Section 8(1)(a) of the Act, requiring Ross to purchase her shares for a capital sum. Ross contended that this was unfeasible due to liquidity constraints and proposed alternative mechanisms, including deferred payments or valuation adjustments.
Key Issues
- Business Valuation in Divorce:
The court applied Section 10(4) of the Act to determine the value of Sarah’s shares. While Ross’s expert based valuations on net asset value, Sarah’s expert incorporated future profitability, arguing that the business’s growth potential was linked to her marital contributions. - Practical Considerations in Payment:
Ross’s proposed five-year payment plan was scrutinised under Section 14(2), which allows the court to make incidental orders to implement financial provision. Sarah argued that delayed payments would disproportionately disadvantage her, given her lack of access to company resources. - Fair Sharing:
The principle of fair sharing under Section 9(1)(a) was central to the court’s decision. Sarah contended that equal sharing should reflect not only the relevant date valuation but also her indirect contributions to the company’s growth.
Court’s Findings
The Inner House concluded that Sarah’s proposal for a capital sum was reasonable and aligned with the principles of fair sharing. The court ruled that:
- Ross was to purchase Sarah’s shares for £1,100,000, payable in annual instalments over four years.
- The valuation method adopted was a compromise between net asset and growth-based valuations.
The court rejected Ross’s alternative mechanisms, finding them speculative and impractical under the circumstances.
Significance for Family Law
This decision underscores the nuanced approach of Scottish courts in addressing business assets in matrimonial property disputes. It demonstrates the importance of expert evidence, tailored payment structures, and adherence to statutory principles under the Family Law (Scotland) Act 1985.