Wallace v Wallace [2025] CSOH 73 (Outer House, Court of Session)

Unequal division allowed where husband’s tax liabilities and wife’s career disadvantage justified adjustment

Background

This Court of Session decision by Lady Carmichael addressed financial provision on divorce after a 22-year marriage between two solicitors. The key issue was whether equal sharing of substantial matrimonial property—valued at around £9.25 million—would be fair given the husband’s corporate-tax position and the wife’s reduced earning capacity from years spent as primary carer.

The husband was sole shareholder in a holding company, Building Law Practice Holdings Ltd (BLPH), valued at £3.64 million at the relevant date. The wife sought equal division; the husband argued that his potential tax liabilities in funding a capital sum and his business structure created special circumstances under section 10 of the Family Law (Scotland) Act 1985.

Key legal issues

• whether the husband’s future tax exposure and illiquidity of company assets justified departure from equal sharing;
• whether the wife’s economic disadvantage from part-time work and childcare should balance any such departure;
• how to calculate a reasonable capital sum payable under sections 8 and 9 of the 1985 Act.

Findings

At separation the parties’ assets comprised the former matrimonial home, pensions and extensive investment portfolios. The husband had bought a new home using funds loaned from BLPH and partly repaid that loan before proof. He argued that paying a large capital sum to the wife would require declaring a dividend from BLPH, triggering heavy income-tax liability, and therefore equal sharing would be unfair.

Lady Carmichael accepted that the wife’s economic disadvantage—arising from years of part-time work, maternity leave and career breaks—required correction. She also found that both parties contributed to childcare, but the wife bore the greater share. The husband’s argument that emotional support to his wife created an economic disadvantage was rejected as unfounded.

Decision

The court valued the matrimonial property at £9.25 million. Half of that figure, less agreed adjustments, indicated a potential balancing payment of about £1.48 million to the wife. After reviewing the evidence, Lady Carmichael treated the husband’s prospective dividend-tax liability as a special circumstance warranting limited adjustment but refused to allow full deduction.

She noted that the husband had voluntarily used liquid assets to buy a personal home in a tax-efficient way; he could have instead used those resources to pay the capital sum. Nonetheless, because dividends from the holding company would incur real taxation costs, some allowance was appropriate. The final capital award was fixed at £1.2 million, payable within 28 days, together with transfer of the former matrimonial home to the wife.

Lady Carmichael held that fairness required recognising both the wife’s economic disadvantage and the husband’s genuine tax costs, but warned that “tax exposure alone is not a licence for unequal division.”

Key takeaway

This judgment demonstrates how courts balance liquidity and tax considerations against fairness in high-value divorces. Potential tax on dividends can be a special circumstance under section 10(6), but only if genuinely unavoidable. The decision also reinforces the principle that a spouse’s career sacrifice and childcare contribution remain central factors when assessing fairness and setting capital-sum awards.

Citation: Wallace v Wallace [2025] CSOH 73 (Outer House, Lady Carmichael, 8 August 2025)