The starting point for married couples is each of them are entitled to 50% of the matrimonial assets upon separation/divorce. Whilst this is not true for cohabiting couples, cohabitees should be alive to the fact that, in certain circumstances, it is possible for one party to make substantial financial claims against the other, following the cessation of cohabitation.
A cohabitant can claim a sum of money from their partner if, and only if, they can show that they have suffered an economic disadvantage in the interest of their partner (or children) and that their partner derived a corresponding economic advantage as a result of their contributions (these contributions can be financial and non financial). This does mean working out who has paid for what during the entire course of the parties cohabitation. Instead, the Court adopts a broad brush approach which involves looking at where the parties were at the beginning of their cohabitation and where they were at the end and then asking if either party suffered an economic disadvantage in the interests of the other.
The right to make such a claim is contained in Section 28 of the Family Law (Scotland) Act 2006. Up until recently, there have been very little reported Section 28 cases and those which have been reported do not involve huge sums of money being awarded to the Pursuer. The leading Section 28 case is Gow v Grant. At the end of cessation in that case, the Pursuer had nowhere to live, was no longer employed and had been persuaded by the Defender to sell her house and use the proceeds to meet living expenses and pay off debt. This has perhaps created the misconception that the purpose of Section 28 claims is to relieve one party from poverty. It is clear from the recent case of M v S, that is not the case. Lord Ericht reminded everyone in his judgment that "…the purpose of Section 28 is to redress any economic disadvantage. Its purpose is not the relief of one of the parties from poverty. Accordingly Section 28 can apply in situations like the present where both the pursuer and the defender have successful careers and substantial assets"
In M v S the Pursuer sought a capital sum from the Defender of £912,000 to account for the economic disadvantage she had suffered in the interests of her partner and children. The facts are that the parties cohabited together from May 1994 until November 2013. They had 2 children together. The property they lived in was owned in the sole name of the Defender. It was accepted by the Court that the Pursuer paid half of the mortgage repayments. After the birth of the parties first child, the Pursuer reduced her hours to 80%. She later increased them to 90%. The Pursuer calculated her claim on (1) a one half share in the increase in equity in the property over the period of cohabitation minus the costs paid by the Defender to renovate and extend the property (£544,000) and (2) half of the income she lost from reducing her hours (£367,868) She only sought half of her lost income as seeking payment for the whole loss would simply transfer the economic disadvantage in the interest of the children to the Defender.
Equity in the property
The Pursuer was economically disadvantaged by virtue of the fact she contributed a one half share towards the Defender's mortgage for the entire period of cohabitation (almost 20 years) As the property was in the sole name of the Defender, at the cessation of cohabitation, she had no interest in the property to which she had contributed. She had therefore been economically disadvantaged. In comparison, the Defender had a property which had (1) increased in value and (2) increased in equity as a result, in part, of the contributions made by the Pursuer. He had derived an economic advantage.
Loss of income
The Pursuer reduced her hours after the birth of the parties first child. The purpose of the reduction was to care for the parties child (and eventually the parties children) Her income was reduced as a result of this. The Pursuer was therefore economically disadvantaged in the interest of the parties children. In comparison, the Defender was able to continue to pursue his career and benefit from reduced care costs for the children as a result of the Pursuer's contributions, those contributions being looking after the children. This is an example of a "non financial contribution"
The Defender sought to argue, amongst other things, that he been economically disadvantaged in the interest of the Pursuer and their children by his financial contributions. He argued that he had made additional contributions to the parties joint account in the sum of £469,000. The Defender produced a running account of the parties transactions which extended over almost 20 years. In his judgement, Lord Ericht said "the exercise which the Defender was inviting me to do was precisely the kind of exercise which Lord Hope and Lady Hale warn against…". That being to work out who has paid for what and who has enjoyed what benefits in kind during the cohabitation. Lady Hale's comments in another Section 28 case were "working things out in detail is quite disproportionate to the task of doing justice between the parties". A "rough and ready" calculation is therefore applied. The account produced by the Defender included payments for family holidays, private healthcare and boiler repairs, none of which were accepted. Lord Ericht concluded that there had been no economic disadvantage to the Defender arising from sole expenditure by the Defender for joint purposes.
In this case, the Pursuer had assets in the sum of £127,500 at the start of cohabitation and £1,085.721 at the cessation of cohabitation. The Defender had assets in the sum of £102,000 at the start if cohabitation and £5,691,624 at the cessation of cohabitation. Unlike married couples, the purpose of Section 28 is not an equal split of the parties overall assets. The purpose of a Section 28 claim is simply to redress any economic disadvantage. In this case, the Pursuer invited the Court to address two particular disadvantages. Lord Ericht was satisfied the Pursuer had been economically disadvantaged in respect of these two matters and granted an order in the sum of £912,000 in favour of the Pursuer.
This is the largest reported award made under Section 28 of the Family Law (Scotland) Act 2006. The only way to avoid leaving yourself exposed to such a claim is to enter into a written cohabitation agreement drafted by a specialist.