Ten Tips for Financial Provision in a Recession

Posted On: 02 November 2009

Author: Janys M Scott QC

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TEN TIPS FOR FINANCIAL PROVISION IN A RECESSION

So we have moved into recession.  Values are no longer increasing.  House prices have fallen.  Businesses are doing badly.  The banks are not lending.  Sequestration looms.  But couples are still falling out.  We are now applying the Family Law (Scotland) Act 1985 in a different economic climate.  Here are ten tips for representing clients in the lean years.  Like all tips, they will require to be applied with a certain discrimination.  Not all will apply in every case and in some cases something altogether different may be called for.  They may serve to provide an interesting commentary on recent and potential developments in the law relating to and affecting financial provision.  In common with many possible courses on the cutting edge of new situations they may be contentious.  Time will tell whether they are all good tips, but they are offered for consideration.

1. DO seek diligence on the dependence – but watch the new BAD provisions.

If a spouse or civil partner looks likely to become insolvent, or to dispose of assets, or burden or secrete them, then there may be a case for arrestment or inhibition.  This will give the spouse or partner seeking provision security for his or her claim.  Arrestment and inhibition can no longer be sought under the Family Law (Scotland) Act 1985.  The general law found in the Debtors (Scotland) Act 1987, as amended by the Bankruptcy and Diligence (Scotland) Act 2007 (the “BAD Act”), now applies.  Special consideration has been given to claims for aliment and financial provision.  Section 15C expressly provides that warrant for diligence on the dependence may be granted for future and contingent debts.  There is good news in that the sheriff now has jurisdiction to grant both arrestment and inhibition (section 15A).  There is no need to come to the Court of Session to seek inhibition.  Further, for arrestments executed on or after 22 April 2009, the creditor is under an obligation to disclose, within 3 weeks, the nature and value of the property or funds arrested (Debtors (Scotland) Act 2987 section 73G, see commencement order SSI 2009/67)

There are however some detailed statutory rules to observe.  An extra form is required by the court rules (OCR 6.A2, Form G4A, RCS 14A.2, Form 14A.2).  The court will not grant warrant for diligence on the dependence without notice to the other party unless:

(a) there is a prima facie case on the merits;

(b) there is a real and substantial risk that enforcement of decree would be defeated or prejudiced by reason of the debtor being insolvent or verging on insolvency, or the debtor removing, disposing of, burdening, concealing, or otherwise dealing with all or some of his or her assets, were warrant not granted without a hearing; and

(c) it is reasonable in all the circumstances to grant the warrant (section 15E).

If warrant is granted the court must fix a date for a hearing, order the creditor to intimate the date, and the hearing is treated automatically as if there was a motion for recall or restriction of the diligence (section 15K).  The court rules specify how diligence is to be executed.  If the summons is not served within 21 days of execution of the diligence, the diligence will cease to have effect, unless the court extends the period (section 15G).  If a motion is made for extension, the court will need to be addressed on the efforts to serve the summons and any special circumstances preventing or obstructing service.

There is a useful case on arrestment on the dependence, dating from 1995.  In Matheson v Matheson 1995 SLT 765 a wife raised divorce proceedings against her husband and, believing that he was seeking to dissipate his farming assets, she obtained interim interdict against such disposal and arrested sums due to him by an auction mart.   The court recalled the arrestments on the basis that they unduly interfered with ordinary trading activities without legitimate advantage to the wife.  This was however on the basis that the husband had made full disclosure of the transactions and the application of the proceeds.  Arrestments carry the indirect benefit of encouraging full disclosure. 

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