On a Scottish divorce, only the part of a pension referable to the marriage counts as matrimonial property. The Supreme Court held that this part is measured by the holder’s whole membership of the scheme up to separation, including years after contributions have stopped and the pension is already in payment, not merely the years of active contributing service. Mrs McDonald’s appeal was allowed and the case was sent back to the sheriff.
The pension and the separation
Mr McDonald joined the British Coal Staff Superannuation Scheme on 11 December 1978, aged 25, and began contributing. He married Mrs McDonald on 22 March 1985. A leg injury then left him unfit to work as a miner. His disability entitled him to retire early and to draw a pension before normal retirement age. He stopped contributing on 10 August 1985, aged 32, after six years and 243 days of pensionable service, and has received a pension ever since. From then on he remained a member, but as someone receiving income benefits rather than as a contributing employee.
Law Teacher writing support
Writing a law essay?
We choose a writer who is an expert in your area of law and qualified to at least the academic level you select. Most of our writers hold a master’s degree or PhD, have teaching experience, or both.
Send us your question and, if you wish, any marking criteria. We’ll write an essay to your instructions.
The couple ceased to cohabit on 25 September 2010. Under the Family Law (Scotland) Act 1985, that date is the relevant date for identifying matrimonial property. Mrs McDonald sought a pensions sharing order on the basis that part of her husband’s pension was matrimonial property. Its cash equivalent transfer value at the relevant date was £172,748.38, covering both the capitalised pension then in payment and a spouse’s pension payable on his death.
The dispute about the formula
Section 10(5) of the 1985 Act treats as matrimonial property only the proportion of pension benefits referable to the marriage before the relevant date. Subordinate legislation, the Divorce etc (Pensions) (Scotland) Regulations 2000, values those benefits by the cash equivalent and then apportions it. The argument was which period to use.
Mr McDonald said the court should look only at active membership, meaning pensionable service while contributions were paid: 11 December 1978 to 10 August 1985. Mrs McDonald said it should look at membership both while he was working and while he was drawing the pension, up to separation: 11 December 1978 to 25 September 2010. In a joint minute they agreed the arithmetic. On his approach, the matrimonial value was £10,002. On hers, it was £138,534.
Sheriff Holligan held that only the period of active membership counted. He relied on the formula in the 2000 Regulations and on what he saw as the policy of the 1985 Act: sharing wealth accumulated during the marriage, and treating as matrimonial property only assets acquired during the marriage and before the relevant date. On 11 August 2015 an Extra Division of the Inner House dismissed Mrs McDonald’s appeal by a majority. Lord Malcolm and Sheriff Principal Abercrombie adopted a purposive reading and agreed with the sheriff. Lady Smith dissented.
Why pension rights are treated differently
Lord Hodge, with whom Lady Hale, Lord Wilson, Lord Carnwath and Lord Hughes agreed, allowed the appeal. The 1985 Act, enacted after a Scottish Law Commission report, requires financial provision to be justified by stated principles and to be reasonable having regard to the parties’ resources. The principle in issue is that the net value of the matrimonial property should be shared fairly. Equal sharing is presumed, but special circumstances may justify another division, and other principles in section 9 can also affect the award.
Section 10(4) sets the usual boundary: matrimonial property is property belonging to either party at the relevant date which was acquired during the marriage and before that date, excluding gifts and succession from a third party, together with a pre-marriage family home and its furniture. The subsection opens by making that definition subject to section 10(5). Pension rights are therefore removed from the ordinary test of acquisition during the marriage. Section 10(5) asks what proportion of the rights is referable to the marriage before separation. That can include passive growth, and, where there is no fund, an increase in value simply because the member survives. Had Parliament intended a ratio of contributions paid during the marriage to the value of the whole fund, it could have said so. A split by time will not always match the sums paid in, especially where payments into a personal pension are irregular. The Commission’s commentary did not clearly choose between active saving and passive accrual. The enacted words had to decide it.
Membership in the regulations
Regulation 4 apportions the value by the formula A × B/C. A is the value at the relevant date. C is “the period of the membership of that party in the pension arrangement before the relevant date”. B is the part of C falling within the marriage before that date, or zero if there is none. Mr McDonald’s pension in payment had been valued under regulation 3(2)(d)(i). The regulations cover occupational schemes, personal pensions and certain state scheme rights, and regulation 3 already distinguishes different classes of member.
Lord Hodge rejected the view that membership in factor C means only active or contributing membership. That reading adds words which regulation 4 does not contain, although the drafter had distinguished classes of membership in regulation 3. The definition of active membership in the Pensions Act 1995 applies only to an occupational scheme and does not fit personal pensions or the state scheme rights to which regulation 4 also applies. Treating membership as the period when contributions were being made would also be difficult to apply to occasional payments into a personal pension. Section 10(4) cannot fill the gap: pension rights are expressly carved out, a family home bought before marriage can be included, and gifts and inheritance are excluded, so there is no general rule that matrimonial property must have been acquired during the marriage. Nor does the possibility that B is zero show that membership must mean active service. Lord Hodge did not need to identify the exact case the drafter had in mind. There was no sign, in the regulations or their explanatory note, that the formula was a roundabout way of limiting the period to contributing service. The note describes a division by time in the arrangement and in the marriage, as a proportion of time in the arrangement.
Verdict: Mrs McDonald’s appeal was allowed unanimously. The sheriff at Edinburgh was to determine financial provision using the whole period of membership. The £138,534 represented the matrimonial element of the pension, rather than the sum payable to Mrs McDonald.
