Amy Gannon and Amanda Masson

Compensation in serious injury litigation is carefully calculated to meet an injured person’s lifelong needs, often intending to fund:

• lifelong care and case management;
• specialist accommodation;
• rehabilitation and therapies;
• mobility aids and equipment;
• loss of earnings and pension;
• transport needs;
• future medical treatment; and
• support for increased vulnerability and reduced independence.

For clients living with a traumatic brain injury, spinal cord injury or amputation, these damages are frequently relied upon for the remainder of their lives. As such, ensuring those funds remain protected wherever possible is therefore essential.

The Scottish legal position

In Scotland, financial matters arising from divorce are governed principally by the Family Law (Scotland) Act 1985. The starting point is that “matrimonial property” should be shared fairly, with fair sharing generally meaning equal sharing.

Broadly speaking, the extent and value of matrimonial assets is calculated up to the ‘relevant date’. This is defined at section 10(3) of the 1985 act as the date on which the parties ceased to cohabit, or the date on which proceedings are raised; whichever is earlier.

Matrimonial property is defined at Section 10(4) of the 1985 Act. It is all the property belonging to the parties or either of them at the relevant date which was acquired by them or one of them either before the marriage for use by them as a family home or as furniture or plenishings for such home or during the marriage but before the relevant date unless that property was acquired by way of gift or inheritance. Assets which were acquired prior to marriage or following on from the separation are generally not considered matrimonial property, unless they fit within the definition. Importantly, there are exceptions to this rule.

The 1985 Act is designed to provide spouses with a financial clean break. The principle of ‘fairness’ is embedded into the heart of the legislation. It is recognised that an equal split of the assets isn’t always a fair split. There may be ‘special circumstances’ which apply in any given case.

The Court is empowered by Section 8 of the 1985 Act to make various orders directing how the assets should be divided. The Court follows a principled approach and is guided by the considerations set out in Section 9 of the 1985 Act. What constitutes ‘special circumstances’ is not an exhaustive list however helpful guidance is provided for at Section 10(6) of the 1985 Act.

The treatment of personal injury damages, however, can be more nuanced.

Unlike some assets which clearly fall inside or outside the matrimonial “pot”, compensation awards often require careful analysis. The court may consider:

• when the damages were received;
• what elements the award relates to;
• whether funds have been mixed with matrimonial assets;
• whether damages have been used to purchase family property;
• the future care and accommodation needs of the injured person; and
• the overall fairness of any proposed settlement.

For example, damages intended specifically for future care or specialist housing needs may be viewed very differently from funds used for general family expenditure.

The timing of the injury, and whether any award falls within the matrimonial pot, has been the subject of litigation previously. The case of Petrie v Petrie 1988 SCLR 390, is authority for the proposition that where an injury was sustained shortly before the date of marriage, and a substantial sum of damages was received in respect of injuries after the parties had separated, these damages were not “matrimonial property” upon which a claim to payment of a capital sum on divorce could be based.

In contrast, in the case of Skarpaas v Skarpaas 1993 SLT 343 the first division of the Inner House considered an action of divorce where the wife sought a capital sum representing a proportion of a substantial sum of damages awarded to her husband after the relevant date in respect of an accident occurring between the date of the parties’ marriage and the relevant date. The sheriff and sheriff principal decided that the claim for damages constituted matrimonial property, though the value was not quantified until after the relevant date, and found the wife entitled to more than half of the net sum remaining, valuing the claim in accordance with the sum eventually awarded.

Protecting compensation awards

While every case turns on its own facts, there are practical steps which may assist in protecting damages following settlement, including:

• careful structuring of settlements;
• maintaining clear records regarding the purpose of compensation, with careful, evidenced quantification of the individual heads of claim;
• avoiding unnecessary co-mingling of funds;
• considering property ownership arrangements;
• using personal injury trusts where appropriate; and
• obtaining early family law and financial advice.

For seriously injured people, these issues are not simply legal or financial. They go directly to questions of long-term security and independence.

Amy Gannon is a partner and head of serious injury Scotland at Irwin Mitchell and Amanda Masson is partner and head of family law at Wright, Johnston & Mackenzie LLP