McDonald v Newton or McDonald

For financial provision on divorce in Scotland, the proportion of pension rights constituting matrimonial property is determined by time rather than by contributions alone. Under section 10(5) of the Family Law (Scotland) Act 1985, rights referable to the period of marriage may include passive growth and enhancement through survival.

In the formula prescribed by regulation 4 of the Divorce etc (Pensions) (Scotland) Regulations 2000, the “period of membership” includes the whole period during which the person was a member of the pension arrangement before the relevant date. It is not confined to active or contributing membership. The resulting value need not invariably be divided equally, because the statutory scheme permits departure from equal sharing in special circumstances and recognises other principles of financial provision.

Mr McDonald joined an occupational pension scheme before his marriage. He retired early through ill-health shortly after marrying and thereafter received pension benefits without making further contributions. The parties finally separated in 2010. The issue was whether the matrimonial portion of the pension's cash equivalent transfer value should reflect only his brief period of active membership during the marriage or his entire period of scheme membership during the marriage.

The sheriff adopted the active-membership approach. By a majority, the Inner House dismissed Mrs McDonald's appeal in [2015] CSIH 61, Lady Smith dissenting. Mrs McDonald appealed to the Supreme Court. The central question was whether “membership” in regulation 4 of the Divorce etc (Pensions) (Scotland) Regulations 2000 includes periods during which the member receives a pension but makes no contributions.

1. Appeal allowed unanimously. Lord Hodge, with whom Lady Hale, Lord Wilson, Lord Carnwath and Lord Hughes agreed, held that the “period of the membership” in regulation 4 of the Divorce etc (Pensions) (Scotland) Regulations 2000 means the whole period of membership before the relevant date. It includes periods during which no contributions are made. The case was remitted to the sheriff at Edinburgh to proceed accordingly.

2. Section 10(5) of the Family Law (Scotland) Act 1985 focuses on the proportion of pension rights or interests referable to the period of marriage before the relevant date. It does not focus on whether the spouse acquired those rights by making contributions during that period. Rights referable to the period may therefore include passive growth in an existing fund and enhancement in pension rights resulting from survival over time.

3. The ordinary wording of regulation 4 does not confine membership to active or contributing membership. Regulation 3 expressly distinguishes between different classes of membership, whereas regulation 4 uses “membership” without qualification. Reading the provisions together showed that the omission of any qualification was deliberate.

4. The Regulations also apply to personal pension schemes and relevant state scheme rights. The statutory definition of active membership applies only to occupational pension schemes and cannot sensibly govern those other arrangements. A contributions-based construction would also create uncertainty where contributions to a personal pension were irregular.

5. Section 10(4) did not support the narrower construction. Its opening words make section 10(5) a discrete provision for pension rights. The wider statutory scheme also contains no absolute principle that matrimonial property must have been acquired during the marriage: it includes certain pre-marital family-home property and excludes some property acquired during marriage by gift or succession.

6. The possibility that factor B in the regulatory formula might be zero did not justify adding “active” or “contributing” to factor C. If further confirmation were required, the explanatory note described apportionment by the periods of membership and marriage without suggesting any contributions-based restriction.

7. The calculation of a pension interest as matrimonial property does not require its equal division in every case. The statutory principles governing financial provision, including special circumstances permitting departure from equal sharing, preserve flexibility.

1. United Kingdom Supreme Court: Allowed Mrs McDonald's appeal unanimously from [2015] CSIH 61 and remitted the case to the sheriff at Edinburgh.
2. Inner House of the Court of Session: By a majority, dismissed Mrs McDonald's appeal in [2015] CSIH 61. Lady Smith dissented.
3. Sheriff Court: Sheriff Holligan held on 12 December 2013 that only the period of active pension-scheme membership was relevant to the statutory apportionment.