The Court of Appeal provided useful guidance last week in the case of Standish v Standish [EWCA] Civ 567 concerning the law in cases involving non-marital wealth.
The headlines will focus on the Appeal Court having reduced the wife’s award by $20 million, a very significant amount. However, the case will be fundamental reading for practitioners – and vitally important to those going through a divorce where assets were pre-owned or inherited. As Moylan LJ stated at paragraph 109 of the judgment, the issue at the heart of the appeal was the classification of property for the purposes of the application of the sharing principle.
The Court reviewed at some length the developments of the law and reaffirmed that the sharing principle is “based on each party, in accordance with the objective of fairness, equality and non-discrimination, being entitled to an equal share of their matrimonial property, namely the “fruits of the partnership” or the wealth built up by the parties’ endeavours during the marriage”.
In Standish, the Husband had brought very significant assets into the marriage. In 2017, shortly before the parties’ separation, he had transferred £80million to the Wife for tax planning purposes which the Court found was in significant part, money generated before the marriage. The Wife contended on divorce that those assets were not subject to the sharing principle claiming they were non-matrimonial as the title had been vested in her and as such the assets were her “separate property”. It was argued that this would give proper effect to the parties’ autonomy.
The Court of Appeal roundly rejected that argument confirming that it is the source of the asset which is the critical factor when assessing the application of the sharing principle. The Court has “long been clear in this jurisdiction that you cannot benefit from keeping assets in your sole name.”
The Wife’s alternative argument was that the transfer of the property to her had caused the asset to become matrimonialised and that once deemed a matrimonial asset, it should be subject to the equal sharing principle. The Court confirmed that the concept of matrimonialisation should survive but should be applied narrowly. An asset might become matrimonialised in circumstances where matrimonial assets have been mixed with non-matrimonial assets, or where non-matrimonial property has been used in the purchase of the former matrimonial home which typically stands in a category of its own. However, the Court has clearly restricted the ability to argue matrimonialisation because “it is a derogation from the principle that sharing applies to matrimonial property and not non-matrimonial property”.
The Court held that the transfer to the Wife in this case of £80 million in 2017 did not change the characterisation of the assets and they remained non-matrimonial in nature. A ruling that the asset had become matrimonialised would make title the determinative factor rather than the source of the assets.
Finally, Moylan LJ confirmed that even if the asset had been matrimonialised it does not mean that it must be shared equally. This is because the non-matrimonial source of the asset or money remains a “relevant consideration”.
For those involved or contemplating divorce proceedings concerning assets generated outside of the marriage, the following is important:
- The starting point remains that the sharing principle applies to matrimonial assets and not non-matrimonial assets;
- Non-matrimonial assets may become matrimonial assets in narrow circumstances, for example where they have been co-mingled with matrimonial assets or where they have been used to purchase a matrimonial home;
- Title to the asset will not be determinative of their characterization, it is the source of the asset that will determine whether an asset is matrimonial or otherwise;
- If the non-matrimonial assets have become matrimonialised, this does not mean that they must be shared equally as the source of the asset remains an important factor.