When it comes to dividing assets on divorce the guiding principle is that the settlement should apportion assets between spouses in the way that best meets their individual needs and the needs of the children.
But what assets are brought into the reckoning when negotiating a financial settlement (or asking the family court to make a financial order)?
Under the sharing principle, matrimonial assets (those built up over the course of the marriage) will be divided equally unless there is good reason not to split them down the middle. This might occur when there are not enough matrimonial assets to meet needs. But what about pre-marriage assets or financial windfalls such as inheritances that one spouse acquires before or during the marriage?
In many instances these ‘non-matrimonial’ assets can be ring fenced and excluded completely from any financial settlement. However, family court judges have discretion when dealing with financial remedies. In appropriate circumstances the fair approach may well be to include pre-marriage assets in the overall settlement, disregarding the source of the wealth.
Many of our clients enter marriage with significant personal wealth or acquire valuable assets on their own account during a marriage. For them it is important to be aware of how this wealth will be treated on divorce. A useful illustration of the law in this area is provided by the 2024 case of Standish v Standish. We discuss the case below.
Standish v Standish (2024) – The Background
The decision in Standish clarifies how courts treat non-matrimonial assets on divorce. It’s also significant because of the amount by which the wife’s award was reduced in the Court of Appeal.
The husband and wife lived together from 2004, and they got married the following year. Both spouses had married before and had children from these earlier marriages. From the beginning of the marriage the family lived in Switzerland where the husband worked. The wife was a homemaker. In 2007 the husband retired, and the couple moved to Australia. Shortly afterwards they purchased a property in England and moved there. The husband had a highly successful career in finance and brought significant wealth to the marriage, including investments, a sheep farm in Australia and a property in Melbourne.
Up until 2017 all these assets were in the husband’s name. Then – he was 69 at the time of the first court hearing in 2022 – the husband took detailed estate planning advice and transferred around £77 million worth of assets to the wife. This transaction was aimed at mitigating inheritance tax in the UK, but it was understood that the wife would ultimately place the assets in trust for the children.
However three years later, in 2020, without placing any of the assets in trust the wife issued divorce proceedings. The way these transferred assets were to be treated in the financial settlement was the subject of extensive negotiation and litigation, culminating in a unanimous Court of Appeal decision.
The High Court Decision
Negotiations took place between the parties, including an attempt at mediation, in an attempt to reach agreement on a financial settlement. When these proved fruitless both sides made open offer as follows:
- The husband offered a sum of £25 million, based on his belief that all assets, including those transferred by him as part of the estate planning exercise were pre matrimonial
- The wife suggested a 50-50 split of all assets including those transferred to her by the husband for estate planning purposes
The High Court judge decided that the husband’s transfer of assets in 2017 to mitigate IHT intrinsically changed the nature of these assets. In effect they had become matrimonial property – or ‘matrimonialised’. They were therefore subject to the sharing principle (although in this case it was not appropriate to divide the assets equally). In the event the wife was awarded 40% of these assets and the husband 60%. When all other assets were taken into account the overall result was that the husband was awarded £87 million (66%) and the wife £45 million (34%) of the parties’ total wealth.
The Court of Appeal Decision
Given the sums involved and the admittedly unusual circumstances of such a large transfer of assets from one spouse to the other shortly before divorce proceedings began, it is perhaps unsurprising that both sides appealed aspects of the High Court decision to the Court of Appeal.
Both husband and wife argued in the Appeal Court that the High Court had been wrong to categorise the £77 million of assets transferred by the husband as matrimonial property.
They disagreed on what this should mean, however.
Although she believed the assets were not marital property, the wife voluntarily conceded that they should nevertheless be treated as such and shared equally because the nature of the marriage meant that all assets should be divided equally. She argued further that if the Appeal Court decided the assets were matrimonial, they should be divided equally – not 60/40 in the husband’s favour as the High Court had decided.
In contrast the husband argued that the source of an asset was the critical factor not title. The majority of the parties’ wealth, he argued, continued to be the product of his pre-marital endeavour and was therefore, not subject to the sharing principle.
Unanimously the Court of Appeal found in favour of the husband. The High Court decision it said, had led to an unjustified division of the family’s wealth in the wife’s favour. A fair application of the sharing principle would have resulted in the wife receiving £25 million in place of the High Court judge’s award of £45 million.
Comment
The wife’s decision to appeal proved costly. In fact, it has been reported that the reduction of her award by some £20 million is the largest reduction of a divorce settlement on record.
The general approach of the courts is to bring matrimonial assets under the umbrella of the sharing principle, and to leave non matrimonial assets outside it. However, where there is uncertainty about how to class assets as matrimonial or non-matrimonial, caution about how to proceed should be exercised. The importance of specialist legal advice in cases like this cannot be underestimated particularly when we remember the wide discretion of family court judges.
From the Standish judgment we can be clear that legal ownership or title to assets is not definitive – the provenance of the assets is what really matters. The courts won’t hesitate to go behind the legal ownership and explore how the asset was generated.