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The Supreme Court has unanimously dismissed a wife’s appeal, in financial remedy proceedings, where she sought to argue that the sharing principle applied to assets worth £80 million, which the husband transferred to her to avoid inheritance tax.
The Judgment handed down by the Supreme Court in the case of Standish is now a defining concept in the ever-evolving landscape of family law.
The husband entered the marriage with substantial wealth. In 2017, following tax advice, he transferred a substantial part of this to the wife on the assumption that she would be transferring the assets into a trust for the benefit of their children. The wife did not do so and instead commenced divorce proceedings in 2020.
The wife originally disputed that the husband’s sole aim was to gain tax relief benefits and claimed that the husband’s separate property, that had been transferred to her, then became her separate property. In the Supreme Court, the wife’s case was that the 2017 transfer matrimonialised assets and therefore made them subject to the sharing principle. The Supreme Court ruled in favour of the husband and held that the source of the funds were pre-marital and the transfer did not change this status. It was therefore decided that the assets were not subject to the sharing principle.
On marriage, there is often a process called ‘’matrimonilisation’’ which means assets acquired before or outside of the marriage become assets that can be considered on divorce if treated as shared during the marriage. Typically, the Court considers that legal title confirming legal ownership a determining factor in ownership. The Standish ruling now determines that courts should now also consider the original source and underlying intent of the parties at the time of transfer. This confirms that there is no legal right to share property that is found to be non-matrimonial. The new test for matrimonialisation is therefore as follows:
The matrimonialisation of property will occur where there is intention by the transferor to share the non-marital property, coupled with treatment by the parties of this property as shared over time.
Interestingly the ruling also differentiates between passive and active contributions. If there is market-driven growth on premarital investments, the growth will remain separate property unless the couple have agreed to pool the gains. On the other hand, profits derived from a business run by one spouse, for example, will be treated as shared equity.
What does this mean for divorcing parties?
The Court’s finding in this case that sharing does not now apply to non-matrimonial property will mean there will need to be consideration given to ensuring that there is clear documentation recording an asset’s origin and reasons for any transfer. Clear advice will need to be sought, not only from a financial advisor, but from a family lawyer as well prior to the transfer. A family lawyer can assist with cohabitation agreements for example, which assist in a scenario where one party owns the property but the couple will be living in the property together. This can assist in divorce proceedings as it shows clear intentions that the asset was to be separate property. A pre-nuptial agreement can also assist parties and should be entered into prior to the marriage. This agreement can set out the couple’s intentions as to the assets that each or one of them is bringing into the marriage.
It is important to note, that even though the Court may rule that assets are non-matrimonial, a spouse can be expected to draw upon such assets to meet the needs of the other spouse, if such needs cannot be met from the joint pot, to ensure fairness. Fairness is a familiar concept to family law practitioners following the presumption that a 50/50 split of the assets is the starting point. This is not, however, always the outcome as the court will need to consider the needs of both parties, dependant children, contributions made, and the other factors set out in section 25 of the Matrimonial Causes Act 1973.
If a spouse is seeking to share in non-marital assets following divorce, they will need to demonstrate that their spouse had an intention to share the assets with them despite them being non-marital in nature. The passage of time is also a relevant indicator of intention to share in this context as the longer the asset is treated in such a way, the stronger the evidence is of a settled intention. This will impact the advice we now give to clients when advising them prior to marriage. Family lawyers will need to consider the outcome of Standish when advising clients in relation to cohabitation and nuptial agreements. Parties will need to think about how they are documenting and communicating the treatment of assets before and during the marriage, as it is likely that any evidence around the origin of assets and how the couple have treated the same will be important on divorce.