A number of high profile English cases have recently shone the spotlight upon the treatment of inherited property in divorce proceedings.
Our statutes do not distinguish between inherited or other types of asset or provide for their different treatment. To a large extent, before the landmark case of White v White in 2000, there was little legal debate on this issue. Central to the issues in White was how the substantial family farm, inherited by the husband, should be treated. In his leading judgment, Lord Nicholls drew a distinction between property which has been inherited on the one hand and “matrimonial property” on the other, acquired by the parties during the marriage and to which each spouse had therefore contributed. Emphasising that the source of inherited property is wholly external to the marriage, Lord Nicholls stated “where this property still exists the spouse to whom it was given should be allowed to keep it. Conversely the other spouse has a weaker claim to such property than he or she may have regarding the matrimonial property.”
In the subsequent case of P v P 2004, Munby J developed the point, stating “there is inherited property and inherited property... Fairness may require quite a different approach if the inheritance is a pecuniary legacy that accrues during the marriage than if the inheritance is a landed estate that has been within one spouse’s family for generations and has been brought into the marriage with an expectation that it will be retained in specie for future generations.”
Where the asset pot is limited, the fact that an asset is inherited will carry little weight, if any, if the claimant’s financial needs cannot be met without recourse to the inherited property. By contrast, in big money cases, where the parties’ resources exceed their separate financial needs, arguments will be deployed to justify a less than equal division. The fact that an asset has been acquired by inheritance or prior to the marriage is often advanced as good reason to apply the sharing principle to it with less force, or in some cases, ring-fence it completely.
This issue came before the Court of Appeal in 2010 in the case Robson v Robson when the wife appealed against the settlement awarded to her at first instance. Curiously the husband, who had inherited estates in Oxfordshire and Scotland, promptly sold up for £14 million before the appeal was heard. Despite the Court of Appeal noting that inherited wealth may justify a departure from equality, in this particular case the court found that the inherited wealth did form part of the resources to be taken into account, stating “The more and the longer that wealth has been enjoyed, the less fair it is that it should be ringfenced and excluded from distribution.” The Court held that the length of the marriage (in this case 22 years), the standard of living of the parties and the extent to which this had been afforded and enhanced by the inherited property was relevant and awarded the wife £7 million.
The application of these principles was demonstrated very clearly in K v L in 2010. Long before the marriage the wife had inherited shares, which were worth £57 million at the time of the divorce proceedings. Despite this the parties lived modestly and never “intermingled” the inherited funds with other assets. The Court of Appeal decided that it would ring-fence the wife’s shares in a family business, even after a 21 year marriage and three children. The husband received only £5.3 million.
In Y v Y, 2012, the Court of Appeal held that the needs of the applicant wife justified and required an invasion of the inherited assets. Although the husband had inherited the estate from his family, it had been the matrimonial home for most of the duration of this 26 year marriage. The wife's requirements and long-term needs were taken into consideration and she was awarded £8.74 million from total net assets of £26.8 million.
Most recently, the Marquess of Northampton finalised his divorce after a 20 year marriage. The couple reached a financial agreement between them, sparing the costs of litigation and providing Lady Northampton with a settlement of £17 million. The vast majority of Lord Northampton’s fortune, worth in the region of £120 million, will remain intact to be passed onto his heir.
A Law Commission is currently sitting to consider whether these principles regarding the treatment of inherited property should be given statutory footing. In the interim, the relevant principles continue to be developed by the courts.
As originally appeared in Blue Skies, Issue 32 – April 2013
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