UK: Time For Defined Categories Of Wealth?

Last Updated: 21 August 2012
Article by Antonia Mee

In 2013 the Law Commission is due to report and (hopefully) make recommendations on the approach of the English Court on the division of non-matrimonial assets on divorce. At present there is no guidance in the relevant statutes so couples often find themselves embroiled in costly litigation over the issue of how to divide property that was acquired by either party prior to the marriage or received by gift or inheritance during the marriage.

In 2000 the House of Lords in White v White said the existence of non-matrimonial property will have little weight where the parties' needs cannot be met without recourse to such assets. However, after the question of need has been satisfied, the category of the asset will be relevant to the question of how the sharing principle is applied.

Two schools of thought have evolved through case law since White. The first applies a broad discretion and adjusts away from equality to take into account non-matrimonial property. For example, in AR v AR [2011] EWHC 2717 (Fam), Mr Justice Moylan awarded the wife £4.3m after a long marriage where the total assets were £21m–£24m mostly made up of the husband's inheritance or gifts. He said that in all the circumstances, although the sharing principle applied to the non-matrimonial property, it did not justify an award above the wife's needs. His award of £4.3m provided a fair annual income to the wife and housing for her of a similar standard to that which she enjoyed during the marriage.

The second approach is mathematically more rigorous and was endorsed by the Court of Appeal in Jones v Jones [2011] EWCA Civ 41. In that case the Court of Appeal endorsed the approach of an appropriate value being attributed to the non-matrimonial property which should only be distributed if needs requires. In valuing the non-matrimonial property, which in this case was the husband's company, the Court allowed for passive economic growth between the date of the marriage and the date of the financial Court hearing. That disputed value for the non-matrimonial assets was then ring fenced for the husband and the remaining marital assets shared between the parties resulting in a lump sum of £8m out of total assets of £25m.

This second, more rigorous approach was followed by Mr Justice Mostyn in N v F [ 2011] EWHC 586 (Fam). He stated that the approach to pre-acquired wealth is fact specific and highly discretionary. The Court should first decide whether the existence of pre-marital property is relevant. That would depend on the extent to which such assets had been mingled with matrimonial assets, the use of such assets and the length of the marriage.

If the Court decides that pre-marital property should be excluded it must decide on the value to be excluded and whether the value should be based on the historical value, the current value and whether it should include a figure to reflect the springboard it provided and/or passive growth. The remaining matrimonial property should then normally be divided equally.

The fairness of the award should then be cross-checked by applying the overall percentage technique. The wife's needs must also be considered but they cannot be assessed in isolation of the sharing principle.

In this case Mr Justice Mostyn excluded £1m and divided the remaining assets equally. This left the wife with 44.7% of the total assets – the level of which he justified due to the impact of the wife's needs.

The N v F approach was adopted in B v B [2012] EWHC 314 (Fam) by Mr David Salter sitting as a Deputy High Court Judge. In this case the assets were £4.3m and the parties had been married for 15 years with no children. On the facts of the case he found that the husband had failed to provide clear evidence as to the value of the pre-acquired assets. He made no adjustment for springboard or passive growth as the wealth had not discernibly appreciated. After deducting £820,000 to represent pre-marital property, 50% of the balance (being £1,740,000) was deemed to be sufficient to meet the wife's needs. In conclusion she received 40% of the total assets.

Although case law is developing, until the position is clarified by Parliament, which it is to be hoped will ensue once the Law Commission has published its forthcoming report, the process of applying the principle of sharing is 'inherently arbitrary ' as described by the Court of Appeal in Jones.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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