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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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