"When does non-matrimonial property become matrimonial property in the context of financial remedy proceedings, and how should the sharing principle be applied to such property?"
Such was the question posed to the Supreme Court in Standish v Standishearlier this month. Watching some of the country's top legal minds consider one of the trickiest issues faced by financial remedy lawyers was a fascinating experience.
Over the past 20 years, classifying assets as "matrimonial" or "non-matrimonial" has become the starting point in high net worth divorces. The law is now tolerably clear on which assets are matrimonial (and so are shared, usually equally) and which are not (and so are not shared in practice, although we are told that in theory they could be). What has remained less clear is when an asset which began life as non-matrimonial can be transformed into a matrimonial asset.
The answer, the Court of Appeal in Standish determined, is if "the extent to which and the manner in which non-matrimonial property has been mixed with matrimonial property mean that, in fairness, it should be included within the sharing principle". So, it requires (i) mixing and (ii) that it is fair to share it. Watching the debate in the Supreme Court I found myself questioning whether the assistance offered by the first limb is outweighed by the complexity it introduces.
It was not edifying to watch the husband's Leading Counsel try to explain that "profound mixing" (not just any mixing) is required for an asset to become matrimonial, nor to watch the wife's Leading Counsel argue that a tax-planning venture should be seen as an active decision to mix assets so that they would be shared in the event of divorce.
Eight years ago in Hart v Hart [2017] EWCA Civ 1306Moylan LJ emphasised the need for flexibility when characterising assets which contained both matrimonial and non-matrimonial elements, holding that the court is not required to take a "formulaic" approach where this would be difficult or time-consuming, but can make a "broad assessment". He wrote:
It is, perhaps, worth reflecting that the concept of property being either matrimonial or non-matrimonial property is a legal construct. Moreover, it is a construct which is not always capable of clear identification... it can be artificial even to seek to identify a sharp division because the weight to be given to each type of contribution will not be susceptible of clear reflection in the asset's value. The exercise is more of an art than a science.
In Standish, however, Moylan LJ held that a broad, Hart-like approach could not be taken where it is difficult to determine whether an asset has been matrimonialised, but only in considering how an asset should be shared following a determination that it has been matrimonialised.
"Matrimonialisation" is a legal construct developed atop another legal construct and, given that it hinges on an assessment of fairness, not a very clearly defined one. The idea that whether an asset has been matrimonialised can be definitively assessed is no less – and probably more – artificial than the idea that it is always possible to delineate the product of pre-marital endeavour. If it takes five Supreme Court justices to work out whether an asset has been sufficiently mixed to render it matrimonial, then we might have a problem – especially when the outcome of that question makes a difference of £20,000,000, as it did for Mr and Mrs Standish.
Plainly, there must be guidelines on how the broad judicial discretion which exists in our law is to be exercised. But if guidelines become inflexible rules – and if the outcome may vary hugely depending on which side of the line a case falls, irrespective of how close to the line it is – the benefits of a discretionary system risk being lost.
Rather than looking at a non-matrimonial asset and asking whether it has been mixed sufficiently that it is fair to share it, would it not be simpler to ask whether, and in what way, it would be fair to share the asset, considering all the circumstances? The parties' arguments could then at least focus directly on fairness instead of analysing the meaning of "mixing".
To quote from Moylan LJ in Hart: "...fairness has a broad horizon. I recognise, of course, the need for clear guidance and principles... However, this should not lead to the imposition of constraints which are not needed to achieve, and which deprive the court of the flexibility required to achieve, a fair outcome".
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.
