Many couples going through divorce have been awaiting this judgment (and not just those, as in this case, where the total assets exceed £100m), as it is the first case since Miller and McFarlane [2006] UKHL 24 in which the Supreme Court has considered the distinction between matrimonial and non-matrimonial property in the context of applying the sharing principle on divorce.
English case law developed over the last 25 years recognizes a general distinction between 'non-matrimonial property' on the one hand - being assets owned prior to the marriage, or received by inheritance or external gift during the marriage, and 'matrimonial property' on the other - being assets 'earned or gained' during the course of, and as a result of, the marriage.
The key question for the Supreme Court in the case of Standish was how the sharing principle should apply where, 3 years before the divorce, the husband made a transfer to the wife of assets ('the transferred assets') worth c.£80 million (which the Judge at first instance had determined were largely non-marital in origin) for the purpose of setting up trusts to negate inheritance tax and where, at the date of the divorce, the wife had not set up the trusts but retained those assets. The Court of Appeal had determined that 75% of the transferred assets remained non-matrimonial and not subject to the sharing principle as they comprised the husband's pre-marital assets; whereas the balance of 25% were considered matrimonial and subject to equal sharing as these represented earnings that the husband made in the years 2004-2007 to which the wife contributed by being the home-maker and child-carer during those years.
The wife contended that the Court of Appeal was wrong to conclude that the transfer to her of the assets did not result in their 'matrimonialization'.
The Supreme Court upheld the decision of the Court of Appeal and in doing so, clarified the following principles:
- matrimonial property should be subject to the sharing principle with the starting point being equal sharing;
- non-matrimonial property should not be subject to the sharing principle (though such property can be subject to the principles of needs and compensation);
- that which starts as non-matrimonial property may become matrimonial property. Such 'matrimonialization' rests on evidence as to whether the parties, over time, have treated the asset in question as being shared (for example - mixing with matrimonial property in circumstances in which the contributor may be said to have accepted that it should be treated as matrimonial property; or investing it in the acquisition of a marital home which over time is treated by the parties as a central item of matrimonial property);
- transfers of capital assets with the intention of saving tax, do not, without some further compelling evidence, establish that the parties are treating the capital asset as shared between them.
A key takeaway from this case is that a spouse who wishes to protect their non-marital wealth (assets owned prior to the marriage or received by inheritance or gift during the marriage), so as to avoid the uncertainty of exposure to 'matrimonialization' on divorce, should consider entering into a pre- or post-nuptial agreement and keeping such non-matrimonial assets separate during the marriage.
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.
