This morning the Supreme Court handed down the much-anticipated judgment in the case of Standish v Standish, clarifying the court’s approach to determining whether or not non-matrimonial assets have been ‘matrimonialised’ and subject to sharing claims on divorce.
What was the court being asked to decide?
The core question that the Supreme Court was asked to grapple with was: when does a party’s non-matrimonial property become matrimonial property and therefore subject to sharing claims? Furthermore, should matrimonial property normally be shared equally between parties, or does the court have discretion to order another division?
The case centred on the treatment of £80m of investments, which were transferred by the husband to the wife in 2017 (known as the ‘2017 Assets’), and a number of shares in a business owned by the husband, issued to the wife around the same time (known as the ‘Ardenside Angus Shares’). Both transfers were made as part of a tax planning exercise to mitigate tax, particularly potential Inheritance Tax on the husband’s death. It was intended that the wife would, in turn, settle the 2017 Assets into discretionary trusts in Jersey, although that did not, in fact, happen. When the parties’ marriage broke down in 2020, the assets remained held in the wife’s name.
The husband’s case was that the 2017 Assets and the Ardenside Angus Shares had been generated by his premarital endeavour and therefore were his non-matrimonial property. He argued that, notwithstanding their transfer into the wife’s name, they retained their non-matrimonial nature and should not be subject to sharing on divorce.
The wife’s position was that by transferring the 2017 Assets and the Ardenside Angus Shares into her name, they had become her non-matrimonial property.
Journey to the Supreme Court
At first instance, the High Court determined that, whilst most of the 2017 Assets were the husband’s non-matrimonial property, they had been matrimonialised upon transfer to the wife. The judge considered that 20% of the Ardenside Angus Shares should be treated as the husband’s non-matrimonial property given that much of their value may have been generated during the marriage. Ultimately, Moor J determined that £112 million of the £132 million total assets were matrimonial, and he ordered a 60/40 division of that matrimonial property in the Husband’s favour to recognise his contribution of non-matrimonial property. The wife was therefore to retain total assets of £45m and the husband £87m.
Both parties appealed the High Court decision in relation to matrimonialisation, maintaining their positions that the 2017 Assets were each of their respective non-matrimonial property.
The Court of Appeal unanimously dismissed the wife’s appeal and allowed the husband’s appeal, holding that “the concept of matrimonialisation should be applied narrowly.” It determined that the source of an asset is key in determining whether or not it is matrimonial, rather than whose name it is held in. Ultimately, the Court of Appeal determined that (at most) 25% of the 2017 Assets had been generated during the marriage and therefore were matrimonial. The balance of the 2017 Assets were the husband’s non-matrimonial property and remained so notwithstanding their transfer to the wife. Pursuant to the Court of Appeal’s decision, £50.48m of matrimonial assets were divided equally. Once the husband’s non-matrimonial assets were added to his share, he retained £107 million, while the wife’s retained £25 million.
The Wife appealed.
The parties’ key arguments
The wife’s key argument before the Supreme Court was focused on the legal test to determine when non-matrimonial property becomes matrimonial and is therefore subject to sharing claims upon divorce. She argued that the transfer of the 2017 Assets and Ardenside Angus Shares to her were a gift from the husband that matrimonialised the assets, and therefore should be divided equally. (She was no longer pursuing her case that the transfer caused the assets to become her non-matrimonial property).
The husband’s arguments, unsurprisingly, supported the Court of Appeal’s analysis that the source of an asset is key to determining whether it is matrimonial or non-matrimonial. The husband further argued that the context of a transfer/gift is relevant, including its intended purpose and what subsequently happened to the gifted property.
In relation to the question of whether matrimonial assets should normally be shared equally, the wife’s position was that they should. She asserted that if the Supreme Court were to provide clear authority for this proposition, then it would promote predictability and help more cases settle.
The husband’s position in relation to sharing was more nuanced, asserting that whilst it is right that normally matrimonial property would be shared equally, it would not be right to say that it always will be. The husband made a distinction between matrimonial property and property which has been matrimonialised, asserting that the claim for an equal share of the latter is weaker.
The judgment
The Supreme Court unanimously dismissed the wife’s appeal, endorsing and upholding the Court of Appeal’s judgment.
Further, the Supreme Court provided helpful clarity, confirming that:
- non-matrimonial property can become matrimonial property (i.e. be matrimonialised)
- when considering if non-matrimonial property has been matrimonialised it is important to look at how the parties have dealt with the asset in question: “matrimonialisation rests on the parties, over time, treating the asset as shared”
- transfers for tax planning purposes do not, “without some further compelling evidence”, demonstrate that the parties are treating an asset as shared
- the sharing principle does not apply to non-matrimonial property (although the principles of needs and compensation do apply)
- matrimonial property should normally be shared on an equal basis
- whilst a departure from equal sharing can be justified, equal sharing is the appropriate starting point
Family law implications of the Supreme Court’s judgment
Family lawyers are familiar with competing claims from parties as to whether assets are matrimonial or not, particularly in ‘big money’ cases. Whilst the principles confirmed in today’s judgment will predominantly impact families with assets in excess of their needs, the clarification that matrimonial property should normally be shared on an equal basis will be welcomed across the board.
The Supreme Court’s judgment is evidence of the benefit of our discretionary system and family judges’ ability to take in to account all the circumstances of a case when determining how assets should be divided upon divorce. In rejecting the wife’s case on matrimonialisation, the court took a holistic approach to evaluating the parties’ wider intentions and recognised that how married couples may choose to arrange finances during the marriage is not determinative of how those assets may be treated on divorce. As the court confirmed, the source of the asset and its treatment by the parties is key. Furthermore, it has provided useful reassurance that transfer of assets for tax planning will not amount to the assets being automatically treated as being matrimonialised. Whilst some may criticise the lack of certainty that this guidance provides, the ability of the court to adopt a nuanced approach is a fundamental pillar of our discretionary system.
Is the Supreme Court Judgment relevant to Inheritance (Provision for Family and Dependants) Act 1975 claims?
When one spouse dies, the surviving spouse can bring a claim for increased financial provision out of the estate of the deceased spouse. In a spousal claim, the court has regard to the circumstances as a whole, rather than a maintenance standard which applies to other applicants.
One of the factors that the court considers in determining spousal 1975 Act claims is the divorce cross-check. As in Standish, the court may consider what assets at death were held by the deceased spouse at the start of the marriage (as opposed to those held by the surviving claimant spouse). It follows that the court might then consider whether any of these assets were ringfenced for the deceased spouse. The divorce cross-check looks at what assets would have been available to divide between parties in hypothetical divorce proceedings.
Standish will encourage practitioners in trust and estate disputes to look more closely at how assets were acquired and held during the marriage and there will likely be more disputes, particularly in high value cases, about whether or not assets are considered to be matrimonial or not. Standish makes clear that it is “important to consider how the parties have been dealing with the asset and whether this shows that, over time, they have been treating the asset as shared between them” and so this evidence will be important in determining whether or not it is arguable that assets have been ringfenced and outside of the scope of the divorce-check.
That said, the divorce cross-check does not set an upper or lower limit on what may be awarded to a spouse under the 1975 Act. One reason for this is that the court is only having to provide for one spouse on death and it is to have regard to all the circumstances.
In Lilleyman v Lilleyman [2012], Mr Justice Briggs (as he then was) found that the divorce cross-check was not determinative and, therefore, there is still scope to depart from the divorce cross-check, and the nuance that is Standish, when ascertaining what is reasonable financial provision for a spouse.
Imogen Nolan is a senior associate in the family and children team, specialising in all aspects of private family law including divorce, financial disputes, pre-nuptial and post-nuptial agreements & children matters.
Sarah Arnold is a partner in the trust, will and estate disputes team, handling cases involving both onshore and offshore assets including family businesses, family farms, art and digital assets. She has extensive experience resolving disputes involving lifetime gifts, inheritance, validity and/or construction of testamentary and trust documents.
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