London has, since around the turn of the millennium, attained the dubious status of ‘Divorce Capital of the World’. This is principally due to the introduction and development of radical new concepts in the law of financial provision, whereby the claimant’s award was no longer to be pegged at the ‘bottom line’ level of reasonable needs, but could in many cases extend to a full 50 per cent of the total assets.
However, two recent decisions highlight a significant shift in the court’s approach to the division of assets following a divorce.
In K v L the vast majority of the assets consisted of shares that the wife had inherited from her grandfather, valued at £57m at the date of the final hearing. It was found that the value of the shares had grown passively and had not been intermingled at all with the remaining pot of assets. It was also considered to be relevant that the parties had lived to a very modest standard, thereby limiting the award required to satisfy the husband’s “needs”.
The husband was therefore awarded only 5 per cent of the total assets, which the judge found would meet his reasonable income and capital needs – a radical departure from the concept of 50:50 sharing.
In AR v AR the court was concerned with a wife’s application for financial relief after 25 years of marriage. The total assets in the case amounted to between £21m and £24m, all but £1m of which were in the husband’s name, and consisted almost entirely of pre-marital and inherited property. The judge felt that to decree that inherited or pre-acquired assets should only be invaded to the extent necessary to meet the weaker party’s needs might be too “rigid a framework”.
Notwithstanding this comment he concluded that the principle that best guided him in the exercise of his discretion in this particular case was indeed that of the wife’s needs, and he awarded her £4.3m (18-20 per cent) of the total assets, again supporting a move away from the sharing of non-matrimonial assets beyond that required to meet the weaker party’s needs.
Miller and McFarlane: The Glass Half Empty
The two cases above are illustrative of a gradual divergence from the authority of Miller and McFarlane (2006). In that case the House of Lords concluded that non-matrimonial assets could, depending on the circumstances of the case, be as vulnerable as anything else to an equal division on divorce.
This caused particular concern where the money, or some of it, had a ‘non-matrimonial’ character, meaning that it was either family money received by gift, inheritance or distribution from trust or it had been built up before the marriage. Under McFarlane such assets might, particularly in a longer marriage, fall into the general carve-up.
The New Trend
Miller and McFarlane remains the leading authority, however it is now six years old. More recently, the Court of Appeal gave judgment in the case of Robson in October 2010.
In Robson it was held that although the non-matrimonial property (an inheritance) should be included in the ‘pot’ for division, the Court could nonetheless take account of the non-matrimonial character of the inheritance by adjusting away from a 50/50 split. The degree of adjustment would depend on the nature of the inheritance, how long ago it had arrived and the degree to which it had been intermingled with the family’s general finances.
Shortly after Robson came the case of Jones. Here the Court of Appeal sought first to define the non-matrimonial assets. These were then removed from account and equal sharing was applied to the remainder. Non-matrimonial property would only be brought into the equation if necessary in order to meet the parties’ needs.
The approach taken in AR v AR and K v L is further support for this new trend.
Where Are We Now?
The bottom line is that “needs” will always trump any argument to ring-fence inherited or other non-matrimonial property. If these needs cannot be met from matrimonial property alone, a judge will need to look to non-matrimonial assets.
It should also not automatically be assumed that the receiving party will only be entitled to an award of their needs in cases of significant wealth. To make such an assumption would be cavalier, as there are a number of influencing factors.
Nonetheless, in cases of significant wealth where there is a surplus over the parties’ needs, the more recent decisions do seem to indicate an increased caution about dividing non-matrimonial assets, be they of a ‘family’ or a ‘pre-acquired’ nature. Where ‘non-matrimonial assets’ have been kept largely separate from other wealth, and not used to purchase the family home or fund an enhanced lifestyle, they may be less vulnerable.
It should, however, be noted that all of the cases referenced throughout this article were litigated to final trial, no doubt at considerable expense to the parties involved. That fact alone serves as a stark reminder that considering these issues in advance, and making judicious use of pre-nuptial agreements in your planning, is vital.
James Freeman is a Partner and Head of Family at Speechly Bircham LLP. James can be contacted on +44 (0)20 7427 6584 or by email: firstname.lastname@example.org