A frequently asked question is how pre-marital assets should be treated on divorce? It is not uncommon for one party or indeed both to bring into the marriage assets which they owned before the marriage. When a marriage flounders, they may then seek to ringfence those assets on the basis that they should not form part of the matrimonial pot for distribution. Is that approach fair and how do the Courts deal with this issue?
The Judge when dealing with financial applications has a wide discretion to make whatever order he considers fair. Notwithstanding the exercise of discretion, there is some degree of consistency of approach in cases of this nature and that has recently been solidified by the case of Standish v Standish.
Matrimonial or Non-Matrimonial
The main question when looking at a pre marital asset is whether, by the time of the divorce, it is still non matrimonial or has it become a matrimonial asset, through the way it has been treated during the marriage.
This is important because a non matrimonial asset is excluded from the sharing principle. This was reiterated in the Standish case by the Supreme Court – you do not share non matrimonial property. It can however be claimed as part of a needs argument so it is clear that the opportunity to argue over whether something is matrimonial or non matrimonial will only be for couples where the asset pot is large enough to exceed the needs of the parties.
Factors in Retaining Non-Marital Status
To retain non matrimonial status, the Court will consider whether the wealth went into the matrimonial pot during the marriage or whether it was kept specifically outside of the parties’ other assets as a distinct and untouchable asset.
Standish v Standish
The issue in Standish and Standish was whether the husband’s transfer of his pre-marital investments into his wife’s name for tax purposes, matrimonialised them – made them a matrimonial asset. The first Judge said it did; the Court of Appeal said it didn’t and the Supreme Court agreed with the Court of Appeal. As the reason for the transfer was to avoid inheritance tax, a tax that would not impact the parties but their children, the assets transferred for that purpose retained their non matrimonial status and could not be shared.
Both the Court of Appeal and the Supreme Court did find that 25% of the funds transferred were not wholly subject to this intention and so had become matrimonial and the wife then shared in them.
It should not be ignored this was a very large asset case. The court also said that where the argument over matrimonial/non matrimonial relates to a small percentage of the overall pot, it should not be pursued.
The N v F (2011) Perspective
The Court in Standish did not deal with some other arguments that arise from pre marital assets coming into the marriage, such as the one highlighted by Mostyn J in N v F (2011) below:
“Whether the existence of pre-marital property should be reflected at all, depends on the questions of duration and mingling. If it is decided that reflection is fair and just, the Court should then decide how much of the pre-marital property should be excluded. Should it be the actual historic sum? Or less if there has been much mingling? Or more, to reflect a springboard and passive growth? The remaining matrimonial property should then be divided equally. The fairness of the award should then be tested by the overall percentage technique.”
The emphasis is again on fairness. If one were to exclude the pre-acquired wealth and divide what is left, would the percentage shares each then have be wholly disproportionate and therefore inherently unfair in particular in the context of a long marriage? It is likely in the latter case that the pre-acquired wealth would have been intermingled with the parties’ matrimonial assets and therefore more problematic to exclude. If its exclusion leaves the other party at a disadvantage and unable to meet their reasonable needs, then it would only be fair and right to add a percentage back into the pot for distribution.
Capital Contributions and the Sharing Principle
Even where an asset has lost its non matrimonial status, it can still be argued that this is a capital contribution from one spouse which is unmatched by the other. It will not exclude it from the pot, and again in Standish v Standish, the Supreme Court said that matrimonial property subject to the sharing principle should usually be shared equally. However in a needs case, the unmatched contribution of capital resources by one party may limit the court’s generosity to the needs claim of the other spouse.
Needs Based Approach
Most cases will be decided on needs and the arguments available to the extremely rich may have little impact. Needs is the justification given by the judges for including all pre marital pension funds, even with later in life marriages and for taking a broad brush approach that whatever the source of the asset it will be taken into account and allocated as the needs of the parties require. The best chance of avoiding this approach is to enter into a pre or post nuptial agreement setting out how the non matrimonial property is to be treated.