The Supreme Court has had its say on the question of matrimonialisation, and for all those who had the Court of Appeal’s soundbite that ‘the concept of matrimonialisation should be applied narrowly’ saved as a template waiting to be deployed in an appropriate position statement, that now needs to be deleted. As the Supreme Court has told us, the concept of matrimonialisation is ‘neither narrow nor wide’, and what is important is how the parties treated the asset in question.
In rejecting Mrs Standish’s appeal from the Court of Appeal’s decision [2024] EWCA Civ 567, the Supreme Court provided welcome clarity on the treatment of non-matrimonial property, the sharing principle, and the circumstances in which non-matrimonial property can become ‘matrimonialised’.
The Background
It should be said at the outset that the context was that this was a “big money”, “sharing” case (i.e., where the general principle is for matrimonial assets to be shared, usually but not always, equally). Issues of needs and/or compensation were not before the Court for the purposes of this appeal.
The facts of the case are set out at paras 8-23 of the judgment and it is suggested that readers of this article consider them in full as the background was a complex one. Importantly though, shortly before the divorce, the husband transferred assets of approximately £80 million (“the 2017 assets”) to the wife to set up trusts (for the children of the marriage) and negate inheritance tax, but at the date of the divorce, the wife had not done the latter. At the date of the final hearing the parties’ total assets were approximately £132 million, most of which the husband had accumulated before the marriage.
In this scenario, the question for the Court was how should the sharing principle be applied? Further, how, if at all, should the concept of “matrimonialisation” be applied to the 2017 assets?
A summary of the reasoning of the lower courts
Moor J at first instance held that:
- “Most of” the investment funds involved in the 2017 transfer were the husband’s pre-marital wealth and were non-matrimonial;
- Because of the transfer, the part of the 2017 assets that were non-matrimonial became matrimonial so that the entire £80 million was subject to the sharing principle;
- Matrimonial property totalled approximately £112 million (including the £80 million); and
- The source of the funds was significant, which led to appropriate division as 60% to husband and 40% to wife (the parties’ shares were rounded to 66% and 34% for each respectively (£45 million for the wife)). On this basis, no needs assessment for the wife was required.
On appeal (as cross appeals from both parties), the Court of Appeal held that:
- The Judge was incorrect to have made the transfer of the title from husband to the wife the determinative factor in characterising the 2017 assets; the source of the assets was determinative;
- Nothing justified the conclusion that the importance of source of “most of” the 2017 assets as non-matrimonial was diminished at all by the transfer to the wife;
- The transfer had not matrimonialised any of the 2017 assets;
- 75% of the 2017 assets remained non-matrimonial and were not subject to the sharing principle (it being clearly implied that 25% was accumulated during the marriage and was therefore subject to the sharing principle);
- The correct figure for all the matrimonial property subject to the sharing principle was £50.48 million; and
- Subsequently, a fair outcome in applying the sharing principle to said matrimonial property was to provide the wife with £25 million and the husband £107 million (approximately) each (the matter to be remitted for a needs assessment based on the lower award for the wife).
Further analysis of the Court of Appeal decision is available from our colleagues Nicholas Sproull and Gemma Borkowski in their article (Standish and its application so far…. | Albion Chambers).
The appeal before the Supreme Court and the Court’s judgment
The wife appealed this decision and contended that the Court of Appeal was wrong to conclude that the transfer of the 2017 assets to her did not result in their matrimonialisation. The thrust of the appeal was her contention that properly analysing the transfer would render it effective as a gift of the assets and the Court erred by relying solely on the source of the assets in determining that they were non-matrimonial property.
In dismissing the appeal and upholding the Court of Appeal’s decision, the following principles (with a focus on matrimonial and non-matrimonial property and the sharing principle) from the unanimous judgment of the Supreme Court delivered by Lord Burrows and Lord Stephens were:
- There is a distinction between matrimonial and non-matrimonial property which turns on the source of the assets, rather than who has the title to the assets;
- Non-matrimonial property should not be subject to the sharing principle (though it can be subject to needs and/or compensation) and that the distinction between the two would become largely meaningless if the sharing principle was applied to both;
- The sharing of matrimonial property should normally be on an equal basis (this as the starting point) but there can be justified departures;
- What starts as non-matrimonial property may become matrimonial property (i.e., matrimonialisation) the important question on any facts being whether that transformation has occurred;
- The obiter dicta of Wilson LJ in K v L [2011] EWCA Civ 550 at para 18 was approved (i.e., the three situations of matrimonialisation), but it was stressed that they were not exclusive and that the concept should not be applied narrowly (nor widely for that matter);
- The ratio from the judgment on considering matrimonialisation (in situations two and three as listed in K v L) or not was (para 52): “matrimonialisation rests on the parties, over time, treating the asset as shared”; the first situation in K v L leading to an assumption of matrimonialisation for pragmatic reasons; and
- Regarding the particular facts of this case, in relation to schemes to save tax, where a transfer occurs from one spouse to another, this does not normally show that the asset is being treated as shared between them (without some further compelling evidence).
In declining to interfere with the assessment of the Court of Appeal as above, it was highlighted that the 2017 assets were largely non-matrimonial property (this being lost at first instance), had not become matrimonialised, and accordingly were not subject to the sharing principle.
In coming to this conclusion, the Supreme Court disagreed with the Court of Appeal on the idea of narrowing the application of matrimonialisation (as limited to the three situations in K v L) and highlighted the importance of how the parties had been dealing with the asset and whether this shows that, over time, they have been treating the asset as shared between them.
They concluded that there was no matrimonialisation of the 2017 assets as the transfer was made to save tax, and it was for the benefit of the children, not the wife, hence it was not at any time being treated by the parties as an asset that was shared between them.
Finally, the Supreme Court further rejected the argument of there being matrimonialisation of the 2017 assets based on the transfer being for the benefit of the family (possible examples were cited such as purchasing a holiday home or a family car), as the transfer was made in the context of an intended scheme to save tax (future inheritance tax) and there was a clear demarcation between a benefit for the children rather than a shared benefit for the parties (as in this case, husband had not declared himself a trustee of the 2017 assets).
The future application of Standish
So, where does this leave us?
Welcome clarification has been provided on the sharing principle not being applicable to non-matrimonial property (but of course, needs and compensation arguments can still be considered), and better guidance has been given on when it can be said that matrimonialisation of what was originally non-matrimonial property may or may not have occurred.
A couple of thoughts on how Standish may be of relevance going forward from the writers of this article are:
- It may assist parties in situations where a solely owned asset has been treated, to a greater or lesser degree, as an asset of the marriage;
- Assets such as pre-marital pensions may likely be vulnerable to matrimonialisation arguments given the above (though they may be shared according to needs in any event).
- Rental properties (particularly where the income was utilised for the benefit of the family, and where they are treated as security for the parties’ retirement) may also be vulnerable;
- Inheritance, even if ring-fenced, may also be considered to be future security for the parties such that they do not need to make pension contributions; and
- Standish may lead to more constructive-trust-type arguments being advanced in support of matrimonialisation of non-matrimonial property, given the Court’s focus on the intentions of the parties and how they treated the asset(s) in question.
Given this judgment, we suggest it may be of assistance for initial client meetings to spend time exploring how the parties treated assets that might otherwise be considered non-matrimonial property in order to advance any Standish-based matrimonialisation arguments that could be made, particularly in medium to long marriages.
A final thought to leave on. Where the judgment refers to consideration of how the parties treated the asset ‘over time’, that last part is an important qualifier. We are told that “the period of time must be sufficiently long for the parties’ treatment of the asset as shared to be regarded as settled.”
Fertile ground for litigation, no doubt.
