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Jennifer Allen specialises in matrimonial finance upon divorce/separation and civil partnership matters and is an Associate Solicitor in the matrimonial/family department at Hughes Paddison in Cheltenham, Gloucestershire.
Jennifer offers an insight in respect of pre-acquired, inherited and post-acquired assets and the way in which they are currently treated by the Court with reference to the current Case Law and how that may change if the Law Commissions recent recommendations to Government were implemented.
Current Law
Upon dissolution of the marriage or civil partnership, it is necessary for the Judge to consider what assets were acquired during the marriage or civil partnership as the overriding principle is that the fruits of the marriage are shared equally. Matrimonial assets, not just limited to the marital home, can include land, businesses, shares and stocks, and antiques etc that may have been brought into the marriage or civil partnership by one party, but because of the course of dealings during the relationship, these may or may not become a marital asset. If there was a mixing of the pre-acquired assets or inherited assets during the course of the marriage they may be treated as belonging to both parties and subject to the sharing principle. However, even if they have not become “a marital asset” they may not be protected from the sharing principle.
The Judge is required by statute to consider various factors on making a decision about dividing the marriage wealth. Examples of factors that the Judge must consider involve the income, earning capacity, property, other financial resources of each party, their financial needs and obligations, and also the contributions they made to the marriage or civil partnership. To assist the Judge in exercising his statutory duty Case Law has evolved as to how assets are to be valued, divided and adjustments made to bring about a fair and overall outcome to the parties. Given the Judge’s discretion, there is no one size fits all and although the principles are set out in statute and the Case Law is there to guide, the application of those principles and Case Law means that judicial decisions can differ quite radically between each case even if the facts are similar.
The overriding objective of the Judge is to determine a division of assets which best achieves a fair outcome for the parties. The above paragraph refers to some of the statutory factors the Judge must take into account, which also includes the financial needs and obligations of the parties to the marriage or civil partnership. It is in this respect that pre-acquired assets or inherited assets, or even on some occasions assets acquired after separation, may be considered wholly or partially within the remit of the Court to be considered fruits of the marriage to be shared by both parties. There is no simple formulaic or mathematical approach. It is a broad consideration as to the value of the assets and the financial needs of the parties, with the Judge exercising his or her discretion as to what he or she believes is fair.
In the case of B v B [2012] EWHC314 Judgment was given on 16th January 2012. The Judge felt it would be unfair not to exclude any of the husband’s premarital wealth from the sharing principle. The Judge concluded that a rounded figure of £820,000 ought to be excluded from the matrimonial pot of assets to be divided and the Judge stated “if a party is going to assert the existence of pre-marital assets then it is incumbent upon him to prove the same by clear documentary evidence”. It is therefore of upmost importance that if you are seeking to set aside an asset not to be included within the matrimonial pot then you must have evidence of the existence of this asset prior to the marriage and also, evidence that this was not intermingled as an asset during the marriage.
Pre-Nuptial and Post-Nuptial Agreements
Until the Supreme Court gave Judgment in the case of Radmacher v Granatino a pre-nuptial agreement may not have been sufficient to tie the parties hands and a Judge could disregard its contents when deciding what was or was not fair. However, since Radmacher there has been a change in the Court’s attitude to pre-nuptial agreements and so long as the pre-nuptial was made in a particular format it could be binding on the parties. This certainly has been clarified in the case of Z v Z (no.2) [2011] EWHC 2878. Judgment was given on 03rd November 2011 and the Judge noted that save for the existence of the pre-nuptial agreement, it would have been a case where all assets would have been divided equally. The Judge, considering the agreement, accepted that both husband and wife entered into the agreement freely and with full understanding of the implications, although neither was given formal advice prior to signing the agreement and no formal disclosure was exchanged. Neither of these points affected the Judge’s decision. In this case the wife sought an equal division of the total assets of the marriage worth in the region of £15 million. The husband’s position was that agreement excluded the sharing of particular pre-acquired assets and that the wife should be held to the agreement she signed. It is therefore of upmost importance if, you wish to consider protecting assets acquired prior to a marriage, to consider preparing a pre or post-nuptial agreement to make clear your understanding as to how pre-acquired assets ought to be treated in the instance of divorce.
Treatment of Family Trusts upon Divorce/Separation
The existence and subsequent treatment of a trust is frequently encountered in respect of dissolution of marriage or civil partnership cases. It may be that one party, who may be the beneficiary under a family trust, will seek to argue that they only have a hope of benefiting from a trust which is “discretionary”. Whereas, the opposing party may seek to argue that the reality of the situation is that their spouse is the beneficiary and has received and will continue to receive benefit from the exercise of trustee’s discretion and therefore it ought to be considered. When considering it, it ought to be referred to as a marital asset.
So a trust fund/property may not necessarily be protected if the parties dissolve the marriage or civil partnership. It may be necessary to consider whether a trust/settlement should be varied in its terms if it is necessary to achieve fairness between the parties. A trust may get caught up in an attempt to do justice between the parties. It would be necessary for information regarding the trust to be requested at an early stage in proceedings.
Case Law in respect of pre-acquired and post-acquired and inherited assets continues to evolve and this is not a straight forward area. One leading High Court Judge said in the case of FZ v SZ [2001] 1FLR64 “it is so easy to say there is a good deal of non-matrimonial property here so I will reduce the claimants share to 40%, but the approach simply does not tell anyone what weight is being given to that factor”. So in every case under the current law the Judges are creating bespoke solution or settlement upon the parties. The result is that with each Judge exercising his/her discretion and interpreting the statutory requirements, there is no clarity and although couple A and couple B may have similar assets and they may have been acquired in a similar way, upon dissolution of their marriage or civil partnerships, based on this kind of judicial lottery, it could result in two entirely different settlements.
A Judge will take into consideration all factors of a case and what was brought into a marriage, accumulated during a marriage, inherited or received after a marriage but, these are just some of the factors that a Judge will grapple with when making a decision on the individual facts of a case.
Law Commission Recommendations
The Law Commissions consultation claims there is a lack of legal clarity and the definition of needs as well as defining pre-acquired, inherited and post-acquired assets, all require some form of clarity. The Law Commission proposed that non-marital property i.e. property held in one parties name and known and acquired either as a gift or an inheritance or before the marriage or civil partnership, should not be shared unless it helps meet their partners needs.
It is unclear as to how far the exclusion of those assets will go. For example, it is unclear as to whether or not this is to include family homes; this could even mean a country mansion is kept by the rich husband rather than going to his ex-wife and children to assist with their needs, in particular if the country mansion had been in his family for generations. However, in essence it appears that the Commission will be recommending the exclusion of those assets and that they are not to be treated or considered fruits of the marriage. Furthermore, there is a suggestion it will be the creation of more formulaic guidelines in order to determine the level and term for spousal support. Under the current law it is unclear to what extent one spouse must support the other and for how long, or whether the wife should be compensated if they gave up careers to raise children and so forth. Basically in high net worth divorces there are no clear guidelines and it really is a postcode lottery with levels of generosity differing from Courts across the country. If there are going to be formulaic guidelines then this may be along those already established in Canada that would calculate support based on the length of the relationship and the difference between the spouses income. In Canada these guidelines were devised in 2005 to make divorce settlements more consistent and predictable, although the guidelines are not actually binding upon the Canadian Judges they are the “norm” and to a large extent, applied as the rule rather than the exception.
A spokesman for the Ministry of Justice said “the Government will consider the recommendations of the Law Commission when its report and pre-nuptial and post-nuptial agreements is published”. So, at this point in time we do not actually know whether the Law Commission recommendations will become law and the report will not be made until 2013.