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Matrimonial Assets – Sharing is Caring

Sharing

Matrimonial Assets – Is Sharing sometimes harder to do than Giving?

In recent years the law in respect of non-matrimonial and matrimonial issues in financial remedy proceedings is often challenged in financial cases. The 8 point overview below will shine some light on the ongoing debate and its origin since White v White in 2000.

  1. Principle: Starting point is White v White 

In White, Lord Nicholls held that:

  • The fact that property or assets owned by a party derive from a source outside the marriage (such as inheritance or pre-acquired wealth) does not per selead to its exclusion altogether from the court’s consideration of a fair outcome to both parties. Insofar as it represents a contribution by one of the parties to the welfare of the family, it is a factor which the judge should take into account: per Lord Nicholls in White v White UKHL 54, 1 AC 596.

 

  1. Principle: Fairness & “non – discrimination” in Miller/McFarlane 
  • The overarching principle which supports fairness to both parties is that of ‘non-discrimination’. The court will treat the contributions made by each of the parties to the marriage as having a broadly equivalent value even though they be different in kind: Miller v Miller;McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618, [2006] 1 FLR 1186.

  

  1. Principle: Existence of mingling 
  • Each case has to be considered on its own facts and the court’s assessment of fairness in that particular case. The judge must consider whether the existence of such property should be reflected in outcome at all. This will depend on the extent to which it has been ‘mingled’ with matrimonial property and the length of time over which that ‘mingling’ has taken place: per Mostyn J in N v F (Financial Orders: Pre-acquired Wealth) [2011] EWHC 586 (Fam), [2011] 2 FLR 533. In other words, the way in which such property has been used over the course of the marriage has the potential to affect whether it remains ‘separate’ property: Miller/McFarlane (above) at para [25]. There may be cases where, over the course of a long marriage, the importance of the source of a significant element of one party’s wealth, or even the entire wealth, has been maintained through ring-fencing in one party’s name, kept safely and left to grow in value: K v L [2010] EWHC 1234, [2010] 2 FLR 1467,at para [17] per Wilson LJ.

 

  1. Principle: Marital endeavour 
  • Assets or property which are matrimonial in character will be captured by the ‘sharing principle’ and divided equally between the parties. Matrimonial property is now recognised as being property which is the product of, or reflective of, marital endeavour or ‘generated during the marriage otherwise than by external donation’:

 

“To what property does the sharing principle apply? The answer might well have been that it applies only to matrimonial property, namely the property of the parties generated during the marriage otherwise than by external donation; and the consequence would have been that non-matrimonial property would have fallen for redistribution by reference only to one of the two other principles of need and compensation to which we refer in paragraph 68 below. Such an answer might better have reflected the origins of the principle in the parties’ contributions to the welfare of the family; and it would have been more consonant with the references of Baroness Hale in Miller at [141] and [143] to “sharing … the fruits of the matrimonial partnership” and to “the approach of roughly equal sharing of partnership assets”. We consider, however, the answer to be that, subject to the exceptions identified in Miller to which we turn in paragraphs 83 to 86 below, the principle applies to all the parties’ property but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality. It is clear that both in White at p.605 F-G and in Miller at [24] and [26] Lord Nicholls approached the matter in that way; and there was no express suggestion in Miller, even on the part of Baroness Hale, that in White the House had set too widely the general application of what was then a yardstick.”

“My view is that, in applying the sharing principle to this case, we should in the first instance adopt the approach commended to the judge by Miss Stone. We should therefore effect a division of the total assets of £25million into the part reflective of non-matrimonial assets and that reflective of matrimonial assets. But in doing so we should remember that, as Lord Nicholls stressed in Miller/McFarlane at [26], we are unlikely to need, still less to achieve, a precise division. The remaining step to be taken pursuant to Miss Stone’s approach will be easy partly because in this case there is no ground for sharing the non-matrimonial assets other than 100% to the contributor and 0% to the other and partly because, by contrast, there is no ground for sharing the matrimonial assets other than equally.”

[67] The exercise on which the court is engaged, when applying the sharing principle in this context, is, therefore, to determine whether the current assets owned by the parties, or within the scope of section 25(2)(a), comprise the product of marital endeavour. The court must then decide how that determination should impact on the court’s award. This raises (a) an evidential issue, namely a factual determination which has been described in terms of identifying whether property is matrimonial or is non-matrimonial but which, in my view, is often more nuanced than this because property can be a combination of the two; and (b) an evaluative or discretionary issue, namely the manner in which the factual determination is weighed when the court is undertaking the section 25 exercise and deciding what award to make.

[85] It is, perhaps, worth reflecting that the concept of property being either matrimonial or non-matrimonial property is a legal construct. Moreover, it is a construct which is not always capable of clear identification. An asset can, of course, be entirely the former, as in many cases, or entirely the latter, as in K v L. However, it is also worth repeating that an asset can be comprise both, in the sense that it can be partly the product, or reflective, of marital endeavour and partly the product, or reflective, of a source external to the marriage. I have added the word “reflective” because “reflect” was used by Lord Nicholls in Miller (paragraph 73) and “reflective” was used by Wilson LJ in Jones (paragraph 33). When property is a combination, it can be artificial even to seek to identify a sharp division because the weight to be given to each type of contribution will not be susceptible of clear reflection in the asset’s value. The exercise is more of an art than a science.

[128] In my view Miller and the subsequent decisions referred to above, in particular Jones and Scatliffe, do not support the extension of the sharing principle to an earning capacity. The sharing principle applies to marital assets, being “the property of the parties generated during the marriage otherwise than by external donation” (Charman v Charman (No 4), para 66). An earning capacity is not property and, in the context advanced by Mr Turner, it results in the generation of property after the marriage.

 

  1. Principle: Sharing principle has no impacts on non-matrimonial property 
  • The application of the sharing principle impacts, in practice, only on the division of marital property and not on non-marital property:

Scatliffe v Scatliffe [2016] UKPC 36, [2017] AC 93, [2017] 2 FLR 933 at para [25]

  • Section 26(1)(a) of the 1995 Act obliges the court to have regard to the “property and other financial resources which each of the parties … has or is likely to have in the foreseeable future”.
  • Thus, when a court finds that an asset is not one in which either party has any interest (such as, in the present case, Parcel 174, beneficially owned by the son Derwin: see para 17 above), no account should be taken of it.
  • It is, however, confusing for such an asset to be described as “non-matrimonial property”.
  • It was when introducing the “yardstick of equality of division” in the Whitecase, cited above, at p 605, that Lord Nicholls proceeded, at p 610, to refer to “matrimonial property” and to distinguish it from “property owned by one spouse before the marriage, and inherited property, whenever acquired”. In the Miller case, cited above, at paras 22 and 23, he described the latter as “non-matrimonial property”; and he explained his earlier reference to “matrimonial property” as meaning “property acquired during the marriage otherwise than by inheritance or gift”.
  • So the phrase “non-matrimonial property” refers to property owned by one or other of the parties, just as the phrase “matrimonial property” refers to property owned by one or other or both of the parties.
  • Accordingly it is contrary to section 26(1)(a) of the 1995 Act for a court to fail to have regard to “non-matrimonial property”. This raises the question: in what way should regard be had to it?
  • As was recognised in Charman v Charman (No 4) [2007] EWCA Civ 503, [2007] 1 FLR 1246, at paras 65 and 66, it was decided in the White and Miller cases that not only matrimonial property but also non-matrimonial property was subject to the sharing principle. In the Miller case, Lord Nicholls, however, suggested at para 24 that, following a short marriage, a sharing of non-matrimonial property might well not be fair and Lady Hale observed analogously at para 152 that the significance of its non-matrimonial character would diminish over time. Lord Nicholls had also stressed in the White case at p 610 that, irrespective of whether it fell to be shared, a spouse’s non-matrimonial property might certainly be transferred in order to meet the other’s needs.
  • In K v L [2011] EWCA Civ 550, [2012] 1 WLR 306, it was noted at para 22 that, notwithstanding the inclusion of non-matrimonial property within the sharing principle, there had not by then been a reported decision in which a party’s non-matrimonial property had been transferred to the other party otherwise than by reference to the latter’s need.
  • Indeed, four years later, in JL v SL (No 2) (Appeal: Non-Matrimonial Property)[2015] EWHC 360 (Fam), [2015] 2 FLR 1202, Mostyn J suggested at para 22 that the application to non-matrimonial property of the sharing principle (as opposed to the needs principle) remained as rare as a white leopard.
  • So in an ordinary case the proper approach is to apply the sharing principle to the matrimonial property and then to ask whether, in the light of all the matters specified in section 26(1) and of its concluding words, the result of so doing represents an appropriate overall disposal. In particular it should ask whether the principles of need and/or of compensation, best explained in the speech of Lady Hale in the Millercase at paras 137 to 144, require additional adjustment in the form of transfer to one party of further property, even of non-matrimonial property, held by the other.
  • Waggott at para [128], (see above)
  • XW v XH (Financial Remedies: Business Assets) [2019] EWCA Civ 2262, [2020] 1 FLR 1015, para [136].

“[136] It is not necessary to embark on an extensive exploration of legal developments since Miller. One, referred to in the next paragraph, is that marital property is now recognised as being property which is the product of, or “reflective of”, marital endeavour: Charman at [66], Jones at [33], Hart at [67] and [85], and Waggott at [128]. Secondly, that the application of the sharing principle impacts, in practice, only on the division of marital property and not to non-marital property: Scatliffe v Scatliffe, at [25], and Waggott, at [128]. Thirdly, that the application of the sharing principle does not necessarily lead to an arithmetically equal division of the wealth. Factors such as risk and liquidity can impact on the manner in which the division is effected. Another is that, as referred to above, in clarification of what Lady Hale said in Miller at [149], an earning capacity is not a marital asset, Waggott, at [121–128]. I would add to these, the enhanced emphasis on the limited scope for special contribution to be successfully deployed (Gray v Work) and recognition being given to marital agreements including that the court will give effect to them subject to the requirements set out in Radmacher.”

 

  1. Principle: Risk and liquidity can impact on arithmetically equal division 
  • The application of the sharing principle will not always lead to an arithmetically equal division of the marital wealth. In appropriate circumstances factors such as risk and liquidity may impact the means by which sharing is achieved: XW v XH (above) at para [136].

 

  1. Principle: When will we see the Panthera uncia for the first time in England ?

“Therefore, the law is now reasonably clear. In the application of the sharing principle (as opposed to the needs principle) matrimonial property will normally be divided equally (see para 14(iii) of my judgment in N v F). By contrast, it will be a rare case where the sharing principle will lead to any distribution to the claimant of non-matrimonial property. Of course an award from non-matrimonial property to meet needs is commonplace, but as Wilson LJ has pointed out we await the first decision where the sharing principle has led to an award from non-matrimonial property in excess of needs.”

  • In JL v SL (No 2) (Appeal: Non-Matrimonial Property) [2015] EWHC 360 (Fam), [2015] 2 FLR 1202, Mostyn J emphasised the very limited circumstances in which non-matrimonial property will be invaded unless to meet needs. At para [22], he said this:

“Given that a claim to share non-matrimonial property (as opposed to having a sum awarded from it to meet needs) would have no moral or principled foundation it is hard to envisage a case where such an award would be made. If you like, such a case would be as rare as a white leopard.“

 

  1. Principle: Has the “contributor” accepted treatment as matrimonial property after mingling (Factual matrix test)

Finally, in terms of the factual question which a court will need to determine in cases where there is an issue relating to whether or not non-matrimonial property has been ‘mixed’, ‘merged’ or ‘mingled’ with matrimonial property, in financial remedy proceedings the  court will need to consider whether the ‘contributor’ has accepted that his or her property should be treated as matrimonial property.

This element of ‘merger’ flows from para 18 of Wilson LJ’s judgment in K v L (above) in which he posed three separate situations:-

  • 1st Test: “(a) Over time matrimonial property of such value has been acquired as to diminish the significance of the initial contribution by one spouse of non-matrimonial property.
  • 2nd Test: (b) Over time the non-matrimonial property initially contributed has been mixed with matrimonial property in circumstances in which the contributor may be said to have accepted (manifested through words/actions or deeds – if so extent needs to be determined by the court – see WX v HX (Treatment of Matrimonial and Non-Matrimonial Property) [2021] EWFC 14 (10 February 2021) para [117]) that it should be treated as matrimonial property or in which, at any rate, the task of identifying its current value is too difficult.
  • 3rd Test: (c) The contributor of non-matrimonial property has chosen to invest it in the purchase of a matrimonial home which, although vested in his or her sole name has – as in most cases one would expect – come over time to be treated by the parties as a central item of matrimonial property.” Classic example: use by one of the parties of his or her non-marital funds towards the purchase of a family home (title in sole name not relevant)Treatment of inherited and “Matrimonialised” assets: If inherited wealth is held separately in family trust structure or investment portfolios : no sharing (see WX v HX (Treatment of Matrimonial and Non-Matrimonial Property) [2021] EWFC 14 (10.02.2021) para [118] – [119]).

What if separate property can be said to be an asset which is “partly the product, or reflective, of marital endeavour and partly the product, or reflective, of a source external to the marriage’ and is “Matrimonialised” through significant contribution of one spouse:

  • Moylan LJ in Hart v Hartat para [85] and also see para [93] – [96]. In his analysis in that case, Moylan LJ went on to say:- [85] “….. When property is a combination, it can be artificial even to seek to identify a sharp division because the weight to be given to each type of contribution will not be susceptible of clear reflection in the asset’s value. The exercise is more of an art than a science ….”.
  • Moylan LJ in his recent judgement in  XW v XH at para [128] has emphasised that, in relation to the need to conduct an assessment of matrimonial and non-matrimonial property without the need for ‘any particular mathematical or other specific methodology’: “I should perhaps have emphasised that, as I said in the next sentence, I was talking about a broad assessment as being a permissible route to the division of the wealth which would be fair and not that the ultimate effect of this determination need not be identified. As I have said above, the answer will be clear when the only issue is what proportion of the parties’ wealth is marital, as it was in Hart. It will not be clear when there are a number of issues as in this case.”
  • See also Moylan LJ in Ratcliffe v Ratcliffe [2021] EWCA Civ 247 (01 March 2021) : “The judge was entitled to take this broad approach for the purposes of determining what award would be fair and he has sufficiently demonstrated how these factors impacted on his award.” With reference to Hart v Hart [96].

As Mary Berry said: “Life is all about sharing. If we are good at something, pass it on. That is the pleasure I get from teaching – whether it is television or books. We should all share.”

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