Under UK divorce law, the distinction between matrimonial and non-matrimonial property can play a pivotal role in determining the final financial settlement.
However, differentiating and defining matrimonial and non-matrimonial property can be a delicate and complex issue. A recent case before the UK Supreme Court, Standish v Standish, could provide invaluable guidance on when non-matrimonial property could be included within the matrimonial assets moving forward.
What is matrimonial property?
Within divorce proceedings in England and Wales, matrimonial property refers to any assets acquired by either or both spouses during the course of their marriage. These assets generally include:
- The family home
- Savings and investments (accumulated during the marriage)
- Pensions (when pension contributions have been made by either spouse during the marriage)
- Vehicles
- Valuables and collectables
- Interests in businesses established or developed during the marriage
These assets are usually typically considered to be jointly owned and are, therefore, subject to division as part of the divorce process.
What is non-matrimonial property?
As you’d expect, in England and Wales non-matrimonial property refers to assets that originate from outside the marriage whether that means they were accumulated before or after the marriage or were received as inheritance or gifts. They are, therefore, not automatically subject for inclusion for division upon divorce.
However, under certain circumstances, non-matrimonial property can be included in the financial settlement under certain circumstances:
- If the matrimonial assets are insufficient to meet the reasonable financial needs of both parties
- If non-matrimonial assets have been mixed with matrimonial assets (e.g. inherited funds have been used to purchase the family home)
- If the marriage has been long-lasting and the distinction between matrimonial and non-matrimonial assets has diminished
How might Standish v Standish change the way matrimonial and non-matrimonial assets are treated in future?
A recent case before the UK Supreme Court, Standish v Standish, has shed more light on this intricate issue. As a result, the court is set to provide guidance on when non-matrimonial property can and should be considered part of the matrimonial assets subject to division upon divorce.
The Court of Appeal’s decision, and the subsequent appeal to the Supreme Court, have highlighted several key legal considerations:
1. The ‘matrimonialisation’ of non-matrimonial assets
One of the central issues in this case was whether assets acquired before the marriage – most specifically a £77.8 million transfer from Mr. Standish to Mrs. Standish in 2017 – had become matrimonial property.
The Court of Appeal emphasised that the mere transfer of assets into a spouse’s name does not automatically change their non-matrimonial character. Instead, the source of the wealth remains the critical factor in determining its classification.
2. How the ‘Sharing Principle’ should be applied
The ‘sharing principle’ typically applies to assets accumulated during a marriage. However, in this case the Court of Appeal clarified that this principle does not extend to non-matrimonial assets unless they have been treated in a manner that justifies their inclusion in the matrimonial pot. This was crucial in terms of ensuring that pre-marital wealth is not unjustly redistributed.
3. The likely impact of tax planning on asset classification
The transfer of £77.8 million was part of a tax planning strategy, with the intention that Mrs Standish would place the funds into a trust for their children. However, the trust was never established. Instead, when divorce proceedings were initiated, she claimed ownership of the assets.
The Court of Appeal decided that the original purpose of the transfer and the source of the funds should be pivotal in maintaining their non-matrimonial status.
4. Reformulation of the matrimonialisation test
The Court of Appeal provided a refined framework for assessing when non-matrimonial assets should become matrimonial. Their reclassification would be on the basis that the non-matrimonial assets will be extensively mixed with matrimonial property, used to the direct benefit of the family and/or the court can substantiate that their inclusion within the division is fair based on the circumstances.
With these stipulations in mind, Standish vs Standish could end up having significant implications for high net worth divorces.
Not only will the Supreme Court’s decision provide greater clarity on the legal framework governing the way family courts should approach the division of non-matrimonial property in in complex financial situations, it also:
- Underscores the importance of clear financial arrangements and the potential limitations of informal asset transfers
- Highlights the need for prenuptial or postnuptial agreements to protect non-matrimonial assets
As the legal landscape around the division of matrimonial and non-matrimonial property continues to evolve, we will monitor developments. However, if this blog has prompted any questions relating to asset division in divorce proceedings, please contact our experienced family law team today.