When is something that appears to be a matrimonial asset not in fact a matrimonial asset and how does a non-matrimonial asset become a matrimonial asset and, what difference does it make?
The very recent High Court case of IX v IY  EWHC 3053 (fam) concerns this issue and, whilst my colleague Dean Thistle wrote an article on this website a little while ago specifically on the case of Hart v Hart (below), this article expands upon that decision and also deals much more generally with the surprisingly slippery concept of non-matrimonial assets overall and the other authorities.
S.25 of the Matrimonial Causes Act 1973 gives the Court a very wide discretion in deciding financial remedy cases and the overall goal is that most nebulous of concepts “fairness”. Since at least the House of Lords decision in White  1 AC 596 fairness is to be judged by the yardstick of “equality” and, whilst in theory that is not to be regarded as a presumption or even a starting point, nonetheless, it has become something very close to a starting point or, at least, it is when it comes to “matrimonial property” – see also and much more recently Work v Gray  EWCA Civ 270. It is therefore essential to distinguish between matrimonial property and that which is not but, considering that this is such a basic point, that exercise is not being made easy and nor is the route to that decision nor the consequences.
“Matrimonial property” includes those assets that have come into being during the marriage through the parties’ joint efforts. “Non-matrimonial property” (now sometimes referred to as “non-marital property”) includes “extra-marital property” which may include gifts and inheritances received by one party during the marriage and, whilst the existence of “non-matrimonial” property has generally been regarded as likely to lead to a departure from equality, there are both very significant caveats to that including, if the inheritance (etc) has effectively become matrimonial property by reason of, for instance, the parties’ actions and intentions, intermingling of funds and also differing views on the extent to which the distinction is conclusive.
The concept of “mingling” of funds, passage of time and the family having become accustomed to benefitting from the inheritance (or other potentially non-matrimonial asset) all leading to non-matrimonial assets becoming matrimonial assets is supported by Miller  1 FLR 1186 HL at paras 25 & 148 and, it has become generally accepted that the parties’ intentions (express or implied) and how they treat the assets over a period of time can have the same effect, so for instance where the inheritance is being used for the benefit of the wife and family it might therefore be implied that the husband intended it to become matrimonial property e.g. N v F  2 FLR 533 at para 44.
It must follow that a particular asset could be partly matrimonial and partly non-matrimonial. But, even if it is wholly non-matrimonial, what then?
Since White in 2000 and, despite the Court of Appeal’s decision in Charman  1 FLR 1246 suggesting otherwise, there has arguably been a move towards the further separating off of “non-matrimonial” property, either entirely or by applying a different, non-equal, division to it (e.g. Jones v Jones  1 FLR 1723 & K v L  2 FLR 980). According to Mostyn J there are now two schools of thought: the first, to simply adjust the overall percentage to reflect the existence of non-matrimonial property; the second, to exclude non-matrimonial property leaving the rest to be divided equally and, Mostyn J prefers the second (e.g. N v F  2 FLR 533, JL v SL  2 FLR 1202, & WM v HM  EWFC 25).
Thus, on one view the Court does not ring-fence inherited property at all but treats it as an unmatched contribution and then decides the percentages based on all factors combined but, on the other view, non-matrimonial property is removed from the equation (unless needs clearly demand otherwise).
And just to add to the confusion Hart v Hart is just one of two fairly recent appellate decisions that alter the emphasis somewhat but, not necessarily in entirely the same way:-
In the Privy Council case of Scatliffe v Scatliffe  UKPC 36, [on the overseas pensions aspect of this case please see Christopher Wall’s article on this website] Lord Wilson, giving the Opinion of the Judicial Committee on 12/12/16, set out 10 guidance points on this issue at para 25, including:
(vi) That it was contrary to statute for the Court to fail to have regard to non-matrimonial property.
(vii) As per Charman  EWCA 1 FLR 1246, White and Miller had decided that non-matrimonial property was also subject to the sharing principle.
(viii) [But] K v L  2 FLR 980 pointed out that there had not been a reported decision in which non-matrimonial property had been transferred other than by reference to need.
(ix) Similarly JL v SL  2 FLR 1202: “rare as a white leopard”.
(x) “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 [S. 25 MCA 1973] 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 Miller case 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.”
In the Court of Appeal, decision of 31/8/17 in Hart v Hart  EWCA Civ 1306, Moylan L.J. gives a very learned and complex judgment that requires very careful reading and I have therefore set out here a fairly full summary of what appears to me to emerge:
“ … the sharing principle applies with force to matrimonial property but does not apply, or applies with significantly less force, to non-matrimonial property.” 
“…. Charman …to the extent their property is non-matrimonial, there is likely to be a better reason for departure from equality.” 
There has been no decision where a spouse has been awarded non-matrimonial property by application of the sharing principle but, that decision must await another case. The use of the phrase “in the ordinary case” in Scatliffe, above, is noted. 
When applying the sharing principle the Court will look at whether assets “comprise the product of marital endeavour” and make a factual determination of whether it is matrimonial or non-matrimonial property but, “in my experience it is more nuanced than this as property can be a combination of the two.” 
Miller refers to the lack of a precise boundary between matrimonial and non-matrimonial property and to the importance of the source diminishing over time. [69-70]
At several points in the Judgment his Lordship refers, seemingly with approval, to the “mingling” point made above, e.g. [17, 45 & 81.]
“In my view, the court is not required to adopt a formulaic approach either when determining whether the parties’ wealth comprises both matrimonial and non-matrimonial property or when the court is deciding what award to make.” 
“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 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.” 
“… with due respect to Mostyn J’s extensive experience in this field, I am not sure there are different schools. In my view, the differences which he identifies are examples of the same principle being applied, but applied in a different manner depending on the circumstances of the case….. The outcome will be the same, namely, when justified, an unequal division of the parties’ property.” 
“The principle which is being applied is that the sharing principle applies with force to matrimonial property and with limited or no force to non-matrimonial property. How should this principle be applied in practice when the existence of non-matrimonial property is being asserted?” 
His Lordship then talks about making case management decisions and the proportionality and nature of a factual investigation    (as mentioned in Dean Thistle’s article) but, then returns to the final S. 25 exercise: “Even if the court has made a factual determination as to the extent of the parties’ wealth which is matrimonial property and that which is not, the court still has to fit this determination into the exercise of the discretion having regard to all the relevant factors in this case. [But] This is not to suggest that, by application of the sharing principle, the court will share non-matrimonial property but the court has an obligation to determine that its proposed award is a fair outcome having regard to all the relevant section 25 factors.” 
“[However] If the court has not been able to make a specific factual demarcation but has come to the conclusion that the parties’ wealth includes an element of non-matrimonial property, the court will also have to fit this determination into the section 25 discretionary exercise. The court will have to decide, adopting Wilson LJ’s formulation of the broad approach in Jones, what award of such lesser percentage than 50% makes fair allowance for the parties’ wealth in part comprising or reflecting the product of non-marital endeavour. In arriving at this determination, the court does not have to apply any particular mathematical or other specific methodology. The court has a discretion as to how to arrive at a fair division and can simply apply a broad assessment of the division which would affect “overall fairness”. 
“Finally, I would repeat that fairness has a broad horizon.” 
It should also be noted that Sharp v Sharp  EWCA Civ 408 was decided, on 13/6/17, shortly before Hart and that Mc Farlane LJ, in a far ranging and fascinating judgment, rejects the view expressed by Singer J at first instance that, without a pre-nuptial agreement, the sharing principle applies to everything and accepts that the “universal assets” in that case were in a separate category not to be subject to equal sharing. However, in XW v XH  EWFC 76 (21/12/17) Baker J avoided applying the Sharp approach, thought that the distinction between matrimonial and non-matrimonial did not matter, as the latter should not be excluded  and, then went on to apply Hart in concluding that it was not proportionate to attempt to draw the distinction, adopting instead a broad assessment approach .
XI v IY  EWHC 3053 (fam) (16/10/18) is a decision of Williams J in which His Lordship recognises the complexity of this area and the “myriad” of applicable cases, suggests that recent Court of Appeal cases allow a more flexible approach  but nonetheless focuses on the court identifying assets as wholly or partly “non-marital”  and treats them as assets to which “no sharing issue arises” .
Whilst it is right that there are signs in the authorities of a flexible approach (Hart in particular), there also appears to be something of a swing backwards and forwards over whether non-matrimonial property is to be treated separately or not and, particularly in that context, the flexible approach, which may come down to little more than ‘fairness’, makes it even more difficult, not less so, to advise how the court will treat matrimonial assets. Equally, it certainly remains the case that the dividing line between matrimonial and non-matrimonial property is not settled or easily discerned. All of which, I am afraid, means that this remains an area open to a great deal of argument.
Becket Chambers, Canterbury
29th November 2018