The long awaited decision in the appeal of Standish v Standish was handed down by the Court of Appeal a week ago. The Judgement is essential reading for Financial Remedy practitioners.
The case considered the proper application of the sharing principle and, in particular, the manner in which the court identifies assets to which it applies. It was common ground that the sharing principle applies to matrimonial property and does not apply to non-matrimonial property. The case is about what makes an asset matrimonial or non-matrimonial property and also as to the manner in which a non-matrimonial can be matrimonialised; in other words, become an asset to which the sharing principle applies.
Background
They parties began cohabitating in 2004, and married in 2005. They had two children together. H had had a very successful career in the financial services industry and the vast majority of his wealth had been acquired prior to the marriage. He retired in October 2007. W was a homemaker throughout the parties’ relationship. Up until 2017, the majority of H’s wealth was held in his sole name.
In 2017, as part of a tax planning exercise H transferred £77 million to W by agreement with the intention that W would settle the transferred assets into a trust for the benefit of their children. Before any trust was set up W commenced divorce proceedings. At the time of the first instance hearing in May 2022, the total value of the assets was approximately £132m, of which the 2017 transferred assets represented c.£80m. Moor J, the first instance judge, determined that £112 million was matrimonial property and £20 million was non-matrimonial property. Within the sum of £112 million were the 2017 investment funds (the “2017 Assets”) and a farming business (“Ardenside Angus”, valued at £8.6 million) in which the W had been given shares, also in 2017 as part of the tax planning.
Moor J decided that, as a result of the transactions in 2017, these assets had been matrimonialised and that, accordingly, they were subject to the sharing principle. He went on to decide that an unequal division of the matrimonial property of £112 million was justified principally because, the 2017 Assets were pre-marital and had only been matrimonialised towards the end of the marriage”. He, accordingly, awarded the W 40% (£45 million) and H 60% (£67 million) of the matrimonial property. Overall, therefore, the H was awarded £87 million (66%) and the W £45 million (34%) of the parties’ total wealth. The effect of this was that the W had to transfer assets valued at approximately £50 million to H.
At the appeal the principal focus of W’s case was that the judge had been wrong to decide that the 2017 Assets had been matrimonialised. She said title was the critical factor and the Judge should have decided that the 2017 Assets and the wife’s shares in Ardenside Angus were her “separate” or non-marital property. Although they were not matrimonial property, the W had voluntarily conceded that they should be treated as matrimonial property and shared equally because she “accepted that the overall nature of their partnership meant that the total of the assets should be divided equally”.
The principal focus of H’s case was that the judge was wrong to determine that the 2017 Assets and Ardenside Angus had been matrimonialised. The source of an asset was the critical factor not title. The majority of the parties’ wealth, including the 2017 Assets, continued to be the product of the husband’s pre-marital endeavour rather than the product of marital endeavour and was, therefore, not subject to the sharing principle which applies to the latter and not the former.
Court of Appeal Decision
The Judgement is 187 paragraphs long and includes consideration of the main authorities in this area. The lead judgement is given by Lord Justice Moylan which is agreed by King and Phillips LJJ. W’s appeal was dismissed and H’s cross appeal was allowed. Moylan LJ stated in his view, it is clearly established by the authorities that, in the application of the sharing principle, the source of an asset is the critical factor and not title. The sharing principle is founded or based on each party, in accordance with the objectives of fairness, equality and non-discrimination, being entitled to an equal share of their matrimonial property, namely the “fruits of the partnership” or the wealth built up by the parties’ endeavours during the marriage.
On the concept of matrimonialisation he said at paragraph [163]
“In my view, therefore, it would be helpful to make clear, expressly, that the concept of matrimonialisation should be applied narrowly. This is not a hard and fast line but remains a question of fairness, reflecting, as Wilson LJ said in K v L at [18], that “the importance of the [non-marital] source of [an asset or assets] may diminish over time”. With some diffidence, I would propose the following slight reformulation of the situations to which Wilson LJ referred in K v L, having regard to the developments that have taken place since that decision as follows: (a) The percentage of the parties’ assets (or of an asset), which were or which might be said to comprise or reflect the product of non-marital endeavour, is not sufficiently significant to justify an evidential investigation and/or an other than equal division of the wealth; (b) The extent to which and the manner in which non-matrimonial property has been mixed with matrimonial property mean that, in fairness, it should be included within the sharing principle; and (c) Non-marital property has been used in the purchase of the former matrimonial home, an asset which typically stands in a category of its own.”
Moylan LJ parted company with the trial judge in the conclusion that the 2017 Assets “became matrimonial property”. He said this was not the “only possibility”. Moor J had erred because his conclusion was based, and solely based, on the fact that those assets were transferred by H into W’s name which was making title the determinative factor when deciding how the wealth is to be characterised rather than its source. In his view the was nothing which justified the conclusion that the source of the 2017 Assets being non-matrimonial was in any way diminished as a result of their transfer to the wife. Moylan LJ concluded, therefore, that the transfer of the 2017 Assets into the wife’s sole name did not change their characterisation. This did not transform them into matrimonial property.
The Court of Appeal found that Moor J should have assessed what of those 2017 Assets could broadly be attributed to the endeavour during the marriage (i.e. in the short time prior to the husband’s retirement) and applied the sharing principle only to that portion. The judge’s application of the sharing principle was flawed and has resulted in an unjustified division of the family’s wealth in the wife’s favour. A fair application of the sharing principle would have resulted in the W receiving/retaining wealth of approximately £25 million in place of the judge’s award of £45 million.
Having decided this Moylan LJ said a difficulty arose as the trial judge did not “undertake a needs assessment” but simply concluded that his proposed award of £45 million would comfortably meet the wife’s needs. The Court of Appeal did not feel it could fairly determine the wife’s needs. Accordingly, and very regrettably, they remitted the matter to Moor J for determination by application of the needs principle.
