Having written previously about non-matrimonial assets and had recent cause to carefully consider both, on the one hand the effect of the relatively recent decision in WX v HX [2021] EWHC 241 (Fam) that some argue goes to the next level in protecting non-matrimonial assets and, on the other hand, to what extent nonetheless non-matrimonial assets can still be regarded as relevant resources, whilst also having come across the very recent decision in WC v HC [2022] EWFC 22 that touches upon all of this, it only seemed logical to see where we are now.
In my last article on non-matrimonial assets, I referred to a case with a name confusingly close to that referred to above, XW v XH: at that time the first instance decision in that case contrasted with the general preponderance of views in not determining what part of the assets were non-matrimonial, holding that it was not proportionate to draw the distinction and that a broad assessment approach was appropriate. However, the case has since gone to the Court of Appeal where, at [2019] EWCA Civ 2262, [2020] 1 FLR 1015, the appeal was allowed and it was said that, in most cases where the sharing principle applied, the Court should make clear what part of the assets it determined to be non-matrimonial (and the same applied to special contribution) and that the Judge had been wrong to treat the fact that much of the increase in wealth during the marriage was due to the husband’s business as being relevant to distribution because, in so far as they were the product of endeavour during the marriage, they were marital assets which should have been shared equally, absent other factors.
It is worth emphasising that the phrase “product of the marital endeavour” has become the key phrase in this area.
The decision in the more recent mirror-named WX v HX in 2022 (above) was at first instance (Roberts J) and, it was most certainly a big money case, which of course always raises the question whether it has any direct application to normal people and, in so far as it was decided that W’s ‘family money’ would remain entirely hers, despite H having actively managed it over 16 years and through his own skills greatly increased its value, it is certainly easy to see how that decision might well be different in another case – it certainly sounds something very much like “product of the marital endeavour”. However, there is a very useful analysis of the principles and approach (para 113+), summarised here:
(i) 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 se lead 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.
(ii) 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.
(iii) 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 (above) at para [17] per Wilson LJ.
(iv) 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’: Charman v Charman (No 4) (cited above) at para [66]; Jones v Jones [2011] EWCA Civ 41, [2012] Fam 1, [2011] 1 FLR 1723 at para [33]; Hart v Hart [2017]EWCA Civ 1306, [2018] 2 WLR 509, [2018] 1 FLR 1283 at paras [67] and [85]; and Waggott v Waggott [2018] EWCA Civ 727, [2019] 2 WLR 297, [2018] 2 FLR 406 at para [128].
(v) 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] Waggott at para [128], and XW v XH (Financial Remedies: Business Assets) [2019] EWCA Civ 2262, [2020] 1 FLR 1015, para [136].
(vi) 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].
(vii) In S v AG [2011] EWHC 2637 (Fam), [2011] 3 FCR 523, Mostyn J said this in para [7]:-
“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.”
And, in JL v SL (No 2) (Appeal: Non-Matrimonial Property) [2015] EWHC 360 (Fam), [2015] 2 FLR 1202, his Lordship [Mostyn J] emphasised the very limited circumstances in which non-matrimonial property will be invaded unless to meet needs [in fact he implied almost never: “as rare as a white leopard”].
(viii) 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, 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:-
“(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.
(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 that it should be treated as matrimonial property or in which, at any rate, the task of identifying its current value is too difficult.
(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.”
The classic example of this sort of situation is the use by one of the parties of his or her non-marital funds towards the purchase of a family home. Whether or not the title to that property is held in the joint names of the parties, it will invariably be treated by the court as a matrimonial asset for the purposes of any sharing claim. That example lies at one end of the factual spectrum. There are other more complex situations which fall into sub-categories (a) and (b) above where the court will need to analyse carefully whether the evidence will support a finding that property which was originally non-matrimonial has been treated, or dealt with, in such a way as to bring it within a sharing claim made by the other spouse. If the evidence leads the court to conclude that one of the parties has indeed through words, actions or deeds manifested an acceptance that it should be treated as such, it must then go on to determine the extent to which that property falls to be shared as between them.
All of this, therefore, reflects a continuing move towards the separation off of non-matrimonial assets but, as the authorities recognise but do not always highlight because they are big money cases, it is absolutely essential to emphasise that no such separation off applies where needs dictate otherwise and, in any event, the Court must always return to the S.25 exercise and have regard to all the factors set out there, all the circumstances of the case and the overarching principle of fairness. It is all very well in a big money case to concentrate on the sharing principle and an equal division but, in a more normal case, both needs and fairness and the other S.25 factors require the Court to consider whether, even if an asset or assets are determined to be non-matrimonial, they are nonetheless resources that in the hands of one or both of the parties need to be taken into account and, if required to satisfy needs, may be transferred or, if fairness requires, may well result in the party with the greater resources receiving less of the marital property.
And, there is also the other side of the coin: even if the case is a needs case and/or one where the non-marital assets have become mingled the fact that the assets would otherwise have been non-marital and largely those of one party can influence the ultimate division: WC v HC [2022] EWFC 22, a decision of Peel J in March of this year, was a case with about £12.47m of assets but was held nonetheless to be a needs case – albeit one in which W’s housing needs alone were assessed at £4m. His Lordship first looked at the sharing principle and determined that almost the entirety of the wealth came from gifts and inheritances on H’s side during the marriage or was owned by H before the marriage but decided that the delineation between marital and non-marital property had blurred over time because of (i) the length of the marriage, (ii) the fact that the funds had been used to fund the family’s needs and lifestyle, and (iii) the use of some of the properties as matrimonial homes [18]. Nonetheless, His Lordship formed the view that the general background of non-marital wealth having been sourced entirely on H’s side was still relevant to the relevance of nuptial agreements and needs [19] and having set out a helpful summary of general principles, said [21 (xvi)]:
“I would add that the source of the wealth is also relevant to needs. If it is substantially non-marital, then in my judgment it would be unfair not to weigh that factor in the balance. Mostyn J made a similar observation in N v F [2011] 2 FLR 533 at [17-19].”
Later, at [53] His Lordship again emphasises that his award will be based on W’s needs but, again, taking into account, amongst other things, the origins of the wealth. However, His Lordship does not thereafter mention this factor in assessing W’s income needs capitalised on a Duxbury basis at £3,319,000 which added to her housing needs gave £7,319,000 increased to £7.45m to allow for unforeseen circumstances and therefore about 60% of the £12.47m marital pot, so it is difficult to see where ultimately the source of wealth factor influenced the decision, but the principle is still there.
In summary then, the principle of protecting non-marital assets continues to grow and has become largely insurmountable for big money cases. However, it is absolutely essential to remember firstly, that that separation off does not apply to a needs case and that most cases are needs cases (even those involving several millions) and secondly, that even non-marital assets are capable of being relevant resources that may alter the outcome. It also seems, on the other hand, that even in a needs case the court may consider that the source of the assets has some relevance.
