In a much-anticipated judgment, the UK Supreme Court (UKSC) recently addressed the question of non-matrimonial property becoming matrimonial property: when and in what circumstances this can happen. In Standish v Standish, a multi-million-pound divorce case, five UKSC judges – Lord Reed (President), Lord Burrows, Lord Lloyd-Jones, Lady Simler and Lord Stephens – were unanimous in reaching a landmark decision.
The UKSC upheld an earlier decision of the Court of Appeal (CoA), which assessed that the majority of Mr Standish’s wealth had been earned before his 2005 marriage. As a result, the CoA reduced Mrs Standish’s £45 million High Court divorce award to £25 million - the largest ever such reduction by an English court. In her appeal to the UKSC, Mrs Standish had hoped to reverse the CoA decision and secure a greater share of her husband’s wealth.
Were the Assets Treated as Shared Property?
The principal legal issue upon which the UKSC had to decide was whether the pre-marital assets had become matrimonialised: during the marriage, were they treated as part of the matrimonial asset pool and had they therefore become shared assets? The UKSC agreed with the CoA decision that most of Mr Standish’s wealth had been accumulated prior to their marriage and he was entitled to keep the lion’s share because they were never matrimonialised.
At first instance, Mr Justice Moor decided that Mr Standish’s pre-marital assets had, for the most part, become matrimonialised: from a total asset pool of £132 million, he found £112 million to be matrimonial. Despite finding that this sum was matrimonial, he nevertheless took some account of the assets’ pre-marital origin and ordered that they be shared 60/40, awarding £45 million to Mrs Standish and £67 million to her husband.
A Key Transfer and the Tax Planning Context
The UKSC judges first had to consider the respective financial positions of Mr and Mrs Standish when their relationship first began, two years before they married. At that time, Mr Standish’s net worth was around £57 million while his wife’s more modest assets were valued at less than £1 million.
The UKSC then had to decide whether Mr Standish's substantial pre-marital assets should be considered as matrimonial, which would make them subject to equal division under the sharing principle per White v White [2001]: that matrimonial assets should be shared equally between separating spouses. In addition to determining how that principle should be applied, the UKSC also had to address the key question of how and when non-matrimonial property can become matrimonial property.
Of central relevance in the instant case was a transfer from Mr Standish to Mrs Standish of approximately £77.8m in 2017. This had been arranged as part of tax planning by Mr Standish and his financial advisors.
The purpose of the transfer was to avoid Mr Standish, who is British, becoming liable to pay inheritance tax when he re-domiciled in the UK during the 2016-17 tax year. His intention was to transfer funds to his Australian wife, who was non-UK domiciled, before she subsequently placed the money into two offshore trusts on behalf of their two children.
Mr Standish’s position was that the transfer of £77.8 million was made on the express understanding that his wife would then settle that amount into the trusts. The monies were not, however, settled by Mrs Standish by the time she commenced divorce proceedings. Within the financial remedy proceedings she asserted that having been transferred to her name these funds were now her separate property and did not fall to be shared.
Clarification of the Sharing Principle
In unanimously finding in favour of Mr Standish, the CoA held that the transfer of title to Mrs Standish was not the determining factor when considering how the 2017 transfer of the pre-marital assets should be characterised. The CoA found that the key point for the £77.8m transfer was the source of the assets, rather than title to them at divorce, concluding that “the source of this wealth had not changed as a result of its transfer to the wife and, in the application of the sharing principle, this remained the critical factor.”
In the UKSC, Mrs Standish challenged the CoA's interpretation of matrimonialisation, arguing at this stage that the transferred assets should be subject to the sharing principle.
On the issue of matrimonialisation, the UKSC judgment clarified the court’s position: “There is a conceptual distinction between matrimonial and non-matrimonial property. In general terms, this distinction turns on the source of the assets. Non-matrimonial property is typically pre-marital property brought into the marriage by one of the parties or property acquired by one of the parties by external inheritance or gift. In contrast, matrimonial property is property that comprises the fruits of the marriage partnership or reflects the marriage partnership or is the product of the parties’ common endeavour.”
On the sharing principle, the UKSC judgment was unambiguous: “The time has come to make clear that non-matrimonial property should not be subject to the sharing principle,” adding that “It is our view that the distinction between matrimonial and non-matrimonial property becomes largely meaningless if the sharing principle applies to the latter as well as the former.”
The UKSC further confirmed the distinction between marital property - the “fruits of the marriage partnership”, which are subject to the sharing principle - and non-matrimonial assets that have been accumulated before marriage, to which the sharing principle does not apply.
Future Implications and Prenuptial Planning
According to the UKSC judgment, the “essential question” was whether the assets transferred in 2017 were matrimonial property and therefore subject to the sharing principle. The judges concluded that the source of the pre-marital assets transferred in 2017 was “exclusively the husband and there was “nothing to show that, over time, the parties were treating these assets as shared between them.” The UKSC therefore upheld the reduced £25m figure which the CoA had awarded to Mrs Standish.
To determine whether non-matrimonial assets have become matrimonialised, the UKSC judgment said that it was necessary to examine the actions of the parties and whether the assets were intended to be and then treated as shared. In doing so, the court also recognised that assets which may have originally been non-marital can, over time and as evidenced by the parties’ intentions and actions, become treated by both of them as joint assets. In this situation, they would then be considered by the court as marital at the time of divorce.
Conclusions
Although the UK Supreme Court has found that for Mr Standish, 'what’s mine is mine and what’s yours is actually also mine', this decision will certainly embolden arguments about matrimonialisation and lead to wealthier parties focusing further on tracing assets to a greater degree than before and the less wealthier party picking through an entire marriage’s worth or text messages and WhatsApp’s to try and find evidence of intention to share an asset.
Despite underlining the importance of the source of an asset, rather than in whose name it is held at the time of a divorce, how the parties treat an asset during the marriage can overcome this. Perhaps more than anything, the decision reinforces once again how essential pre-nuptial agreements are for wealthy parties who are marrying and intending to live in England or Wales.
Divorcing couples may now benefit from clearer guidance on how their assets will be categorised upon divorce, but looking ahead the UKSC judgment will have potentially significant ramifications for those who do. Assets which a spouse might have quite naturally considered to be his or hers from the start of the marriage could subsequently be found by the court to have become matrimonial assets if the other spouse succeeds in arguing that they have been treated as 'theirs'.
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