Earlier this year I provided an update regarding the family courts’ treatment of inherited assets upon divorce.

Since then, two of the judgments discussed in that article have been subject to Court of Appeal decisions.

In N v F [2011] EWHC 586 Fam, Mr Justice Mostyn compared the current approaches being adopted by family courts and set out what he believed is the correct approach to take.

The case concerned a 16-year marriage, with assets totalling about £9.7m.

At the date of the marriage, the ­husband had assets worth about £2.1m.

In balancing the different approaches taken, Mostyn J acknowledged that the treatment of pre-marital property was highly fact-specific and very discretionary.

Read the February article

He stated that the reason why pre-marital property should be taken into account and treated differently to matrimonial property had been explained by Lord Nicholls in White v White [2000] UKHL 54 - it represents a contribution made by one party which is unmatched by an equivalent contribution made by the other.

In reality, however, the longer the marriage goes on, the easier it is to say that by virtue of the mingling of that property with the product of the parties’ marital endeavours, the supplier of that property has, in effect, agreed to share it with their spouse.

Mostyn J acknowledged that there were two schools of thought as to how pre-marital property should be treated.

The first was simply to adjust the overall award from 50%.

An example of this technique was adopted by Moylan J in C v C [2009] 1 FLR 8.

In that decision, the wife was awarded 40% of the total assets to reflect the husband’s pre-marital contribution.

By contrast, Mostyn J felt that a two-step approach was the appropriate one.

His view was that the process should be as follows:The approach adopted by Mostyn J in N v F reflected the approach adopted by Lord Justice Wilson in Jones v Jones [2011] 1 FCR 242, [2011] EWCA Civ 41.

  • Whether the existence of pre-marital property should be reflected at all depended on questions of the duration of the marriage and intermingling of marital property with pre-marital ­property.
  • The court should then decide how much of the pre-marital property should be excluded. Should it be the factual historic sum, or less if there had been much intermingling, or should the value of the pre-marital property be increased to reflect a springboard and passive growth? This is considered further below.
  • The remaining matrimonial property should then normally be divided ­equally.
  • Finally, the fairness of the final award should then be tested by the overall percentage technique.

This Court of Appeal decision overturns Charles J’s earlier decision, reported as J v J [2009] EWHC 2654 (Fam), which was considered in my earlier article.

In Jones v Jones, the husband’s business had been worth £2m at the date of the marriage, but taking into account the company’s latent potential and the percentage increase in the relevant FTSE index, that value was recalculated to be £9m.

The business eventually sold for £25m post-separation, which meant that £16m should be treated as matrimonial property.

As there was no reason to depart from equality in respect of the matrimonial property, the wife was awarded a lump sum of £8m by the appeal court.

By contrast, in N v F, the judge excluded only £1m (as opposed to £2.1m) of the overall assets and divided the remainder equally.

This led to 44.7% of the total assets being awarded to the wife; the judge acknowledged that this was high due to the impact of her needs.

If it had not been for her needs, the judge acknowledged that he would have excluded more, or even the entirety of the husband’s pre-marriage wealth.

Modest needs

The modest needs of the applicant husband had a profound impact on his award in the appeal court’s decision in K v L [2011] EWCA Civ 550 in which the court upheld the first instance decision of Bodey J reported as K v L [2010] EWHC 1234 (Fam).

In this case, the wife owned a share in a family business worth £57.4m which represented the bulk of the total asset base of £59m.

The shares had been inherited by the wife nearly 20 years before the marriage and had never been intermingled with matrimonial assets.

By contrast, the couple had a very modest lifestyle: the family home was worth £300,000 and they spent in the region of £80,000 a year.

The court upheld the first instance award of a lump sum of £5m to the husband which was held to exceed his needs. It is a surprisingly modest award in the context of a 20-year marriage.

Wilson LJ held that post-White, although it was unacceptable to discriminate in the division of labour within the family, recognising the wife’s important and unmatched financial contribution in the present case did not discriminate between the parties.

By contrast, a substantive difference was correctly recognised.

Furthermore, although the importance of the source of the assets might diminish over time, that was not always the case.

In the present case, the wife’s shareholding was ring-fenced and was not intermingled with matrimonial assets.

The husband argued that following on from the guidance in Charman v Charman [2007] EWCA Civ 503, [2007] 1 FLR 1246, a recognition of a special contribution should not cause a departure from equality of more than two thirds/one third.

Accordingly, he contended that his claim for £18m was appropriate.

Wilson LJ, however, stated that the phrase ‘special contribution’ (otherwise known as stellar contribution) was a term of art which reflected an extraordinary contribution to the creation of matrimonial property.

By contrast, non-matrimonial property was different.

Although it fell within the sharing principle, equal division was not the ordinary consequence of its application.

By contrast, extensive departure from equal division was the ordinary consequence of non-matrimonial property.

Finally, in the present case, it was unnecessary to award the husband a significant share of the non-matrimonial assets where his needs had been met.

Andrew Newbury, Pannone