No need to tinker with asset division

The Court of Appeal recently determined the cross-appeals in Standish v Standish from the first instance decision of Moor J, who had awarded the wife £45m out of £132m (about 34%). On appeal, she sought half (£66m), whereas Mr Standish sought a reduction to £25m. The Court of Appeal dismissed the wife’s appeal and allowed the husband’s, reducing the award, under the sharing principle, to £25m. However, the Court of Appeal was unable to say categorically that £25m would meet her needs. Therefore this aspect of the case has been remitted to first instance. 

The parties married late in life. By the time of the marriage in 2005, the husband had accumulated a £57m fortune from his career as a banker. Among his assets was a very large livestock farm in Australia. He retired shortly after the marriage and the family then came to the UK settling in Hampshire. In 2017, in the light of a forthcoming tax change, Mr Standish transferred to his wife about £77m worth of assets as part of a tax plan. The idea was for the wife to eventually transfer the funds into trusts to protect the money from inheritance tax in the event of the husband’s death. Before this transfer took place, the marriage broke down and the money stayed in the wife’s sole name as the divorce proceedings ensued.

Before Moor J, Mrs Standish asserted that the money was now hers and that the court should respect the arrangements the parties had made reflected by title to the wealth. However, because this had been a partnership marriage, she was prepared to split everything down the middle. The husband said that the transferred funds and the farm should not be shared because they were non-matrimonial, pre-marital assets.

Moor J found that the farmland (worth £20m) was pure non-matrimonial property and exempt from sharing. He found that the matrimonial home (worth £21m) was pure matrimonial property and wholly within the sharing principle. He did not make specific findings as to how much of the £77m transferred derived from the husband’s pre-marital wealth but he implied that it was the significant majority. However, he held that the transfer of these funds into the wife’s name had caused them to have become ‘matrimonialised’. He rejected the claim that the money was now the wife’s separate property and held that the division of matrimonialised assets should be weighted in the husband’s favour because of his substantial contribution of pre-marital wealth.

He awarded the wife 40% of the matrimonial and matrimonialised property (of £112m) which came to £45m. He awarded the husband 60% of these funds (£67m) which, together with the farmland he had retained, gave him £87m overall. The overall split was 66%/34% in the husband’s favour.

Moylan LJ found that Moor J was wrong in two ways. First, he was wrong to find that the transferred funds had been matrimonialised simply because their title had been transferred. Title is not the relevant test; rather, the approach previously endorsed by the Court of Appeal in K v L should be followed. Matrimonialisation should be undertaken cautiously because it is a derogation from the key principle that the source of wealth should govern whether or not it is shared.

Second, he found that the division of the transferred assets did not give a fair allowance for the scale of the husband’s contribution of non-matrimonial property. Moor J had implied strongly in his judgment that the non-matrimonial element was the great majority of this money but still had equally divided 77% of it. The Court of Appeal found the appropriate fair allowance was to exclude from sharing 75% of the transferred funds and to share the rest equally.

This is an important case as to the proper application of the sharing principle. The resounding message is that the source of an asset remains the key factor for a judge to have in mind when deciding whether or not it should be shared and, if so, in what proportions. The wife had tried to assert that title was important. She also invoked the principle of ‘autonomy’ referred to in the Supreme Court pre-nuptial agreement case of Radmacher to suggest that the court should not interfere with the way the parties had regulated their financial affairs. Both suggestions were completely rejected. The court will look through title. And the only relevant arrangements captured by Radmacher are specific marital agreements which stipulate provision on marital breakdown.

This case is also a timely reminder that the courts should not casually expand the reach of matrimonialisation; and that they should make the findings relevant to the ‘fair allowance’ exercise in respect of a hybrid asset and then use those findings in a rational way. The methods for making fair allowance developed by the courts are well-known.

A judge faced with the task of making a fair allowance would be well advised to do two things: (a) ensure that the relevant factual findings have been made; and (b) undertake the fair allowance exercise by one or (preferably) more of the recognised techniques (historical cost; historical cost updated; straight line; and half in, half out). This will produce a robust determination and a consistent approach.

Cases such as this demonstrate why there is no need for the Law Commission to tinker with asset division on divorce. There is no want of principle. The source of wealth is critical. If money has been made during the marriage it will be divided equally; if not, it will be excluded but still accessed, if required, to meet needs. If an asset is a hybrid of matrimonial and non-matrimonial property a fair allowance will be made to reflect the significance of the non-marital element. There are several well-established ways of doing this. This is all far preferable to a formulaic approach which would be either too complex and detailed to operate or too broad to provide consistency. The Child Maintenance Service, which has garnered a reputation for being dysfunctional and creating extra difficulties for parents since adopting a formulaic approach for calculating child maintenance, is a vivid example of the false wisdom and false economy of seeking to replace principles with a formula.

Tim Bishop KC is a barrister at 1 Hare Court, London