non-matrimonial property and its place in financial … property and its place in financial remedy...

N.B. While every effort is made to ensure the accuracy of the information given in these notes, they are not intended to be relied upon as legal advice and no liability will be accepted in relation to such reliance.

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© Christopher F. Sharp QC 27.06.13

St John’s Chambers’ Family Money Conference, 27th June 2013

Non-matrimonial property and its place in

financial remedy applications

Christopher Sharp QC, St John’s Chambers

NOTES

Matrimonial and non-matrimonial property

Following the decision in Miller and MacFarlane [2006] 2 AC

618 the search for a fair outcome has been directed under the

guidance of the three principles of ‚needs‛, ‚sharing‛ and

‚compensation‛.

The attempts to fit each case within these categories has not

proved popular with some of the judges of the Division, and

‘compensation’ at least is now largely a dead duck save in the

most exceptional of cases (MacFarlane being the paradigm):

see eg per Mostyn J: B v S (Financial Remedy: Marital Property

Regime) [2012] EWHC 265 (Fam) at para [73].

‘Needs’ and ‘sharing’, however, remain as the perceived

lodestars that guide the discretionary exercise of resolving

disputes over financial remedies.

Within the ‘sharing’ principle, a different approach has

developed according to the nature of the property to be


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divided and this derives initially1 from Lord Nicholls’ comments

in White v White [2001] 1 AC 596, when dealing with property

acquired during the marriage by one spouse by gift or

succession or as a beneficiary under a trust. Having noted that

typically, in countries where a detailed statutory code is in

place, the legislation distinguishes between two classes of

property: inherited property, and property owned before the

marriage, on the one hand, and 'matrimonial property' on the

other hand (giving examples from Scotland and New Zealand)

he went on (in a very well known passage) to say:

42. This distinction is a recognition of the view, widely but not

universally held, that property owned by one spouse before

the marriage, and inherited property whenever acquired,

stand on a different footing from what may be loosely

called matrimonial property. According to this view, on a

breakdown of the marriage these two classes of property

should not necessarily be treated in the same way. Property

acquired before marriage and inherited property acquired

during marriage come from a source wholly external to the

marriage. In fairness, where this property still exists, the

spouse to whom it was given should be allowed to keep it.

Conversely, the other spouse has a weaker claim to such

property than he or she may have regarding matrimonial

property.

43. Plainly, when present, this factor is one of the

circumstances of the case. It represents a contribution made

to the welfare of the family by one of the parties to the

marriage. The judge should take it into account. He should

decide how important it is in the particular case. The nature

and value of the property, and the time when and

circumstances in which the property was acquired, are

among the relevant matters to be considered. However, in

the ordinary course, this factor can be expected to carry

little weight, if any, in a case where the claimant's financial

needs cannot be met without recourse to this property.

1 at least within recent times, although as long ago as the farm case of P v P (financial provision) [1978] 3

All ER 70 the CA were identifying inherited assets as a specific element of ‘contribution’ within s.25(2)


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It has therefore been recognised in Miller (if it was not already

very clear before) that ‘needs’ will trump other factors and all

assets will be brought into account, whatever different weight

they may be accorded in the final discretionary distribution.

This identification of different classes of asset found its more

specific articulation in Miller in the division into ‚matrimonial

and non-matrimonial property‛

Lord Nicholls was keen to avoid what he described as a

distinction between 'family' assets and 'business or investment'

assets. He accepted that in all cases the nature and source of

the parties' property are matters to be taken into account

when determining the requirements of fairness. The decision of

Munby J in P v P (Inherited Property) [2005] 1 FLR 576

regarding a family farm is an instance. But 'business and

investment' assets (Lord Nicholls stressed) can be the financial

fruits of a marriage partnership as much as 'family' assets (and

this is consistent with the requirement to avoid discrimination

articulated so clearly in White and in Lambert v Lambert).2 The

equal sharing principle, he said, and the rationale underlying it,

applies equally to the former as to the latter.

At paras 22 and 23 he set out what he meant as follows:

22. This does not mean that, when exercising his discretion, a

judge in this country must treat all property in the same

way. The statute requires the court to have regard to all the

circumstances of the case. One of the circumstances is that

there is a real difference, a difference of source, between (1)

2 Two recent cases decided by Moylan J illustrate how difficult it may be for a spouse who starts a business

during a marriage to argue that it is external to the marriage: SK v WL (Ancillary Relief: Post Separation Accrual)

[2011] 1 FLR 1471 and Evans v Evans [2013] EWHC 506 Fam


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property acquired during the marriage otherwise than by

inheritance or gift, sometimes called the marital acquest but

more usually the matrimonial property, and (2) other

property. The former is the financial product of the parties'

common endeavour, the latter is not. The parties'

matrimonial home, even if this was brought into the

marriage at the outset by one of the parties, usually has a

central place in any marriage. So it should normally be

treated as matrimonial property for this purpose. As already

noted, in principle the entitlement of each party to a share of

the matrimonial property is the same however long or short

the marriage may have been.

23. The matter stands differently regarding property ('non-

matrimonial property') the parties bring with them into the

marriage or acquire by inheritance or gift during the

marriage. Then the duration of the marriage will be highly

relevant.

And he cited the passage above from White

Where Lord Nicholls and Baroness Hale (with whom the

majority agreed) differed was in identifying what is and is not

matrimonial property.

For Ld Nicholls matrimonial property was property acquired

during the marriage otherwise than by inheritance or gift, and

the entitlement of each party to a share of such matrimonial

property was the same however long or short the marriage

might have been; but for the majority matrimonial property

should be regarded as the family assets, i e assets which were

acquired for the use and benefit of the whole family or from

family businesses in which both parties worked, and if the

assets were not family assets, or not generated by the joint

efforts of the parties, then the duration of the marriage might

justify a departure from the yardstick of equality of division (i.e.

a reduction to reflect the period over which the domestic


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contribution had continued, as opposed to accrual of an

interest over a period of time).

There is arguably, in Lady Hale’s approach, and the concept of

the ‘non-matrimonial, non family partnership’ business venture,

a greater possibility for the survival of the discriminatory

approach to the generation of the wealth to be divided where

that wealth has been created during, rather than prior to, the

marriage. Lord Nicholls’ approach appears to owe more to the

Scottish or New Zealand approaches, that matrimonial property

means (simply) the matrimonial home plus property acquired

during the marriage otherwise than by gift or inheritance, and

is (prima facie) to be divided equally.

The passage of time

Over time the impact of the origin of the asset will change (see

White per Ld Cooke and Miller per Ld Nicholls para 23 ‚the

duration of the marriage will be highly relevant‛ and Baroness

Hale ‚the importance of the source of the assets will diminish

over time‛).

In K v L (Ancillary Relief: Inherited Wealth) [2011] 2 FLR 980

Wilson LJ (as he then was) analysed these principles and

concluded that it would be more accurate to say that the

importance of the source of the assets may diminish over time

(para [17]). He envisaged three 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.

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(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. (See ‘Mingling’ below)

(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.

But in K v L on the facts nothing led to a conclusion that even

over a long marriage there had been a diminution in the

importance of the source of the parties’ entire wealth which

continued to be represented by the shareholding owned at the

outset by W, ring fenced during the marriage, not accessed,

and not reflected in the modest life style the family enjoyed.

The impact of needs

The principle that derives from Charman v Charman (No 4)

[2007] 1 FLR 1246 is that the judge starts by applying the

principle of need and then considers the sharing principle and

when the result suggested by the needs principle is an award

greater than the result suggested by the sharing principle, the

former should prevail. Thus it is only where needs can be

satisfied without resorting to the non-matrimonial property

that the issue of how to distribute the non-matrimonial

property will be germane. However, ‚need‛ is an elastic

concept and allows much discretion in its assessment (see per

Mostyn J in B v S), so how is one to assess such ‚need‛?


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Compare:

- ‘needs generously interpreted’ (Miller),

- ‘reasonable requirements’ (the pre-White yardstick); and

- ‘real need’ (in Radmacher [at 81] an agreement which

would leave a former spouse in a predicament of 'real

need' was stated to be a factor which would make it

likely to be unfair to hold the parties to their nuptial

agreement.)3

In N v F [2011] EWHC 586 (Fam) Mostyn J suggested that the

presence of pre-marital property could (like a nuptial

agreement) lead to a more conservative assessment of needs

(using the example of Radmacher where the ante-nuptial

agreement had the effect, by preserving pre-existing property,

of reducing the husband’s assessed needs).

While this might be right in some cases, it must be fact specific

and depend on the extent to which the pre-marital property

has been accessed during the marriage and the length of the

marriage and the consequential standard of living which was

enjoyed prior to the breakdown of the marriage

And yet in Robson [2011] 1 FLR 751 the parties had

irresponsibly dissipated H’s inheritance and drawn on the

capital to support a life style they could not afford. The CA held

that it was inappropriate for the judge to criticise this conduct

and then assess W’s needs on a basis which would require H to

continue to draw on that same inheritance.

3 One may ask what precisely does 'real need' mean? Is it less than 'reasonable needs’? How much less, and is

it subsistence level? Or does it mean the level of welfare benefits, for instance.


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Addressing matters more generally, however, Ward LJ said at

para 43(8) that the standard of living during the marriage

would be relevant:

‚...and the extent to which it has been afforded by, and

enhanced by, drawing down on the added wealth. The

way the property was preserved, enhanced or depleted

are factors to be taken into account. Where property is

acquired before the marriage or when inherited

property is acquired during the marriage, thus coming

from a source external to the marriage, then it may be

said that the spouse to whom it is given should in

fairness be allowed to keep it. On the other hand, the

more and the longer that wealth has been enjoyed, the

less fair it is that it should be ring-fenced and excluded

from distribution in such a way as to render it

unavailable to meet the claimant’s financial needs

generated by the relationship‛

In J v J (Financial Orders: Wife’s Long Term Needs) [2011] 2 FLR

1280 Moylan J eschewed any analysis of the different ways of

looking at need but preferred the words of the statute in

s.25(2)(b) ‚financial need‛ and recognised that the assessment

of need, at least at the outcome stage, has to be conducted or

justified by reference to the circumstances and context of the

case. It is not an exercise undertaken in abstract, and he

referred to Charman (No 4) at para [70]:

‚Thus the principle of need requires consideration of

the financial needs, obligations and responsibilities of

the parties (s.25(2)(b)); of the standard of living enjoyed

by the family before the breakdown of the marriage

(s.25(2)(c)); of the age of each party (s.25(2)(d)); and of


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any physical or mental disability of either of them

(s.25(2)(e)).

This concentration on s.25(2) was also urged by Ward LJ in

Robson (para [43(1)]) when he advised against judicial glosses

on the statute’s wording (whether ‘reasonable requirements’ or

even ‘generously interpreted’ – as in Miller)

Rather than seeking to achieve a mathematically exact

calculation of the applicant’s future needs, a broad analysis

based on s.25 enables the court to assess what income it

would be ‘fair’ (in all the circumstances of the case) for this

wife to have available to her for the remainder of her life –

including additional discretionary expenditure varying from year

to year (where that reflects the circumstances of the marriage):

AR v AR [2011] EWHC 2717 Moylan J at [70-71].

It follows that it is a multi-factorial or ‘holistic’ assessment. The

origin of the property may be a consideration (that is part of

the s.25 exercise by reference to contributions) but (it is

suggested) what is of more relevance is how the parties

conducted their lives during the marriage

Thus if the non-matrimonial property was ring fenced and not

accessed then it will have limited impact on the assessment of

needs, but if it was fully available to the family then, aliter.

Cases such as Robson or Y v Y [2012] EWHC 2063 (Fam)

(Baron J) are examples of the latter.

A good example of the former is K v L (Ancillary Relief:

Inherited Wealth) (above) where the Court of Appeal upheld

Bodey J's decision which considered the relevance of shares

inherited by the wife many years prior to the marriage. It was a

long marriage and the parties had lived relatively modestly. At

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the date of the marriage the shares were estimated to be

worth £680,0004, but by the time of the hearing, they were

estimated to be worth £57.4 million. Furthermore, the shares

had always been kept separate and apart from matrimonial

assets. Despite the length of the marriage, the husband was

awarded a lump sum of (only) £5 million plus the former

matrimonial home worth £225,000 (9.3% of the assets). The

provision to the husband was fair and although assessed

principally on his needs, provided for more than his needs even

if generously interpreted in the context of their lifestyle.

In NA v MA [2007] 1 FLR 1760 Baron J awarded applicant 23%

from a fund that was solely non-matrimonial property (£9.2m

out of £40m) but the award was based solely on her needs.

In Y v Y Baron J awarded 32.5% (£8.74m of £26.88m) again

on need (‚I accept that primarily this is a needs case given that

the Estate was pre-acquired‛) but the ‚needs‛ reflected many

other s.25 factors including the standard of living and

accommodation during the marriage and the access to the

inherited wealth that there had been.

In N v F (above) Mostyn awarded the wife 44.7% of the total

assets. The Judge emphasised that the high percentage was

due to the impact of the wife's needs; were it not for W's

needs he would have excluded more, possibly the entirety, of

the husband's pre-marital wealth from the division.

In K v L Wilson LJ observed (para [22]) that counsel had been

unable to identify a single case where an applicant had secured

4 At the start of cohabitation (1986) £300,000, at marriage (1991) £680,000, at separation (2007) £28 m and at

trial (2010) £57.4m. W had c. £1.3m other assets. The home was a semi in South London worth £225K and the

family budget was £79K pa


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an award in excess of his or her needs where the assets were

entirely non-matrimonial.

A personal view is that:

- In Miller at [153] Baroness Hale said that: ‚The nature

and the source of the property and the way the couple

have run their lives may be taken into account in

deciding how it should be shared.‛ (my emphasis);

- In cases like Parra v Parra the way the parties have

arranged their financial affairs has been an important

factor. See also per Ld Nicholls in Miller at [25];

- Needs which are ‘relationship-generated‛ are an

important element (see Ward LJ in Robson);

- The Act refers to the standard of living during the

marriage as a relevant consideration (s.25(2));

- Over time the resort of the parties to extra-marital or

non-matrimonial assets will indicate an intention as to

how those asset should be treated. In Robson Ward LJ

said that while inherited capital required special

consideration it was not inviolate having regard (in that

case) to the length of time over which and the extent to

which the parties had relied on it to subsidise their life

style;

- In the circumstances, it is illogical for Mostyn J in N v F

to suggest that the origin of property which has been

accessed to supplement matrimonial assets and to

subsidise a standard of living may have a ‘conservative’

influence on the assessment of a party’s needs (save

perhaps to the extent, as in Robson, that the applicant


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has been ‚complicit in their prodigality‛ to a culpable

and significant extent.)

The use of a Mesher Order

Nevertheless, where there are needs, then while (as is already

clear) they will take priority, this will not necessarily lead to an

outright absolute payment. In two recent cases the court has

used a Mesher order (rather in the way in which an award

might be made in a Schedule 1 Children Act case) to provide

the needy spouse (and children) with the temporary use of

capital with a charge back in the one case to a seriously injured

husband whose wealth derived from his personal injury claim

(Mansfield: see below) and in the other the order was used to

reflect the pre-marital property H had brought to the marriage

(and the effect of the pre-nuptial agreement entered into to

protect it): see V v V [2011] EWHC 3230 (Fam) Charles J. The

parties entered into a Swedish marriage settlement. There was

a substantial imbalance between matrimonial and pre-

matrimonial assets. W was provided with sufficient to meet the

needs of herself and the children during their minority with a

charge back to H thereafter.

A not dissimilar principle of retention of interest is seen in B v B

(ancillary relief) [2008] 2 FLR 1627 where all the assets had

derived from W’s pre-marital inheritance which had sustained

the family during the marriage. They had started a car wash

which H ran. The lower courts attempted to achieve equality

but the CA allowed W’s appeal. The origin of the wealth was

recognised by ensuring W could recover financial benefit from

the business. There had to be recognition of the fact that all

assets were provided by the wife, and that she had a


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reasonable claim to the greater security which preservation of

more than half of them in her hands would bring. Fairness

would be achieved if, first, the husband was permitted to

continue in sole occupation of the carwash premises for the

purpose of his business; second, the proceeds of the carwash,

if and when sold, were divided equally between the parties;

and thirdly, rent was payable from the husband to the wife at

half the current market rent.

In this case the CA did point out that every case had to be

decided on its own facts, and the facts were unusual.

The nature of the property

Investment in a matrimonial home:

The matrimonial home will almost inevitably be treated as

matrimonial property, whatever the origins of its funding. See

Miller at para 22:

‘The parties’ matrimonial home, even if this was brought

into the marriage at the outset by one of the parties,

usually has a central place in any marriage. So it should

normally be treated as matrimonial property for this

purpose. As already noted, in principle the entitlement

of each party to a share of the matrimonial property is

the same however long or short the marriage may have

been’

BUT does this necessarily mean it will be shared 50/50?

Not according to Mostyn J: see S v AG (the lottery case infra)

where he said at para [9]:


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‚But even the matrimonial home is not necessarily

divided equally under the sharing principle; an unequal

division may be justified if unequal contributions to its

acquisition can be demonstrated‛

And he referred to Wilson LJ in Vaughan v Vaughan [2008] 1

FLR 1108 at para [49]:

‚.....I consider that the husband’s prior ownership of the

home carried somewhat greater significance than either

the district or circuit judge appears to have ascribed to

it‛

although he had recognised that Baroness Hale had observed

in Miller that ‚the importance of the source of the assets will

diminish over time‛

In S v AG Mostyn J, despite finding that by purchasing the

home with part of the lottery monies W had converted that

part of what was non-matrimonial property into matrimonial

property and therefore subject (prima facie) to the principle of

sharing, nevertheless held that having regard to its origin and

the ‚relatively short period‛ that H lived there (less than 4

years) he was not entitled to an equal share (see further

below).

In NA v MA [2007] 1 FLR 1760 Baron J had said in relation to

the comment in Miller (above):

‚I do not take that to mean that the property must be

divided equally but its value and the lifestyle that it

produced are relevant factors in the Court’s

consideration of fairness.‛


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In Y v Y the mansion that was the fmh was not sold but the

nature and style of the property which had been central to the

lifestyle informed the assessment of the wife applicant’s

housing need

Separate consideration of each (class of) asset

In Wells v Wells [2002] 2 FLR 97 the CA stressed the need to

identify the nature of assets and then either divide them by

class or recognise the difference in the liquidity in the course of

the division. In N v N (Ancillary Relief) [2010] 2 FLR 1093

Charles J considered the departure from equality separately by

reference to different classes of asset (rather than applying one

global discount). Rejecting the proposition that he should look

at all the assets as a composite whole, the judge held there

might be good reason (within the sharing principle) to depart

from equality in respect of some assets (even to the extent of

100%: see also per Charles J in J v J [2009] EWHC 2654 (Fam))

and not others5. 75% of the assets (total £16.5m) were non-

marital in origin (including a photographic collection £1.4m,

chattels £800K, family company £8.8m) and there were

deferred bonuses for the years subsequent to the separation.

W’s needs were assessed at £5.3m and that was the award

(32% of the whole).

The difficulty with this detailed analysis (and see S v S (Non-

Matrimonial Property: Conduct) above is that it involves a lot of

concentration on detail and inflated costs. In the recent case of

B v B [2013] EWHC 1232 (Fam) Coleridge J has made remarks,

5 The photograph albums (for example) were attributed 100% to H, although this was not to say that they

might be regarded as a source of finance on a (very) rainy day, or even need to be sold to meet the W’s claim

based on need (para 151-153]). The bonuses earned after separation were divided 70/30

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approved by the President of the Family Division, about dealing

with what the judge described as 'the lesser issues and assets'.

Having regard to the pressure on resources, the limitation on

the use of experts and the need to curb all costs, he said: The

small differences (as a proportion of the pot) in the value of

[the less important assets] does not merit the time (and costs)

spent on them.‛ And he observed that often: ‚the pursuit of

precise accuracy is a spurious and vain endeavour where the

figures are in most cases derived from professional valuations

and opinion and assets are not being sold anyway‛ A broader

brush has to be applied: ‚Assets falling in this category should

be bundled up together and an overall value for them all

agreed. If not the court is itself likely to apply that system in a

broad, even rough and ready, way.‛

Mingling

This is the process identified in White and in Miller whereby

over time non-matrimonial assets are brought within the

economy of the parties and so lose their character in whole or

in part of ‘non-matrimonial’ property. Arguably by allowing

such mingling the original owner has accepted that they should

be shared. Thus where pre-acquired wealth is invested in a

matrimonial home, or the parties resort to inherited funds to

subsidise a life style they cannot otherwise afford (Robson), or

extra-marital funds are invested in a joint venture (White) the

origin of the property becomes less relevant.

Nevertheless it will not necessarily become wholly irrelevant. An

example is S v S (Non-Matrimonial Property: Conduct) [2007] 1

FLR 1496 where Burton J identified those items of pre-marital

property that survived and excluded those from the division but


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in respect of the matrimonial property which included some

assets that had their source and derivation in non-matrimonial

property he reflected that origin in dividing the matrimonial

property 60/40.

Similarly see Mostyn J’s approach in N v F (below)

An alternative approach suggested by some (eg Peter

Duckworth) where a valuable asset has been brought into the

marriage with which that party has traded, is to treat the fruits

of that activity as matrimonial property but the underlying asset

to remain the property of the party who introduced it. This is

not wholly dissimilar to the approach in B v B (the car wash

case). My view is it would depend on the other party’s

involvement in the activity that gave rise to the ‚fruits‛.

Liquid funds or heirloom

Whether, or to what extent, inherited or non-matrimonial

property will be subject to sharing may depend upon the

nature of the asset. In Robson v Robson [2011] 2 FCR 625

(CA) Ward LJ at para [43] (7) said:

‚It is not only the source of the wealth which is relevant

but the nature of the inheritance. Thus the ancestral

castle may (note I say ‘may’ not ‘must’) deserve different

treatment from a farm inherited from the party’s father

who had acquired it in his life time, just as a valuable

heirloom intended to be retained in specie is of a

different character from an inherited portfolio of stocks

and shares. The nature and source of the asset may well

be a good reason for departing from equality within the

sharing principle‛


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See also the farm case of P v P (Inherited Property) [2005] 1 FLR

576 Munby J at [37] (and generally) 6. In respect of heirlooms,

see also N v N (above).

In Y v Y [2012] EWHC 2063 (Fam) Baron J helpfully reviews the

law relating to inherited property generally at para [28(a) –(k)]

but she rejected at [23(c)] H’s case that two collection of family

antiques (value £2.2m) should be ‚sacrosanct‛ saying

‚Obviously they have a sentimental value but, in the end, they

do have a real monetary value and are available to cover

indebtedness. Accordingly they should be included in the Asset

Schedule‛

The nature of the acquisition

Pre-acquired assets/wealth or property inherited (or received as

a gift) by one party during the marriage is dealt with above.

Wealth built up during the marriage but to be treated as non-

matrimonial property is a category envisaged by Baroness Hale

(Miller para 152, 153) where she refers to dual career families

6 But contrast D v D [2010] EWHC 138 (Fam): Charles J: Long

marriage (20 years +). H was a farmer and had inherited part of

the business which he ran with his brother and father (the brother

was subsequently bought out). Business grew during the marriage

(turnover 1985 £350K, 2009 £6.94m). Judge rejected H’s

argument that this was a farming case justifying a clean break

funded (only) by what the business (which was illiquid) could

afford. But it would not be fair in the circumstances to force H to

sell his shares or liquidate the business. W’s award: a lump sum

which H could raise and p/ps.


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and where the wealth of each party has been kept separate.

She suggests this concept is simply a reflection of the fact that

in a matrimonial property regime which still starts with the

premise of separate property, there is still some scope for one

party to acquire and retain separate property which is not

automatically to be shared equally between them. However,

she also suggests that one should be careful not to take this

approach too far, and also implies that the concept may be less

applicable in a longer marriage than a short one. It is (I suggest)

a concept to be advanced with great caution. As Moylan J

observed in SK v WL (Ancillary Relief: Post-separation Accrual)

[2011] 1 FLR 1471 it will be difficult for a business started

during a marriage to be (as H contended) wholly external to it.

(see also Evans v Evans [2013] EWHC 506 (Fam) where Moylan

J rejected H’s case for a ‘special contribution’ in respect of a

business started during the marriage)

A third category of property is that acquired after separation.

Where this is wealth that has been wholly generated after the

termination of the marriage it is manifestly not possible for the

other party to argue that they made any direct contribution to

its generation, and it is not obviously the ‘fruits of the

marriage’, but where it represents the fruition of efforts that

had their root in the period of the marriage and/or were

funded by matrimonial property, obviously the situation is

otherwise – thus in R v R (2011: Coleridge J – see below) the

deferred fund had been established with matrimonial monies,

but would not come to fruition for many years during which

the husband would continue to manage and support the

venture and probably continue to inject additional funds. The

solution in that case was to provide W with a defined sum to


20


be paid out when the project matured with 5% pa interest

accruing on that sum.

In Evans (above) Moylan departed from equality (45/55) to

allow for the post separation that H had made and would be

making before the company was sold.

In many cases the success of the business or the origin of the

post separation accrual of wealth will have its origins in earlier

endeavours and this is the ‚springboard‛ effect described by

Charles J in J v J [2009] EWHC 2654. This effect may also be

relevant to an assessment of the influence of pre-marital

wealth and is referred to further below.

In a further recent case (13.8.12) called R v R [2012] EWHC

2390 (Fam) Macur J dismissed H’s arguments that the post

separation accrual should justify a departure from equality on

the basis that the growth was ‚organic‛, the company had

done little more than ‚achieve its latent potential‛, that ‚the

springboard was already in place and needed little

adjustment‛, and that in any event the wife’s contributions to

its success in earlier years outweighed any post separation

contribution by H. While the case is fact specific, it is a good

working example of the analysis that should be brought to

bear in such cases.

The approach to property acquired post separation will vary

with the facts, but the general principles can be summarised:

- The court will take account of all property at its value at

the time of the hearing (Cowan v Cowan [2002] Fam

79; Norris v Norris [2003] 1 FLR 1142);

- The sharing principle applies to all the property (not

merely matrimonial property) [Charman (No 4) para [66]]


21


but appropriate weight should be given to the fact that

a substantial part of that property has accrued due to

one party’s endeavours after the parties separated

(Moylan J: B v B (Ancillary Relief: Post Separation

Income) [2010] 2 FLR 1214)

- In general, it can be assumed that the marital

partnership does not stay alive for the purpose of

sharing future resources unless this is justified by need

or compensation. The ultimate objective is to give each

party an equal start on the road to independent living

(Baroness Hale, Miller [144]). This principle is further

illustrated by Mostyn J’s recent decision in B v S in

respect of maintenance. Future earning capacity is not

to be categorised as an accrued ‘capitalised’ asset to be

divided. See also per Munby LJ: H v H (Financial Relief)

[2010] 1 FLR 1864 at para [105], and most clearly the

CA in Jones v Jones [2011] 1 FLR 17237.

- The fact that H has been trading with W’s notional

share of the family wealth in generating post separation

losses or profits will be relevant (eg SK v WL (Ancillary

Relief: Post-separation Accrual above and even per

Mance LJ in Cowan v Cowan [2001] 2 FLR 192 at [133])

- Passive growth on matrimonial property will remain

matrimonial property (the obverse of K v L where

passive growth of non-matrimonial property remained

non-matrimonial property)

- One approach to post-separation bonuses is on a ‘run

off’ basis with the claimant spouse having a decreasing

77

Over-ruling GW v RW (Financial Provision: Departure from Equality) [2003] 2 FLR 108


22


share of bonuses received over, say 3 years (H v H

[2007] 2 FLR 548) but it will be entirely fact specific,

depending on when the bonus was earned (i.e. before

or after separation), the length of the marriage, the

claimant spouse’s needs etc. There are many cases

exemplifying different approaches.

- Lapse of time from the separation will manifestly be a

relevant consideration reducing/eliminating any claim

over post separation accrual of value (see eg Vince v

Wyatt [2013] EWCA Civ 495.

The Springboard

Charles J employed this concept in his decision in J v J. That

(very) lengthy judgment was reviewed critically by CA in Jones v

Jones [2011] 1 FLR 1723. The facts included the history that H

had been employed in the oil and gas service industry for 19

years before using his experience and expertise in establishing a

successful business 10 years before the marriage. The marriage

lasted 10 years. The hearing took place 4 years after

separation. Before the hearing H sold the company for £25m.

The company had been valued at £2m at the time of the

marriage and £12m at the separation. H offered W half of that

gain but W sought £10m or 40% of the total assets. The CA

concluded that the judge, who had categorised 60% of the

value of the company as non-matrimonial property, and not to

be shared, had wrongly attributed a capital value to H’s

earning capacity at the date of the marriage. An earning

capacity is not to be given a capitalised value.


23


The CA held that the latent potential of a company or

‚springboard‛ concept would not usually cause a court to

adjust a professional valuation, as that valuation should reflect

the value of the springboard, but in this case it had not and the

value of the company at the marriage should be regarded as

having been £4m to reflect this. In addition the passive growth

on that value (as opposed to positive activity in its

management) meant that by the time of sale the non-

matrimonial element in the proceeds of sale was £9m leaving

£16m of matrimonial assets to be divided equally. Testing that

(£8m) against the overall assets gave 32%, which was a fair

outcome.

This concept arises at both ends of the marriage but insofar as

a party brings an established business into the marriage, it is

important to ensure that there is a reflection of the fruits of the

non-matrimonial element in the ultimate evaluation of the

assets available for distribution, and that the accountants

instructed to value the company give appropriate weight to its

potential at the beginning of the marriage so as to establish

what is properly regarded as the matrimonial and the non-

matrimonial elements.

The approach was followed in N v F [2011] 2 FLR 533 where

the total assets were £9.714m. H came to the marriage with

£2.116m, which updated for inflation was £3.4m or allowing

passive growth, using an assumed 3.75% compound interest

on the basis of an index such as FTSE100, = £4.2m at trial.

Mostyn J indicated that he would not up-date the values in this

way for the ‚same reasons‛ he had taken a similar view in FZ v

SZ and Others (Ancillary Relief: Conduct: Valuations) [2011] 1

FLR 64). In that case he found the FTSE had fallen but that

having regard to the degree of merger of funds over the


24


marriage any investment return would have been properly

regarded as matrimonial property.

There had indeed been substantial ‘mingling’ of these pre-

acquired assets with matrimonial assets over the 16 year

marriage and the family had resorted to capital to maintain

their lifestyle when H gave up banking to become a teacher.

Mostyn J held it would be wrong and unfair to exclude none of

H’s pre-marital wealth from the sharing principle and excluded

£1m.

Another recent example of the ‘springboard’ calculation is AC v

DC (No 2) [2012] EWHC 2420 (Fam) per Sir Hugh Bennett.

Lottery wins:

In Cowan v Cowan [2001] 2 FLR 192 Mance LJ had raised the

question of how a lottery win should be treated. There are

several decisions in Australia but none arose in England until S

v AG (Financial Remedy: Lottery Prize) [2011] EWHC 2637

(Fam) Mostyn J. The case may have suffered for being decided

between two litigants in person who spoke virtually no English

assisted only by two MacKenzie Friends

Mostyn J started from the premise that matrimonial property

will normally be divided equally but that it will be a rare case

where the sharing (as opposed to the needs) principle will lead

to any distribution to the claimant of non-matrimonial

property. (With respect to him, this seems far too simplistic

although he repeated the statement in B v S). However, he

then goes on to identify circumstances in which an equal

division of even matrimonial property will not follow, including


25


cases where ‚the matrimonial property in question will not be

the product of the endeavours of the parties within the social-

economic partnership that is marriage‛

Reviewing the Australian cases he identifies a conflict between

the analysis that a lottery win is (a) a windfall accruing to the

joint benefit of the parties, not being the product of any labour

or skill, or (b) that it is contribution to the welfare of the family

by the winning party. However, there is then a debate as to

whether there is an assumption that the funds from which the

ticket was paid were joint and so the contribution represented

by the win is joint or whether (as Mostyn J seems to think) the

source of the price of the ticket is irrelevant as being a sum de

minimis and the purchasing party can claim the credit for the

contribution. He also distinguishes the case where the parties

normally buy a ticket together or as a syndicate, and the case

where one party buys from her own earnings without the other

knowing, and further those cases where the marriage is already

unhappy and the parties are drifting into separate lives socially

and economically (as in that case). It is therefore very fact

specific.

In this case the judge found the win to have been non-

matrimonial property but that part of the proceeds, when

invested in a family home, became matrimonial property. The

judge first assessed H’s needs at £82K (being a deferred

Duxbury sum to provide income after he retired). When

considering the application of the sharing principle, due to the

origin of the funds, and the short time he had lived in the

home, the judge assessed H’s fair share to be 15-20% or about

the same as his needs. This would leave W with the ability to

reduce her mortgage and to meet her needs. He had taken all

the s.25 factors into account.


26


Thus, the decision is fact specific and does not give any clear

guide to how a lottery win would be dealt with in another

factual matrix.

Personal injury awards/damages

The principles that apply to personal injury damages have been

clear for some years. The cases of Daubney v Daubney [1976]

Fam 267, Pritchard v J H Cobden Ltd [1988] Fam 22 and

Wagstaff v Wagstaff [1992] 1 FLR 333 establish the general

proposition that damages for personal injuries are not excluded

from consideration when a court conducts the s.25 exercise,

but that the source of and rationale for the funds should not

be ignored.

Wagstaff made clear that damages for pain and suffering and

loss of amenity were to be included in the court’s consideration

(although Lord Donaldson MR suggested that insofar as a lost

amenity needed to be replaced at a cost, that would amount to

a need under s.25(2)(b)). Butler Sloss LJ explained that although

the court had an unfettered discretion when considering the

criteria set out in s 25 the circumstances in which capital by

way of damages came into the hands of the recipient spouse

and the size of the award were relevant factors which would

temper the extent of, and in some cases exclude, the sharing of

such capital with the other spouse. It followed that, although

the capital remaining available to the husband out of the

damages award had to be brought into account by him, the

circumstances in which the husband's capital came into his

hands were highly relevant to the exercise of the court's

discretion. In C v C (Financial Provision: Personal Damages)

[1995] 2 FLR 171 the wife’s claims were wholly dismissed in

http://www.lexisnexis.com/uk/legal/search/runRemoteLink.do?langcountry=GB&linkInfo=F%23GB%23FAM%23tpage%2539%25year%251988%25page%2522%25sel1%251988%25&risb=21_T14774928860&bct=A&service=citation&A=0.24688268666580349


27


light of H’s needs and the adverse impact an award in her

favour would have, compared to the minimal benefit to her.

No new principle emerged from the most recent case in this

area: Mansfield v Mansfield [2011] EWCA Civ 1056. In this

case (unlike eg Wagstaff) H received his damages before he

met W. As explained above the CA made a Mesher order to

enable W’s needs as primary carer for the children to be met

during their minority and his needs to be met thereafter.

Protecting the fund

An issue which arises in light of such cases, is how an injured

party may protect their damages award (which will have been

assessed specifically to meet the claimant’s needs and ‚not a

penny more and not a penny less‛ per Baroness Hale: Wells v

Wells [1999] 1 AC 345).

One way to provide greater security for an injured party may be

to follow the lead of the Supreme Court in Radmacher v

Granatino [2010] UKSC 42 where significantly greater weight

was given than heretofore to nuptial agreements. At para [79]

Lord Phillips said:

‚Often parties to a marriage will be motivated in

concluding a nuptial agreement by a wish to make

provision for existing property owned by one or other, or

property that one or other anticipates receiving from a

third party. The House of Lords in White v White and

Miller v Miller drew a distinction between such a property

and matrimonial property accumulated in the course of

the marriage. That distinction is particularly significant

where the parties make express agreement as to the

disposal of such property in the event of the termination


28


of the marriage. There is nothing inherently unfair in such

an agreement and there may be good objective

justification for it, such as obligations towards existing

family members‛

Or – one might suggest – an injured person with particular

needs, but there will have to be a balancing of those needs

with those of other family members.

Appropriate provision will need to be made for children, and

the uninjured party’s needs will have to met as far as possible.

It may be that (as in Mansfield) the uninjured party will only

have use of part of the capital during the children’s minority (to

provide a home) and it can then be returned to the claimant in

his later years (a Mesher order). All this will be fact dependent.

Similarly, it may be more difficult to seek to ring fence

resources which are attributable to loss of earnings, since that

is a resource against which the other party might have had a

claim in any event.

Nevertheless, provided that the agreement is freely entered into

by each party with a full appreciation of its implications the

court is likely to give effect to the agreement unless, in the

circumstances prevailing, it would not be fair to hold the

parties to it.

These considerations will, of course, apply both to dissolution

of marriages (Matrimonial Causes Act 1973) and civil

partnerships (Civil Partnership Act 2004), and of course apply

to the wider classes of assets which may be categorised as non-

matrimonial (or pre-marital or extra-marital etc)


29


Is there any clear policy in the case law?

There are several cases from which one may draw indications

that there is judicial unhappiness with the perceived need to

categorise the property in the case too rigidly into matrimonial

and non-matrimonial. In H v. H [2007] E.W.H.C. 459 Charles J

observed:

“42 The arguments were, or came close to, an assertion that

given the length of this marriage and, because of that, the

force of the application of the yardstick of equality to the

fruits of the marital partnership, it was appropriate at the

first stage of the court's reasoning for it (1) to define the

matrimonial property with precision, (2) to divide its value in

half, and (3) to treat that result as an established and

unalterable part of the award. ...

“43 In my judgment this is an incorrect approach because (i)

it ignores the flexibility of the statutory provisions and the

objective of achieving a fair result in the given case, that was

emphasised by the House of Lords, and (ii) it seeks to

impose a certainty or rigidity of division on a foundation of

the matrimonial property and thus on a concept that (a) is

not expressly mentioned by the Matrimonial Causes Act, and

(b) cannot always easily or precisely be identified and

valued”.

In CC v RC (2007 but reported at [2009] 1 FLR 8.) Moylan J

took a similar view and concentrated on the need for flexibility,

finding support in Lord Nicholls’ views in Miller when he said:

“26 This difference in treatment of matrimonial property and

non-matrimonial property might suggest that in every case a

clear and precise boundary should be drawn between these

two categories of property. This is not so. Fairness has a

broad horizon. Sometimes, in the case of a business, it can

be artificial to attempt to draw a sharp dividing line as at the

parties' wedding day. Similarly the 'equal sharing' principle

might suggest that each of the parties' assets should be

separately and exactly valued. But valuations are often a

matter of opinion on which experts differ. A thorough

investigation into these differences can be extremely

expensive and of doubtful utility. The costs involved can

quickly become disproportionate”.8

8 See eg the comments of Coleridge J in R v R and B v B


30


“27 Accordingly, where it becomes necessary to distinguish

matrimonial property from non-matrimonial property the

court may do so with the degree of particularity or generality

appropriate in the case. The judge will then give to the

contribution made by one party's non-matrimonial property

the weight he considers just. He will do so with such

generality or particularity as he considers appropriate in the

circumstances of the case”.

Rather Moylan J concentrated on the s.25 factors, treating the

speeches in Miller as ‘guidance’ rather than statutory

expressions to be interpreted. In this he was also following

both Charles J in H v H and Coleridge J in RP v RP [2007] 1 FLR

2105 while the CA have returned to the same approach in

Robson with Ward LJ discouraging judicial glosses being placed

upon the words of the statute and encouraging a

concentration on s.25.

On the other hand is the much more formulaic approach of

judges like Mostyn J (in N v F, S v AG (Financial Remedy: Lottery

Prize) and B v S) or Wilson LJ in Jones v Jones) and typified in B

v B per David Salter sitting as a Dep H Ct judge: see below

The practical application of these different approaches is

exemplified in some recent cases:

AR v AR (Treatment of Inherited Wealth) [2011] EWHC

2717 (Fam) Moylan J [2011] All ER (D) 241 (Oct)

The case concerned a couple who had been married for 20

years. There was total wealth of between £21 million and £24

million, all of which was in the husband's name, save for £1

million. The assets had been inherited by the husband.

Considering the recent case law, Moylan J concluded as

follows:-


31


(a) The sharing principle applies to both

matrimonial and non-matrimonial property,

should the circumstances of the individual case

require. It was therefore inappropriate to adopt

the rigid approach of categorising such assets as

set down by the House of Lords in

Miller/McFarlane.

(b) Nothing had happened to the non-matrimonial

property to change it into matrimonial property.

As stated by Wilson LJ in K v L, there were three

circumstances in which the categorisation of

property could change over time: the value of the

contribution diminishes over time; non-

matrimonial property becomes intermingled with

matrimonial property so that it cannot be treated

or valued separately; it is used for the purchase of

an asset such as the matrimonial home so that it

becomes treated as a central item of matrimonial

property.

(c) The court's objective is fairness which may

require a flexible application of the Duxbury

principles. The court was concerned with the

wife's claims: she was entitled to be housed at a

level equivalent to the family home and she was

entitled to enjoy a level of financial security above

that which would be offered by a basic Duxbury

calculation.

(d) The court was not concerned with the

contributions of the parties during the marriage in

the absence of any arguments regarding

exceptional contribution or conduct.


32


R v R [2011] EWHC 3093 (Fam) Coleridge J (5.4.11)

This is a helpful practical example of the application of the

modern case law principles in what was not a ‘big money’ case

(the assets were only a little over £4m of which half would not

be available for several years - ‚the deferred fund‛). The

marriage lasted 7 years, there was a young child (8) and W had

a previous child (12) while W was also quite young (44). H was

57. H’s case was that almost everything which now existed,

apart from the deferred fund, either existed prior to the

marriage or had derived from such pre-existing assets. The case

was argued by reference to the principles of ‘needs’ and

‘sharing’ but Coleridge J commented:

‚9. So the live issues involve a determination of the

proper approach to a limited means short-ish marriage

case like this, and accordingly, precisely how the cake

should be carved up in a way as fair that is as possible

to both sides. As with most non-big money cases, the

practicalities of translating clever so-called principles into

a result which accords proper respect to principle whilst

also providing reasonably for both the spouses, and

most importantly the children, calls for a deal of

creativity and a large measure of commonsense.‛

He doubted whether it is really helpful or even possible to

adopt and use the approach of ‚modern case law principles

which are designed to aid the court in achieving fairness‛ in

the case. While recognising the logic of the formulaic approach

he preferred to focus closely on s.25 and in particular the first

consideration of the welfare of the children.


33


In that context when looking at ‘contributions’ the judge made

this observation:

‚39. Contributions: both parties have played their full

part during the marriage and no one has suggested

otherwise. However, in any outcome decided on sharing

principles, pre-existing wealth brought into the marriage

has to figure fully in a case like this, particularly where

the husband was an established professional with a high

income and significant assets. The marriage is not long

and there is little evidence of what is sometimes called

"mingling" of assets, although there may have been

some improvements to property during the currency of

the marriage, paid for out of borrowed money.‛

Moreover, although the matrimonial home had been bought

from pre-existing funds, it was used as collateral for a loan for

H to invest in a successful commercial property venture. He

rapidly repaid that loan from income earned during the

marriage. In those circumstances Coleridge J commented that

the commercial venture was ‚properly considered a

matrimonial asset in every sense‛. This was the deferred fund.

In the event the case was decided on the basis of meeting the

immediate needs of W and the children, and securing a clean

break as soon as possible (given the shortness of the marriage)

from the deferred fund. However, on a more general note the

judge added this:

‚55. Finally, I would only add this: the injection into the

process in this case of the new principles that have been

collected from the well-known recent cases (for

example, White, Miller v Miller and Charman) may have

provided a greater degree of sophistication in the never-


34


ending quest for fairness in cases where there is a large

surplus over and above the parties' financial needs.

However, as this case graphically demonstrates, this has

been done at the expense of simplicity where as I find

the resources are only barely able to cover the debts and

needs, a quart out of a pint pot case, or even perhaps a

quart out of a quart pot case. The extra evidence and

calculations called for when trying to pin down precise

values for 'sharing' and, for example, the extent of pre-

acquired assets leads to many extra layers of

complication, forensic debate and expensive evidence

on the part of both legal teams.

56. At the end of the day, the result in this case has

been driven mostly by needs and practicalities. Where in

a case that seems to be likely from an early stage, I

would, if I may say so in all humility, suggest that those

who do these cases waste not too much time and

energy in the preliminary theoretical discussions, but

rather move swiftly to look at the practicalities of the

suggested outcomes whilst keeping the primary

considerations generated by section 25 in the forefront

of their mind.

In GS v L [2011] EWHC 1759 Eleanor King J [2013] 1 FLR 300:

(which is interesting for its treatment of the community of

property agreement signed in Spain) H argued for the exclusion

of pre-marital property but the judge rejected the argument on

the basis that all the assets were required to meet needs, save

for a pension that accrued before the marriage, could not be

taken for many years and would not be available to meet

needs now.


35


In B v B [2012] EWHC 314 (Fam) David Salter sitting as a

deputy high court judge provided some useful reminders about

the approach to pre-marital wealth cases:

- As Mostyn J had said in N v F ‚if a party is going to

assert the existence of pre-marital assets then it is

incumbent on him to prove the same by clear

evidence‛. In this case H failed to provide such proof in

respect of several categories of asset. His assertions that

they were pre-marital assets were therefore disregarded

- No adjustment was made for the ‘springboard’ effect on

those assets that were proved to be pre-marital because

the wealth had not appreciated in real terms and

because any investment return on such wealth should in

his view be regarded as matrimonial rather than non-

matrimonial (but he did not explain why).

- He assessed the net assets, deducted H’s pre-marital

assets, divided the balance 50/50 and found that this

equated with a separate assessment of W’s housing and

capitalised income needs. (As so often W’s final award

was c. 40% of the whole).

This formulaic approach can also be seen in AC v DC (No 2) Sir

Hugh Bennett [2012] EWHC 2420 (Fam) where the assets were

valued at £38m and after the deduction of the ‘spingboard’

valuation of the business introduced by H at £8m, the balance

was divided equally, giving W £15m of £38m.

In Davies v Davies [2012] EWCA Civ 1641 (the case of the hotel

in Paddington inherited by H) the CA upheld an award of

£2.2m reached by deducting 1/3 of the assets being the


36


element introduced by H (after a not very long marriage), the

balance being divided equally, giving W one third of the total.

Conclusion

There are two schools of thought emerging, one more

formulaic than the other. The former would seek to identify the

property as matrimonial or non-matrimonial and while dividing

the matrimonial property equally, the non-matrimonial property

would be retained by the party whose it was save so far as it

may be necessary to meet the other’s needs, quite possibly

interpreted quite modestly (if Mostyn J’s lead is followed sed

quaere). The other school of thought identifies the court’s task

as achieving a fair outcome, and is more inclusive, and less

categoric in its assessment of the property available for

distribution, but recognising that in the course of the s.25

exercise a reflection of the nature and origin of non-

matrimonial property will be a necessary part of achieving a fair

outcome once needs (assessed on a holistic basis) have been

adequately met.

If the former approach is adopted then Mostyn J in N v F

summarised the steps which the court needs to consider as

follows:

"(i) whether the existence of pre-marital property should

be reflected at all, this depends on questions of duration

and mingling;

(ii) if it does decide that reflection is fair and just, the court

should then decide how much of the pre-marital property

should be excluded. Should it be the actual historic sum?

Or less, if there has been much mingling? Or more, to

reflect a springboard and passive growth, as happened in

Jones?


37


(iii) the remaining matrimonial property should then

normally be divided equally;

(iv) the fairness of the award should then be tested by the

overall percentage technique."

In N v F Mostyn J identifies this conflict between the two

schools of thought and argues strongly for the former

approach on the basis of its ‚logical rigour‛ (and in more

recent cases he has suggested it would assist in encouraging

settlement of claims), but the broader brush approach has the

merit of avoiding what may frequently be artificial valuations,

considerable expense and unnecessary complications (the need

to prove the existence and historical value as well perhaps as

the current equivalent value highlighted in B v B is perhaps a

case in point) when what is required is practical solutions,

common sense and concentration on the s.25 factors (as

advocated by Charles J, Coleridge J and Moylan J). In any event

the formulaic approach still requires the judge to stand back

and test the outcome against the proportion the award bears

to the totality of the assets (Jones v Jones) and the non-

matrimonial assets will be invaded if needs are not met (eg as

in Y v Y)..

In many day to day cases all this may be academic. Where an

award based on the needs (of both parties) will exceed an

assessment based on sharing, then needs will prevail. On the

basis of Miller where an award based on sharing would provide

more than that based on needs (i.e. in a case where there is a

‚surplus‛), then it will prevail, but the case law demonstrates

that this approach can be amended to accommodate the

nature and origin of non-matrimonial property, how it has

been treated by the parties, and the length of time it has been

enjoyed.


38


Ultimately (as in so much else in this jurisdiction) and as Mostyn

J says in N v F : ‚...the treatment of pre-marital property is

highly fact specific and very discretionary‛

CFS QC

27th June 2013

non-matrimonial property and its place in financial … property and its place in financial remedy...

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