Non-matrimonial/civil partnership assets

There is no statutory definition of a non-matrimonial asset, but the distinction between such assets and those that form part of the marital assets has been considered at length in case law. The court will have regard to any argument that property in non-matrimonial in nature as part of its consideration (in particular as to the assets of the parties).

Whether or not an asset forms part of the marital assets will also impact on the application of the general principles applied by the court. A party who seeks to define an asset as non-matrimonial will generally do so with the intention of excluding that asset from the general principles applied to matrimonial assets.

The courts’ approach to assets arising from an inheritance is considered separately.

In White v White [2000] 3 FCR 555 Lord Nicholls developed the concept of matrimonial as opposed to non-matrimonial property. In practice, whether or not an asset in non-matrimonial is only likely to be of significance where the remaining assets are sufficient to meet the needs of the parties, ie where they are substantial.

References:

Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, [2006] 2 FCR 213

Whether or not an asset is non-matrimonial in nature may impact on periodical payments (including where capitalised) as well as lump sum orders.

References:

Jones v Jones [2011] EWCA Civ 41, [2011] All ER (D) 231 (Jan)

General principles

Miller v Miller; McFarlane v McFarlane

The House of Lords in the cases of Miller v Miller and McFarlane v McFarlane provided guidance on assets that will usually be considered to be matrimonial property and those that may be considered non-matrimonial property.

References:

Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, [2006] 2 FCR 213

• matrimonial property constitutes assets acquired during the marriage, including business and investment assets acquired other than by inheritance or gift to either party, ie the ‘marital acquest’
• the matrimonial home, regardless of how it was acquired, will always be matrimonial property
• matrimonial property will be subject to the principle of sharing and the yardstick of equality will apply with some force, and
• where property is non-matrimonial, in a short marriage fairness may dictate that the applicant would not be entitled to a share of the non-matrimonial property or there should be a departure from equality; by contrast, in a long marriage the non-matrimonial property may become merged with the matrimonial property

The key points made by Baroness Hale were:

• family assets would include the family home and its contents, assets acquired for the use and benefit of the family as a whole, such as a holiday home, furniture, insurance policies and family savings, and also family businesses or joint ventures in which both parties work
• business or investment assets generated solely or mainly by the efforts of one party would not be viewed as matrimonial property
• in the modest number of cases where the distinction between matrimonial and non-matrimonial assets may make a difference, the duration of the marriage may justify departure from equality, and
• while the source of assets may be taken into account, its importance will diminish over time

Other case law

The approach to non-matrimonial assets by the courts has varied. Ultimately, the court retains discretion as to how the assets and resources of the parties are to be treated in any given case. The outcome will be dependent on the facts of a case, following application of the principles.

Cases in which non-matrimonial property has been considered include:

• Rossi v Rossi [2006] EWHC 1482 (Fam), [2006] 3 FCR 271, in which the court attempted to identify the matrimonial property to which the yardstick of equality would apply – the implications of the distinction between different types of property were summarised as follows:
  • matrimonial property is likely to be divided equally, although there may be departure if the marriage is short and part of the matrimonial property is ‘non-business partnership, non-family assets’, or if the matrimonial property is represented by autonomous funds accumulated by dual earners, and
  • non-matrimonial property is not ‘quarantined’ or excluded from the court’s powers – it simply represents an unmatched contribution by the party who brings it to the marriage; the court must decide whether it should be shared and, if so, the proportions in which it is to be shared; in reality, the longer the marriage, the more likely the non-matrimonial property will become merged with matrimonial property and, in a short marriage, non-matrimonial assets are not likely to be shared unless needs dictate
• S v S [2006] EWHC 2793 (Fam), [2006] All ER 137 (Nov), in which the court distinguished between matrimonial and non-matrimonial assets and held that the yardstick of equality should initially only be applied to matrimonial property, with consideration being given to non-matrimonial property only if needs have not been met
• Charman v Charman [2007] EWCA Civ 503, [2007] 2 FCR 217, in which it was, stated that the sharing principle applies to all the parties’ property but where property is non-matrimonial there is likely to be better reason for departure from equality
• C v C [2007] EWHC 2033 (Fam), in which Moylan J indicated that whereas Miller and McFarlane appears to require that an account is made for the sources of family wealth, those passages had to be read in the context of MCA 1973, s 25 and it would be regrettable if, after a long marriage, the parties were obliged to conduct a financial account, thus the formulaic approach of having to identify matrimonial and non-matrimonial property should be resisted
• B v B [2010] EWHC 193 (Fam), [2010] All ER (D) 148 (Apr), a case concerning a substantial sum accrued by the husband post-separation, in which the High Court held that, in general, sharing ended at the end of the matrimonial partnership and that to award the wife half of the assets in that case was not justified as it would give insufficient weight to the husband’s post-separation endeavours

Pre-marriage/civil partnership assets

A comprehensive review of the relevant authorities on pre-marital assets was undertaken in N v F (Financial Orders: Pre-Acquired Wealth) [2011] EWHC 586 (Fam), [2012] 1 FCR 139, from which is extracted the following approach:

• pre-marital property should be taken into account because it represents a contribution made by one party unmatched by an equivalent contribution by the other
• the longer the length of a marriage 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 had, in effect, agreed to share it with their spouse; in the case of a short marriage fairness might well require that the claimant should not be entitled to a share of the other’s non-matrimonial property
• the source of the asset might be a good reason for departing from equality, and
• non-matrimonial property represents a contribution made to the marriage by one of the parties; however, sometimes, as time passes, the weight fairly to be attributed to that contribution diminishes, but sometimes it will not

It was suggested that the following steps be followed when dealing with pre-marital assets:

• consideration should be given to whether the existence of pre-marital property should be reflected at all – that depends on questions of duration and mingling
• if the court does decide that consideration is fair and just, it 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?
• in some cases consideration may be given to passive growth
• the remaining matrimonial property should then normally be divided equally, and
• the fairness of the award should then be tested by the overall percentage technique, subject to the question of need

In Jones v Jones [2011] EWCA Civ 41, [2011] 1 FCR 242 the Court of Appeal was concerned with a case where the husband had owned a company for ten years prior to the marriage. At first instance (J v J [2009] EWHC 2654 (Fam)) Charles J said the court can have regard, inter alia, to the ‘spring board effect’ of pre-acquired assets and of assets in existence at the date of separation and how they increased in value during the period of separation. On appeal, however, the Court of Appeal said there were objections to the capitalisation of a spouse’s earning capacity at the date of the marriage (at paras [24]-[25]);

• it reintroduced, at the commencement of the marriage, a requirement to attempt to assess and compare the value of the contributions that each party was or would be likely to make during or apart from the marriage – such capacity is not easily measurable in capital terms
• it could not be said with confidence that an established earning capacity or very valuable acquired expertise and acumen would, if viewed as ‘assets’ brought into a marriage, be easily or reliably measurable or comparable with other qualities, or indeed how far would one carry the enquiry into expertise and acumen – the proper depth of any enquiry into a spouse’s expertise and acumen is unclear
• capitalisation of the earning capacity established by one spouse by the date of the marriage was likely to be unjustly discriminatory if the other had not by then established an earning capacity

In AC v DC (No 2) [2012] EWHC 2420 (Fam), [2013] All ER (D) 11 (Apr) the significance of available evidence as to the value of assets pre-marriage was emphasised. That issue also arose in DR v GR (financial remedy: variation of an overseas trust) [2013] EWHC 1196 (Fam), [2013] All ER (D) 230 (May), in which Mostyn J emphasised the need for such evidence to be submitted at an early stage, referring to ‘corroborative contemporaneous documentary evidence’.

In K v L (Ancillary Relief: Inherited Wealth) [2011] EWCA Civ 550, [2011] 2 FCR 597 the Court of Appeal, in a case where the pre-marriage assets of the wife had not been intermingled with the matrimonial assets and had been effectively ‘ring-fenced’, Wilson LJ said that so far as non-matrimonial assets were concerned equal division was not the ordinary consequence of its application; rather, it was extensive departure from equal division. He referred to three circumstances in which the categorisation of what would otherwise be non-matrimonial property could change over time:

• the value of the contribution diminishes over time
• the property becomes intermingled with matrimonial property, or
• it is used for the purchase of an asset such as the matrimonial home

In AR v AR (treatment of inherited wealth) [2011] EWHC 2717 (Fam), [2011] All ER (D) 241 (Oct) Moylan J highlighted that the sharing principle applies to both matrimonial and non-matrimonial property should the circumstances of the case require.

Passive growth

Consideration may be given to whether assets owned by a party prior to marriage or civil partnership have increased in value due to passive growth, ie without the input of action, expertise or skill on the part of that party.

In Rossi v Rossi Mostyn J said passive economic growth that arises post-separation in relation to matrimonial property will not qualify as non-matrimonial property.

References:

Rossi v Rossi [2006] EWHC 1482 (Fam), [2006] 3 FCR 271

In Jones v Jones Wilson LJ said (at para [46]):

References:

Jones v Jones [2011] EWCA Civ 41, [2011] 1 FCR 242

‘Passive growth is to be contrasted with growth as a result of contributions of one sort or another made during the marriage, ie of activity, irrespective of whether such is achieved with the assistance of a spring-board already in position. An analogous approach is apt in respect of assets inherited by, or given to, one spouse during the marriage.’

Also in Jones, Arden LJ highlighted the different approach that may be taken to different types of assets (at para [59]):

‘As to “passive growth”, I agree that in principle, in the circumstances of this case, an allowance should be made even though the asset is a private company the business of which has developed and expanded…during the marriage. It may be difficult to compute growth on such an asset, as opposed to an asset such as a painting or vintage car or portfolio of investments that has always been kept separate and distinct.’

Even where growth has not been passive, the court may consider growth during the marriage to be matrimonial, eg in Lilleyman v Lilleyman [2012] EWHC 821 (Ch), [2012] 2 FCR 171, where Briggs J said (at para [52]):

‘…where one spouse brings to the marriage an existing business, and develops it during the marriage, then its value at the beginning of the marriage may usefully be regarded as non-matrimonial, whereas its increase in value thereafter may be part of the fruits of the partnership , even if wholly derived from the activities of one of the spouses.’

In S v S (Financial orders: matrimonial property) [2014] EWHC 4732 (Fam), [2015] All ER (D) 247 (Mar) the court distinguished between passive growth and enhanced wealth due to the husband’s business activities.

Assets acquired during the marriage or civil partnership

The courts have considered situations where a party receives non-earned assets during the marriage, eg damages for personal injury, an inheritance or a lottery win.

In Wagstaff v Wagstaff [1992] 1 FCR 305, where the husband had suffered very serious injuries in a road accident rendering him paraplegic and confined to a wheelchair, the court considered whether the damages he had received in relation to the accident should be considered to be part of his resources. The Court of Appeal held that unless the immediate needs of the parties absorbed all the available assets, the criteria under MCA 1973, s 25 were not limited to needs. Although the wife’s needs had been met, there were wider considerations than the immediate future. The needs of the husband, both immediate and in the long term, had priority and no order should be made for the wife that would interfere with providing, within reason, for those needs.

In Mansfield v Mansfield [2011] EWCA Civ 1056, [2011] 3 FCR 167 the husband had received £500,000 as compensation for personal injuries prior to the marriage. He had spent some of the award on adapting his home for his disabilities. There were young twin children of the marriage. At first instance the wife was awarded a lump sum of £285,000 to purchase a property for herself and the children, and, in default of payment of the lump sum, the husband’s adapted property was to be sold by and the wife to receive a lump sum from the proceeds of sale. The Court of Appeal held that the district judge had been wrong to reject the husband’s claim for a Mesher order in respect of the new property to be purchased by the wife as that would be a fair solution. The court considered that a personal injury claim was not excluded from the division between the parties.

In S v AG (financial remedy: lottery prize) [2011] EWHC 2637 (Fam), [2011] 3 FCR 523 Mostyn J considered the impact of the wife’s £500,000 lottery win. The parties had otherwise had extremely limited means. Mostyn J found that the lottery prize was non-matrimonial as the wife had acquired the ticket without the husband’s knowledge and it had been purchased from her own earnings, but commented that if the parties had been aware that either of them played the National Lottery, any winnings may be treated as the fruits of a joint venture and the asset would be matrimonial property.

Assets acquired after separation

Post-separation assets may be relevant not only to any division of capital but also to periodical payments including capitalised orders. The appropriate date of valuation may also be of significance.

General approach

A bonus earned post-separation was classed as non-matrimonial in Rossi and on that basis excluded from the matrimonial pot. Mostyn J set out the following guidance, adopting a more formulaic approach:

References:

Rossi v Rossi [2006] EWHC 1482 (Fam), [2006] 3 FCR 271

• an asset acquired post-separation may be treated as non-matrimonial property if it can be said that that asset was created or acquired by that party by virtue of their own personal industry and not by the use of an asset created during the marriage
• where the asset is a bonus or other earned income it should not be classed as non-matrimonial unless it relates to a period at least 12 months after separation
• in deciding whether such assets should be shared the court should have regard to:
  • whether the applicant has proceeded diligently with their claim
  • whether the person was treated fairly by the person who has the benefit of the post-separation accrual during the period of separation, and
  • whether there is the prospect of further significant gains or earnings in the future and whether the applicant will be sharing in such future income or gains

The Rossi approach was not followed, however, in H v H [2007] EWHC 459 (Fam), [2008] 2 FCR 714, where Charles J considered how bonuses earned post-separation should be divided and provided the following guidance with greater reference to the principles that would be applied to all assets:

• the court must apply the statutory provisions
• the overall aim is to reach a fair result
• each party to a marriage is entitled to a fair share and the search is always as to the requirements of fairness
• there is no gender discrimination
• the yardstick of equality is to be applied as an aid and not a rule
• fairness has a broad horizon and inherent flexibility, and
• in identifying the rationale for the award in Miller; McFarlane and the House of Lords was not settling down rigid rules or formulae but identifying the principles to guide the court’s approach

In B v B, [2013] EWHC 1232 (Fam), [2013] All ER (D) 237 (Jun) Coleridge J highlighted the issue of date of valuation and that for an asset to be excluded simply because it comes into existence after separation is ‘far too simplistic’ where the efforts on the part of the party who has generated the post-separation assets were a ‘seamless continuum of similar pre-separation activity’.

In Cooper-Hohn v Hohn, [2014] EWHC 4122 (Fam), [2014] All ER (D) 166 (Dec) Roberts J had regard to the ‘genesis’ of the assets where the husband had argued that his ‘personal industry’ post-separation had generated the increased value. In allocating the wife a share of the assets that fell outside the marital assets Roberts J indicated that her entitlement was not triggered by her ‘needs’ but rather that the assets had originated from matrimonial assets and that was a factor of ‘considerable significance’.

In JB v MB, [2015] EWHC 1846 (Fam), [2015] All ER (D) 170 (Jul) the court considered that it was established law that assets that had been in place at the point of separation remained matrimonial property but the increase in value achieved in the period of separation might be unequally divided. Passive growth would not be shared other than equally, and there would be cases where on the facts even active growth would be equally shared. On the other hand, there would be cases where the post-separation accrual related to a truly new venture which had no connections to the marital partnership or to the assets of the partnership. In such a case the post-separation accrual should be designated as non-matrimonial property and save in a very rare case should not be shared (see para [38]).

Bonuses

The significance of post-separation bonuses is two-fold, ie whether a bonus payment:

• may be treated as non-matrimonial, particularly after a long separation, and/or
• should be included in the quantification of future periodical payments

Uncertainty is often an issue: the recipient of a bonus may argue that past bonus levels are not indicative of those of the future.

In Rossi Mostyn J approached the issue with some rigidity, suggesting that a post-separation bonus should not be classified as non-matrimonial unless it related to a period at least 12 months after separation. In H v H [2007] EWHC 459 (Fam), [2008] 2 FCR 714 Charles J took a contrasting view that a flexible rather than formulaic approach was needed and said the date for defining matrimonial property is the date when ‘mutual support ends’; a similar approach was taken in S v S [2008] EWHC 519 (Fam), [2008] 3 FCR 533. A cut-off approach has been adopted in some cases, however, eg:

References:

Rossi v Rossi [2006] EWHC 1482 (Fam), [2006] 3 FCR 271

H v H [2007] EWHC 459 (Fam), [2008] 2 FCR 714

• in Charman a bonus received 14 months after separation was treated as non-matrimonial

References:

Charman v Charman [2007] EWCA Civ 503, [2007] 2 FCR 271

• In H v H (financial provision) [2009] EWHC 494 (Fam) the assets were shared equally after a seven-year marriage save for the husband’s bonuses earned during separation

The court may also award a percentage share of future bonuses and, as in H v W [2013] EWHC 4105 (Fam), [2013] All ER (D) 249 (Dec), the payee’s share of future bonuses may be capped. In H v W King J applied the following principles:

References:

B v B [2014] EWHC 4545 (Fam), [2014] All ER (D) 25 (Nov)

R v R (financial remedies: needs and practicalities) [2011] EWHC 3093 (Fam)

SS v NS [2014] EWHC 4183 (Fam), [2015] All ER (D) 70 (Jan)

• where the family income is routinely made up of salary and bonus, and the bonus represents a significant proportion of the total, provision may be made for part of the payee’s maintenance to be paid from the bonus – such payment, given the intrinsic uncertainty of bonuses, can only be expressed in percentage terms, and
• the proper approach is:
  • to calculate a total figure for maintenance that covers ordinary expenditure, together with such sums as will provide for additional, discretionary, items that will vary from year to year and are not reflected in the payee’s annual budget, and
  • having carried out that exercise, the court will then make a monthly order to be paid for from the payer’s salary, at whatever rate it considers to be fair, with the balance to be expressed as a percentage of the net bonus up to a stated maximum each year

Practical considerations

• if a party is considering arguing that there are non-matrimonial assets that should be treated differently in the distribution of the parties’ assets, ensure that brief details are clearly set out in any event to ensure that all options are kept open
• if appropriate, a party advancing a contribution or non-matrimonial assets argument may wish to ask the court for permission to file a narrative statement.

The above is for guidance only and does not constitute legal advice. If you wish to discuss matters further the please contact MannBenham Advocates.