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In or Out? Splitting the Pot on Divorce

05.04.2012 Family & Matrimonial

David  Ruck

David Ruck Partner

Over the last decade, one of the major developments in Family Law has been the increasing willingness of the courts, on divorce, to draw a distinction between matrimonial and non-matrimonial assets.

In broad terms, non-matrimonial assets (which are often called separate assets) are assets which have been brought into the marriage, and therefore owned by one of the parties prior to the marriage, or are received by that party as an inheritance or a gift after the marriage, so are treated as coming from a source entirely outside the marriage.

Matrimonial assets (which are often termed joint assets) are all other assets in a marriage and cover everything that is built up during the course of the marriage by joint endeavour. There is no differentiation between the wage earner and the homemaker in this context, and anything built up by the stronger economic party will almost certainly be treated as a matrimonial or joint asset in these circumstances.

The general rule is that matrimonial assets will be divided between the parties equally on divorce, but non-matrimonial (separate) assets are more frequently treated as being of a different nature, and these assets may either stay with the party who earned or received them independent of the marriage, or they may be divided in unequal shares.

Despite this apparent discrimination between different types of matrimonial assets, the fact remains that in any case the need of either party, usually for adequate housing, will trump any argument as to the precise nature of the matrimonial assets. Therefore, if a party only received 50% of the joint assets, and that would be inadequate to provide him or her with adequate housing, then it is perfectly possible for the court to pass over non-matrimonial assets to meet that need. The converse is also true, namely that if a party’s reasonable needs are clearly met from an equal share in the matrimonial assets, then it is significantly less likely that they will receive a share in the non-matrimonial (separate) assets.

This analysis of the nature of matrimonial and non-matrimonial assets has resulted in an increasing number of prenuptial contracts which seek to define which assets are matrimonial and which are non-matrimonial and how they will be divided on divorce.

Furthermore, the recent decision in Radmacher, which appears to indicate that a prenuptial contract will be treated as being binding unless there are persuasive reasons for not doing so, means that there is an increased willingness on the part of marrying couples to enter into contracts of this type, particularly if one or other of them believes this may provide an additional degree of protection to their non-matrimonial assets.

Perhaps the importance of the distinction between separate and matrimonial assets is best illustrated by the consideration of the recent case of AR v AR decided in the High Court in August 2011. In that case the total family wealth was between £21 and £24 million, of which all but approximately £1 million was in the husband’s name, and it was clear that the vast bulk of this wealth arose from inheritance or gifts to the husband from his family. These were described as ‘separate’ or ‘non-matrimonial assets’, as they were clearly not the product of the parties’ joint endeavours during the course of the marriage.

The court then had to decide how to divide the family assets, taking into account the nature of this wealth and the weight to be attached to this as a factor in deciding that division.

The Judge decided that need was the magnetic factor in the case, and that the ‘sharing principle’ did not justify any additional or enhanced award above that level of need, albeit generously interpreted.

In this case, the wife received a total award of £3.3 million, which was deemed to be fair and to represent a just application for the principle of need. Clearly this is a very significantly reduced award from one where in the past equality of division has been a starting point for any court.

Therefore, on the basis that separate and matrimonial assets are becoming increasingly important on divorce, entering a prenuptial contract on marriage may well have a significant benefit to the party bringing separate or inherited assets into the marriage, or being likely to receive them by way of inheritance or gift during the course of the marriage.

It can also have the benefit of defining precisely what those separate assets are, given that a contract of this sort will usually involve a precise listing of the non-matrimonial assets at the time of the marriage.

Article authors:

David Ruck