CPD  

How can asset management during marriage influence a divorce settlement?

  • Explain the difference between matrimonial and non-matrimonial assets
  • Identify the starting point for dividing matrimonial assets in a divorce
  • Describe how non-matrimonial property can become 'matrimonialised'
CPD
Approx.30min
How can asset management during marriage influence a divorce settlement?
 Pexels/Cottonbro

A High Court decision handed down earlier this year has highlighted that how parties manage or use an asset during their marriage can influence whether or not it is shared between them in the event of divorce. 

The case of WX v HX [2021] EWHC 241 concerned a wealthy couple divorcing after 33 years of marriage.

The husband was a successful banker who had generated substantial wealth during the marriage. The wife was a homemaker who was independently wealthy as a result of gifts and inheritances from her family. 

At the time of the divorce, the total assets available to the parties were in the region of £55m, of which £14m was the wife’s family wealth.

The balance largely represented the product of the husband’s endeavours during the marriage; a further $50m (£37m) generated by the husband had been transferred into an offshore trust for the benefit of the parties’ children. 

During the marriage, the parties used the husband’s income to meet the family’s “increasingly opulent” standard of living and to purchase their homes and other assets.

The wife’s independent wealth was held separately, although she used the income it generated towards her outgoings; the capital remained largely untouched. 

The husband argued that all of the assets should be shared equally, meaning that each would leave the marriage with around £27.5m.

The wife argued that she should retain her family assets and the remaining assets should be shared equally, meaning she would exit the marriage with £34.5m, while the husband would be left with £20.5m.

The wife largely succeeded; an outcome the husband considered wholly unfair.

The outcome reflects that the law differentiates between two classes of assets: 

  • “Matrimonial assets”, which derive from the parties’ endeavours during the marriage, such as income they have earned or the value of a business they have developed. 
  • “Non-matrimonial assets”, which derive from a source outside the marriage, including assets received by gift or inheritance, assets held by one party prior to the marriage, and income earned following separation. 

The starting point on divorce is that matrimonial assets are shared equally, whereas non-matrimonial assets are retained by the spouse who brought them to the marriage.

This reflects the perspective that fruits of the marital partnership belong to both parties, but that a party has no entitlement to share in assets belonging to their spouse, to which they have not contributed.

In the words of Mr Justice Mostyn in JL v SL (No 2) (Appeal: Non-Matrimonial Property) [2015] EWHC 360 (Fam), “a claim to share non-matrimonial property... would have no moral or principled foundation”. 

These starting points may be departed from; in particular, a court may 'invade' a party’s non-matrimonial assets to meet the needs of the other party or any children, or to meet the terms of a nuptial agreement.

Further – and of particular relevance in this case – non-matrimonial property can become 'matrimonialised' over the course of a marriage through being mingled with matrimonial resources.

Matrimonialised assets should usually be shared, to some extent at least, with the other party. 

In this case it was clear that the funds generated by the husband’s endeavours during the marriage were matrimonial and should be shared equally.

The debate focused on the other assets: the wife’s family assets and the assets the husband had prior to the marriage, which he contended were worth $10m (he was originally from the US).