The Court of Appeal case of Standish v Standish was handed down on 23 May 2024.
It provided the second highest tier of English court the opportunity to review and refine the law in relation to non-matrimonial property and its treatment on divorce.
The case concerned a 71-year-old Australian husband and his 56 year-old wife, who had separated in 2020 after 15 years of marriage. They were an extremely wealthy couple, and between them owned assets worth £132M.
Inevitably, with assets of that size comes a significant tax burden that the couple were looking to mitigate, and it was with a view to doing that, that the husband in 2017 transferred to the wife shares in the husband's business, Ardenside Angus, worth £77M. This was done as part of a wider arrangement that the husband's accountants recommended to mitigate his overall tax liability. The transfer to his wife was undertaken for this reason alone.
As it happened, the tax arrangement did not progress from there. The wife remained the legal owner of the shares right up until their separation three years hence, however. The vast majority of the wealth in the family derived from the husband and his family.
Had he still retained the shareholding transferred to his wife in his sole name, the husband would have easily been able to advance the argument that those assets were non-matrimonial property, as he brought them to the marriage and had not mingled them with the wife at all. Their transfer to the wife in 2017, on the face of it, disarmed him of that argument and left him facing an uphill struggle to establish that the shares should be ringfenced and not shared.
Non-matrimonial property
In English law, any non-matrimonial property can have a huge bearing on the court's approach to asset division on divorce. Non-matrimonial property comprises assets brought to the marriage by either spouse or inherited by them at any point during either of their lives. The principle of non-matrimonial property derives from the case of White v White [2000] UKHL 54 which in addition to establishing the distinction between matrimonial and non-matrimonial property, also laid the groundwork to the principle of Mingling, which derived from the case of N v F [2011] Fam Law 686.
Mingling (or mixing) non-matrimonial property with the other spouse can erode the effectiveness of the non-matrimonial property argument. Take, for example, a spouse who brings to the marriage a large sum of money but uses that to purchase a joint property. Whilst at the outset of the marriage that money was non-matrimonial property, its application towards the purchase of an asset in the joint names of both spouses changes the character of that asset from non-matrimonial to matrimonial. In effect, it "matrimonialises" the non-matrimonial property.
Matrimonial property is divided equally between a couple and divorce as a first step. Non-matrimonial property is generally put to one side and shared only in the event that its sharing is required to meet the other party's reasonable needs.
The effect of mingling can therefore be hugely significant. It can change the question as to whether wealth brought to the marriage or inherited is kept to one side or is susceptible to claims by the other spouse.
In the years following N v F, the courts have sought to refine and better define the appropriate approach to take to mingling. The concept is not a binary one and the nature of the way families live their lives means that the question as to whether an asset has been mingled can be a matter of degree and "feeling" rather than the application of defined variables. With that comes the potential for dispute. The treatment of inheritance on divorce, in particular, can often be one of the core focal points that leads to much disagreement between a divorce couple and litigation.
Mingling in Standish
In Standish, the court was faced with such a situation in respect of the shares transferred to the wife. She sought to argue that the transfer of the shares to her actually made the shares her non-matrimonial property, something that the courts were very quick to refute. The husband's argument was a better one however: that because the transfer of his shares to the wife was only undertaken at the recommendation of his accountant, the mingling of those assets should be disregarded.
On reviewing the transfer, the court took the view that:
- The transfer to the wife's sole name did not necessarily mingle the asset.
- If the assets is mingled, it is not necessarily the case that it will be shared equally.
The Standish case serves to assist many wealthy divorcees who came to the marriage with significant wealth or might have inherited it over the years. It could be argued that the case establishes a third category of asset in addition to matrimonial and non-matrimonial property, that being quasi-mingled property, the approach to which should operate on a sliding scale depending on the circumstances of the case.
In the Standish case, the court determined that of the shares transferred to the wife, the value should be attributed as to 75% non-matrimonial (i.e. ringfenced to the husband) and 25% matrimonial (i.e. to be shared). It resulted in an overall split of that asset as 87.5% to the husband and 12.5% to the wife. This resulted in an overall 66/34 division of the entirety of the assets.
This additional clarification from the court of appeal is deeply welcomed. It should encourage many clients going through their divorce where mingling might have been a factor. Whilst the best advice to give to protect non-matrimonial assets to claims on divorce would be not to mingle it, the Standish case should provide some solace to professional advisors who might have encouraged their clients to share non-matrimonial property whilst the couple were happily married in order to mitigate tax.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.