The Supreme Court has offered indispensable guidance on how substantial non-matrimonial wealth will be treated in ‘big money’ divorces.
Background:
The husband, now 72, was born in the UK and moved to Australia in his twenties. He had a very successful career in the financial services industry, rising to the top of UBS. In 2003, he relocated to Switzerland as required by his employment. By that time, he had amassed a considerable fortune, and he retired in October 2007. He had previously been married and fathered three children before divorcing in 2003.
His second wife, now 57, is Australian and was also previously married with three children before her divorce in 2004. There was a financial imbalance between the parties, with the husband’s estimated net worth being £57 million as of June 2004, and the wife owning a property with some funds in the bank.
The husband and wife began their relationship in 2003. She and her children joined him in Switzerland in 2004, and they were married in 2005. They had two children together, X and Y.
After the husband retired in 2007, the family returned to live in Australia on 1 July 2008. In 2009, the parties purchased a home in England and relocated, along with the wife’s three children and their two children, to live there in 2010. The property, the family matrimonial home, was purchased in the joint names of the parties. Substantial sums were spent on renovations, with all funds provided by the husband.
In 2017, the husband transferred an investment portfolio, valued at approximately £80 million at trial, from his sole name to the wife's sole name. This transfer was part of a tax planning scheme intended for the wife to place the assets into trusts for the benefit of their children, thereby saving inheritance tax. The wife, however, did not establish the trusts and continued to hold the assets in her name.
The marriage broke down in early 2020, and a decree nisi was pronounced on 30 September 2020. Both remained in England with the wife living in the matrimonial home.
The trial Judge initially ruled that most of these assets, although initially non-matrimonial property (NMP), became matrimonial property (MP) due to the transfer and should be shared, ordering a 60/40 split in the husband's favour. The Court of Appeal (CoA) subsequently decided that only 25% of the assets were MP subject to sharing, returning the bulk to the husband. The wife appealed to the Supreme Court.
Decision:
The Supreme Court has unanimously dismissed the wife’s appeal and upheld the decision of the CoA. The Court began by noting that Sections 23 and 24 of the Matrimonial Causes Act (MCA) 1973 give courts the power to make financial provision and property adjustment orders upon divorce. Section 25 grants wide discretion, requiring courts to consider "all the circumstances of the case", although the overall aim is to achieve a fair outcome. The Court clarified that NMPs are those properties typically brought into the marriage by one party (i.e., pre-marital property) or acquired during the marriage by external gift or inheritance, while MP are either those properties which constitute the "fruits of the marriage," reflecting the "marriage partnership," or are the "product of the parties' common endeavours". The legal title to the property is thus not determinative of whether it constitutes an MP or an NMP.
For the first time, the Supreme Court has definitively stated that the sharing principle applies only to MP and does not apply to NMP, although NMP can be considered under the "needs" and "compensation" principles.
While the starting point is for MP to be divided equally, departures can be justified. A transfer of an asset between spouses as part of a scheme designed to save tax, regardless of the period involved, will not normally indicate that the asset is being treated as shared, which then can justify a departure from the 50/50 principle. This depends on how the parties have been dealing with the asset and whether this shows that, over time, they have been treating the asset as being shared between them. This principle emphasises the conduct and intention of the parties throughout the marriage regarding that specific asset.
The transfer of the £80 million in 2017 was not seen as an act of matrimonialisation, one that converted the largely non-matrimonial wealth into shared marital property. The specific context (i.e., tax planning for children) and the lack of evidence that the parties treated the assets as being jointly shared over time meant that the husband retained his substantial portion of the original NMP.
Implications:
This landmark judgement brings much-needed clarity on several points, firmly establishing that the sharing principle applies only to MP. This means that assets acquired before the marriage or by inheritance and/or gift during the marriage (i.e., NMP) are generally not subject to equal sharing.
The Supreme Court formally endorsed the term "matrimonialisation" to describe the process by which NMP can transform into MP. Crucially, this ruling has clarified the test for matrimonialisation in that it is not simply about legal title or a one-off transfer. Matrimonialisation requires evidence that the parties, over time, treated the asset as being shared between them. This involves looking at their conduct, how the asset was used within the marriage, and the intent behind any dealings with it. The judgement clearly states that a transfer of assets between spouses for tax planning purposes will not normally lead to matrimonialisation.
For high-net-worth individuals, this case provides invaluable guidance on how substantial non-matrimonial wealth will be treated during a divorce. It suggests that, where needs are already met, the focus will shift sharply to the source and matrimonial nature of assets. While the 50/50 starting point for MP remains, the ability to clearly distinguish and protect NMP means that overall asset division might not be equal if one party brought significant wealth into the marriage and it was not subsequently matrimonialised.
