In the recent case of HX v WX v NX and LX [2021] EWFC 14, Mrs Justice Roberts considered whether the husband’s management of the wife’s non-matrimonial assets was sufficient to “matrimonialise” those funds so that they should be considered part of the ‘pot’ available for division by the court. Sarah Harvey reviews the decision and what it means for divorcing couples and practitioners.
Background
The parties married in 1985, and this was, therefore, a long marriage of over 30 years. The parties have three adult children, two of whom were parties to the case (NX and LX) in their capacity as beneficiaries of family trusts.
The wife was the homemaker, and the husband was the breadwinner. Prior to the marriage, the wife had grown up in a financially privileged environment. She was the beneficiary of two trusts, which over the years had produced an independent income for her of up to approximately £235,000 net per year. All the parties accepted that the capital in these trusts (approximately £9m net) had been kept in the wife’s name during the marriage.
The husband was a banker when the parties met. The husband’s financial acumen was recognised by all, including the wife. With professional input, he put in place several trust arrangements for the benefit of the family to minimise their tax exposure. Not only did he manage the family’s money, he also managed the wife’s funds on her behalf.
One of the trusts put in place by the husband, of which he was the settlor and life tenant, held the family’s Oxfordshire property, which had been valued at approximately £10.3m (net of costs). Due to the importance of this property to the family and the fact that it was seen as integral to their family life, it was effectively treated as a family home. The husband was the life tenant of this trust, and the beneficiaries were the parties’ children and grandchildren.
The key issues for Mrs Justice Roberts were:
- The value and treatment of the Oxfordshire property (held on trust);
- The extent of pre-marital and non-matrimonial assets; and
- Whether the wife’s non-matrimonial assets had been “matrimonialised” as a result of the husband’s actions.
1. Oxfordshire property
Mrs Justice Roberts had to consider whether the Oxfordshire property should be attributed its full value of £10.3m or whether the fact that it was held in trust, thereby effectively limiting its utility for the husband, meant that a lower value should be applied. An expert in the case had suggested that the husband’s life interest could be valued at around £1.45m. However, the figure was heavily caveated.
The husband’s case in general terms was that he would not have the same financial flexibility in respect of that property as would be afforded to the wife through her unfettered ownership of their London property, which was owned by the parties outright.
Mrs Justice Roberts concluded that despite this potential limitation, the property should be attributed its full value. In her view, the trust had been set up in a manner that offered the husband, with the children’s cooperation, the opportunity to enjoy the occupation of the property without the need to contemplate a sale.
2. Non-matrimonial property
Each of the parties entered into the marriage with their own assets. Virtually all the husband’s premarital assets were applied for the benefit of the family during the marriage. In contrast, it was accepted by all that the wife’s inherited wealth had always been kept separate, outside of the family trust arrangements; the underlying capital had never been mixed or blended with family resources. It was accepted that it had been ring-fenced.
The husband submitted that it was unfair of the wife to ask for half of everything generated during the marriage without any acknowledgement or recognition that she was already a very wealthy woman. Further, he argued that she had only been able to conserve those funds because of the financial arrangements he had put in place and his agreement to fund everything, in part through the effective donation of his own non-matrimonial assets.
3. The husband’s case that the wife’s non-matrimonial assets had been “matrimonialised”
The husband also submitted that this unfairness was magnified when seen in the context of the significant contribution he had made managing the wife’s independent resources. At the time of the marriage, the wife’s wealth was tied up in a privately-owned family trust company whose shareholders were members of the wife’s family. The husband advised the wife that she should “liberate” her funds from this arrangement, diversify and reinvest. He navigated this “liberation” on her behalf, an undertaking he described as a huge commitment in both time and effort over nearly four years, largely for no financial reward. He subsequently managed the wife’s portfolio over several years.
The husband’s arguments, therefore, were that his undisputed (and on his case, unmatched) contribution over many years, producing greater flexibility for the wife and increased value, blurred what otherwise might have been a bright line between matrimonial and non-matrimonial assets.
Mrs Justice Roberts concluded that the wife’s inherited assets remained wholly separate from matrimonial assets at all times. There was no suggestion by the husband that following the “liberation” of funds from the previous structure, they should be reinvested in their joint names. Further, the husband accepted during cross-examination that there had never been an understanding that the funds should be shared or that he would acquire an interest in them as a result of his management role. The wife’s genuine intention was that the assets should remain available to provide for future generations.
Mrs Justice Roberts concluded that none of the factors identified by the husband in respect of his contribution operated to change the underlying analysis in relation to the fundamental nature of the wife’s separate property. The wife’s non-matrimonial property was preserved as her own property; it had not acquired a matrimonial character, either in whole or part, due to the husband’s activities. The wife’s trust assets would remain her separate property and would not be shared by the court as they were non-matrimonial in nature.
Partner Adrian Clossick says:
“This case serves as a useful reminder to practitioners of how the court will apply the concept of non-matrimonial property within a sharing claim. A party seeking to demonstrate that non-matrimonial funds have been “matrimonialised” will need to evidence their claim thoroughly. Careful consideration of whether it can be said that there is an acceptance that the ring-fenced funds have been matrimonialised as a result of that party’s endeavours will be required.”
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