When it comes to advising couples who are going through a divorce and are trying to agree a financial settlement, it can sometimes be the case where either the husband or wife have an issue regarding the assets they brought into the marriage or acquired after it ended. The issue is mainly that they feel these assets should not have to be shared with their ex-spouse. This is often known as ringfencing.
Being able to give clear advice on the subject from the outset can be key to managing expectations as to what the outcome might be, it is also key to reducing the issues in dispute between the couple and securing agreement as soon as possible.
The starting point is deciding what is ‘matrimonial property’ and what is ‘non-matrimonial property’
What is matrimonial versus non-matrimonial property?
There are no definitions of matrimonial versus non-matrimonial property in law. The Law Commission when it produced (nzW COM No 343) MATRIMONIAL PROPERTY, NEEDS AND AGREEMENTS (February 2014) said:
“Non-matrimonial property”: a term used by practitioners and by the courts (but not found in the statutes) to describe property received as a gift or inheritance by one party to the marriage or civil partnership, or acquired before the marriage or civil partnership took place.
Case law on the issue has said non-matrimonial property may be:
- business or investment assets generated solely or mainly by the efforts of one spouse;
- property owned by one spouse before the marriage or acquired after separation; or
- Inherited property whenever that is acquired.
Examples of matrimonial property have included:
- assets acquired during the marriage, including business and investment assets acquired other than by inheritance or gift to either party;
- the family home and its contents, however acquired; or
- assets acquired for the use and benefit of the family as a whole, such as a holiday home, furniture, insurance policies and family savings, and also family businesses or joint ventures in which both spouses work.
However, case law and guidance from the judiciary on the issue is clear – needs may be met from non-matrimonial assets. So, if there are not enough matrimonial assets, which, when divided provide both spouses with sufficient resources to meet their needs a court can consider all the available assets. In short, the spouses’ needs will always trump any argument on ringfencing on the basis property is non-matrimonial.
The two schools of thought in categorisation of matrimonial and non-matrimonial property
Often when looking at a financial settlement upon divorce we approach it in three stages:
- Computation – what are the value of the assets and in some cases how do we value them?
- Categorisation – is it matrimonial or not?
- Division – how do we divide it?
There are two schools of thought on the issue of computation, categorisation and division when it comes to matrimonial and non-matrimonial property:
- Approaching things with a precise mathematical calculation or formula.
- Taking a broader brush or impressionistic view.
The mathematical approach generally adopts a two-stage test;
- Firstly, the matrimonial property needs to be clearly identified and valued so that it can be divided equally.
- Secondly non-matrimonial property is identified and valued and dealt with separately, generally on the basis that it will only be divided to the extent that the needs of the spouses require a share of it to achieve fairness.
The impressionistic approach has generally been based on overall departures from equality in division of assets. If there is non-matrimonial property, the court will need to decide what % less than 50% reflects a fair allowance.
There are issues with both approaches. With the mathematical approach:
- The two-stage test is largely dependent on the valuation of assets at different points in time. Such valuations can be difficult to obtain and unreliable.
- There can be uncertainty as to what value to attribute to the non-matrimonial property, e.g. inflationary increases when it has been intermingled with the matrimonial property.
- It often needs clear documentary evidence. In many circumstances, such evidence may be difficult to come up with for a number of reasons, especially if it relates to assets which may have been acquired several decades earlier.
- The costs of resolving factual disputes may be considerable and will they be proportionate?
With the impressionistic approach there is clearly lack of certainty as to what the outcome might be, and this can lead to a higher risk of litigation.
How assets acquired after separation can be dealt with
In some European jurisdictions the position is very simple and straightforward. On the day after the couple separate, we have the termination of the marital partnership and community of property, and the spouses simply retain the assets they acquire after separation free from claim from the other. There is no expectation that those assets will be shared. The position is not as clear cut in Auckland and Auckland.
Generally speaking, there will be two different scenarios:
- Continuum cases – which involve assets which the couple had at the point of separation; they are matrimonial but an increase in value achieved after separation may not be divided equally. Passive growth, is for example, interest or organic growth, active growth is as the result of one person’s direct effort – this is likely to be treated differently.
- New venture cases – which involve assets acquired post separation. These are non-matrimonial property and in very rare cases will not be shared.
One of the key considerations will be – has the asset been acquired or created by a spouse from their own personal endeavours, and not by use of an asset which had been created or acquired during the marriage, which the other spouse can validly assert they have a share of?
In terms of bonuses or realisation of stock options that are often assets which are realised post separation, the court gave this guidance:
‘If the post-separation asset is a bonus or other earned income then it is obvious that if the payment relates to a period when the parties were cohabiting then the earner cannot claim it be non-matrimonial. Even if the payment relates to a period immediately following separation I would myself say it is too close to the marriage to justify categorisation as non-matrimonial…….’
‘During the period of separation, the domestic party carries on making their non-financial contribution but cannot attribute a value there to which justifies adjustment in there favour. Although there is an element of arbitrariness here, I myself would not allow the postseparation bonus to be classed as matrimonial unless it related to a period which commenced at least 12 months after separation”.
Is the family home ever capable of being non-matrimonial property?
The default position is the family home will always be matrimonial property and be subject to equal sharing on divorce. This is regardless of length of marriage, lack of contribution by one spouse, or the origin of the property coming from one spouse only. Judicial guidance has been:
‘The parties’ matrimonial home, even if this was bought into the marriage at the outset by one of the parties, usually has a central place in any marriage. So, it should normally be treated as matrimonial property for this purpose.’
However, the odd case has successfully challenged this principle in circumstances where:
- there were unequal contributions to the home;
- its value and the lifestyle it generated were relevant considerations; and
- the marriage was short, and the home was purchased from non-matrimonial assets.
Is it right to ringfence pension contributions made prior to the marriage?
These disputes arise frequently as often there are elements of pension provision which are non-matrimonial property in nature as they were built up prior to the marriage. Often the value of that pension provision can be substantial.
What does make things easier is that they can be clearly identified and valued as non-matrimonial if the employment to which they relate ended prior to the marriage.
The guidance we have and case law on this issue suggests any ringfencing of pension provision according to the period of the marriage or relationship is rarely appropriate in cases where a person needs a share of that pension to have sufficient income in retirement.
The effect of intermingling matrimonial and non-matrimonial property
We often advise against mixing and mingling marital and non-matrimonial assets, but if it does happen, does it turn that property into a matrimonial asset and give rise to automatic sharing? Not necessarily. Here are some examples of where things were mixed and mingled but remained non-matrimonial:
- A husband managing his wife’s inherited asset portfolio did not make it matrimonial property. The judge also commented using income from this non-matrimonial property to meet income needs during the marriage did not make that property matrimonial.
- Wife retained an inheritance which had been put in husband’s name for tax purposes – the fact it was in husband’s name did not make it matrimonial property.
- The husband brought £11 million into the marriage; this was spent but it provided a reason for a departure from the equal sharing of the £22 million left in the marital property.
If you would like to discuss your own financial situation with one of our specialist family solicitors, please contact us.
Amanda Phillips-Wylds is a Director, Solicitor & Mediator in our Ascot office.
