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Separating out non-matrimonial property – JL v SL (No 2) [2014] EWHC 360 (Fam)

Sep 29, 2018, 21:52 PM
family law, non-matrimonial property, divorce, division of assets, matrimonial property, financial orders
Mostyn J’s latest case provides a useful summary and clarification on the method to divide the assets on divorce to reflect any non-matrimonial property. However, it disappointingly fails to deal with how to determine which assets are matrimonial property and which are non-matrimonial in the first place.
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Introduction

Mostyn J’s latest case provides a useful summary and clarification on the method to divide the assets on divorce to reflect any non-matrimonial property. However, it disappointingly fails to deal with how to determine which assets are matrimonial property and which are non-matrimonial in the first place.

Background

In  JL v SL (No 1) [2014] EWHC 3658 (Fam) Mostyn J heard an appeal from District Judge Reid in the PRFD (as it then was).
The wife appealed the decision on the basis that the judge had erred in three ways:
  1. not properly reflecting the non-matrimonial origin of inherited funds in the division of assets; 
  2. providing for a step down in spousal maintenance to the wife when the children completed university; and 
  3. providing no index linking for the spousal maintenance. 

Appeal decision

Mostyn J allowed the appeal on the first two grounds of appeal, but rejected the third ground, on the basis that the decision was “squarely within her remit of her decision”.

In relation to the first ground, the wife had received £465,000 in two tranches from her mother, as inheritance from her late father. She transferred £190,000 of this into her husband’s name. In her evidence she stated that the reason for this was to give the husband some funds as their other assets were ‘tied up’. Mostyn J held that there should have been an unequal division of the pool of assets to reflect his inheritance. This necessarily impacted on ground two, as the wife would have more funds to invest, and therefore a lower need for spousal maintenance.

Instead of exercising his discretion as the appellate court, Mostyn J ordered a retrial before him because there had been two changes of circumstances since the first instance hearing which could not be ignored. These were:
  1. The husband’s company had been taken over by a venture capital firm, and he had received £586,334 net for the sale of his shares; and 
  2. The husband had been made redundant, and received a £100,000 redundancy payment.

Retrial decision

Mostyn J held that both the wife’s inheritance of £465,000 and the husband’s net share sale proceeds of £586,334 were non-matrimonial assets.

In respect of the inheritance, the fact that there had been some mingling did not make the non-matrimonial source of the funds irrelevant.

In terms of the share sale proceeds, they were made over 20 months after the separation, from a job which the husband took 11 months after separation and in a completely different sector to the job in which he had worked during the marriage.

As such, the matrimonial assets (ie not the inheritance or the shares) were divided equally. The judge then assessed the paties’ needs, and found that no adjustments needed to be made, and therefore the inherited assets and assets acquired post-separation were not divided at all. Further, Mostyn J held that no spousal maintenance was required as, using a Duxbury calculation, the wife was easily able to meet her needs from the income that could be generated from investing her capital.

In order to reach this finding, Mostyn J looked at the case law on non-matrimonial property and post-separation accrual.

Whether property is matrimonial or non-matrimonial

Mostyn J stated that a key component of fairness is drawing the distinction between matrimonial and non-matrimonial property. In determining how to deal with matrimonial and non-matrimonial assets, Mostyn J identified two schools of thought:
  1. Adjust the percentage split from 50%; or
  2. Identify the value of the non-matrimonial property and exclude that. The remaining matrimonial property is then divided 50:50, in accordance with the sharing principle.
Mostyn J favoured the second approach. He held that the first approach requires a judge to use their intuition, which makes it a ‘lawless science’.

Instead, Mostyn J stated that judges should always try to identify the matrimonial and non-matrimonial property, so that it is possible to calculate an equal split of the matrimonial property (usually), with the non-matrimonial property not being shared equally (usually), so long as needs are met.

This is somewhat of an over-simplification, as it is not always black and white whether an asset is matrimonial or non-matrimonial. For example, a non-matrimonial asset can change into a matrimonial asset during the marriage, if it has been treated by the couple as part of the economic life of the marriage. By way of example, the asset could be mingled, lived in by the family, enjoyed by the family, etc.

In assessing this, Mostyn J looked back at this earlier case of N v F (Financial Orders: Pre-Acquired Wealth) [2011] EWHC 586 (Fam), [2011] 2 FLR 533. In this he set out that the process should be:
  1. Whether the existence of pre-marital property should be taken into account, which will depend on issues such as the duration of the marriage and the mingling of assets.
  2. If a reflection of the pre-marital property is fair and just, how much should be excluded?
  3. The remaining matrimonial property should then normally be divided equally.
Mostyn J set out that despite this approach, mingling may nonetheless lead to an unequal division of the matrimonial property. For example, although the matrimonial home will normally be deemed matrimonial, an unequal division could be justified if the contributions to the purchase price had been unequal.

How property accrued post-separation is treated

In a similar approach to his treatment of non-matrimonial property, Mostyn J criticised the practice of adjusting the overall percentage on an intuitive basis to reflect any assets acquired post-separation. Rather, the court should identify the matrimonial property, and then go on to determine how post-separation assets should be split.

Mostyn J again referred back to one of his earlier cases, Rossi v Rossi [2006] EWHC 1482 (Fam), [2007] 1 FLR 790, to set out the principles which should be followed and paragraphs 24.1 to 24.7 of that judgment should be read in that regard. Broadly speaking, Mostyn J set out that assets which came about after separation due to the personal industry of one of the parties are non-matrimonial. Then, as with pre-acquired assets, the matrimonial property should be divided equally with the non-matrimonial property not being shared (subject to needs, of course). In deciding whether the post-separation accrual should be shared and, if so in what proportions, considerations will include whether the applicant has proceeded diligently with his/her claim and whether the personal making the post-separation accrual has treated the other party fairly during the proceedings.

Mostyn J also identified two different kinds of post-separation assets, the terminology having been created by Roberts J in Cooper-Hohn v Hohn [2014] EWHC 4122 (Fam), [2015] 1 FLR 745:
  1. Continuum cases – assets owned at the point of separation are matrimonial, but any growth in value post-separation can be divided unequally (except for passive growth); and
  2. New venture cases – assets acquired post-separation are treated as non-matrimonial assets (and so divided unequally). 
Although Mostyn J endorsed the Rossi principles in this case, they must be treated with some caution, as he merely pays lip service to the criticisms enunciated by Charles J in H v H [2007] EWHC 459 (Fam), [2007] 2 FLR 548 rather than dealing with Charles J’s critique.

Conclusion

Although Mostyn J provides a useful summary of his views on how to deal with pre-acquired, inherited and post-separation assets, he has been rather selective in the cases that he has considered, mainly drawing on his own prior cases.

Even if Mostyn J’s approach to the treatment of these assets is considered correct, which it broadly seems to be, he fails to provide much reasoning or analysis as to why he classifies the assets on the facts of this particular case in the way that he does. He provides some reasoning in relation to the share sale, but he provides no explanation as to why the inherited sum of £465,000 is treated as wholly non-matrimonial. He provides no reasoning as to why the mingling of these funds did not make them subject to sharing (even in unequal shares). As such, rather unhelpfully, we have no guidance on the circumstances in which a mingled asset retains its non-matrimonial nature. As such, first instant judges may have to use their ‘intuition’ in this respect for a while longer.

The views expressed by contributing authors are not necessarily those of Family Law or Jordan Publishing and should not be considered as legal advice.
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