#Divorce & Pre Marital Wealth – Who is the “Ugly Beggar”?

By Paradigm Family Law

The Assessment of Pre Marital Wealth

As Family lawyers, we often have to deal with cases where there is “pre marital wealth”. But how should this be treated in divorce cases, particularly in the context of England’s status as the capital of divorce in a post-Brexit world. As the phrase goes, “Without a rich heart, wealth is an ugly beggar”.

So what evidence is required in these type of cases?

Recently, Roberts J. had to decide this in MCJ v MAJ (Financial Provision: Treatment of Non-Matrimonial Property) [2016] EWHC 1672 (Fam) (06 July 2016). Sometimes for the Judge (and the parties), there is little more than a snapshot of the position available. It is sometimes difficult to perform a forensic exercise (as envisaged by the Court of Appeal in Jones v Jones [2011] 1 FLR 1723 and by Mostyn J in N v F [2011] 2 FLR 533 and S v AG [2012] 1 FLR 651.)

A Rigorous Approach

However, in appropriate cases (which will be the vast majority), the Judge has to take a rigorous approach. As Roberts J in MCJ v MAJ concluded and endorsed at [55] the important criteria are:

(a) deciding whether the existence of pre marital property should be reflected in outcome at all, depending upon issues of the length of the marriage and what has been referred to in previous decisions as “mingling”;
(b) if so, the extent of the pre marital property to be excluded from the sharing principle; and, finally,
(c) the equal division of the remaining (marital) property subject only to the cross-check of fairness and need.

This approach was analysed recently by Mostyn J with his customary clarity in JL v SL (No 2) (Appeal: Non-Matrimonial Property) [2015] EWHC 360 (Fam), [2015] 2 FLR 1202, paras 17 to 27.

However, as Roberts J found in the case above, that there are cases where reliable accountancy evidence is simply not available so as to make it possible for a court to establish a reliable and historical benchmark in terms of crystallised value at a particular point in time and the case she decided in MCJ v MAJ was one of those cases.

In that case she found at [56] that:

“H’s accountant has done the best he can in terms of pointing to the existence of certain pre marital assets (which are not disputed). His methodology in relation to the assessment of value is in dispute in certain respects and, without having heard any oral evidence on this point from the accountants, I am not in a position to resolve the issue of quantifying precisely what the value of those assets was in 1998.”

Needs

In another case, Moylan J was confronted with a similar situation. In AR v AR [2012] 2 FLR 1, the wife was seeking a 30% share of the overall wealth and the husband was arguing for a Jones v Jones approach. Of assets in excess of ￡20 million, all but about ￡1 million had been inherited by, or gifted to, the husband. At para 81, Moylan J said this:

” … It is clear to me that the bulk of the wealth in this case is accurately described as non-matrimonial; in other words, it is not the product of the parties’ endeavours during the marriage … the former matrimonial home has been lived in and the family have clearly, in part, used the invested income generated from the husband’s inherited wealth. But nothing has happened to the bulk of the wealth which has changed it into matrimonial property or diminished the weight to be attached to it as a factor in this case. In my judgment, the principle which in this case best guides me in the exercise of my discretion under section 25 to the determination of a fair award is that of needs. I do not consider that the sharing principle justifies any additional or enhanced award as submitted by [counsel for the wife] …” (our emphasis)

Mingling

In S v AG [2012] 1 FLR 651, Mostyn J said,

“It will be a rare case where the sharing principle will lead to any distribution to the claimant of non-matrimonial property.”

And later,

“… sometimes one party brings in assets which become part of the economic life of a marriage …. utilised, converted, sustained and enjoyed during the contribution period. This is the concept of mingling … [although] … even if there has been much mingling, the original non-matrimonial source of the money often demands reflection in the award.”

Another High Court Judge, Bodey J accepted in S v S [2014] EWHC 4732 (Fam), cases in this sphere are notoriously fact-specific and are subject to the exercise of a wide judicial discretion. Where outcomes are expressed in straight percentage terms, the figure settled on by a judge will usually be influenced by a combination of:

(i) the ratio which the non-marital contribution of one party bears to the assets which are available for distribution at the end of a marriage, and

(ii) the assessment of a claimant’s needs as a fair proportion of those available assets.

“Passive” or “Active”?

Most recently, Holman J has considered these alternative approaches in Robertson v Robertson [2016] EWHC 613 (Fam). Having accepted that the methodology of Wilson LJ (as he then was) in Jones v Jones (above), the concept of “passive” and correlative “active” growth has frequently been applied and adopted in subsequent cases at first instance, his Lordship said this at para 34:

“It needs to be stressed, however, that the methodology is a tool and not a rule. The overarching duty upon the court is to exercise its statutory duty under section 25 of the Matrimonial Causes Act 1973 (as amended) and to exercise the wide discretionary powers conferred upon, and entrusted to, it by Parliament in a way which is principled and above all fair to both parties on the facts and in the circumstances of the particular case.”

In MCJ v MAJ Roberts J was satisfied that:

“H had substantial wealth tied up in his portfolio which was an asset external to this marriage. It was a portfolio which had been built up over many years during his marriage to his first wife. It was wealth to which W made no contribution, albeit that H accepts that from time to time he was obliged to use rental income generated by the commercial property portfolio and the security in the land bank to prop up the nursing homes business. Can it be said that such financial cross-fertilisation provides a foundation for an argument that H’s pre-marital property had somehow become ‘part of the economic life of [the] marriage … utilised, converted, sustained and enjoyed during the contribution period’? This, it seems, is part of the dilemma in determining what is meant by the oft quoted process of ‘mingling’ non-matrimonial property with matrimonial assets.”

She went on and found that in N v F (Financial Orders: Pre-acquired Wealth),

“there was a specific finding that a sum of just over ￡2 million which the husband had brought into a 16 year marriage was well and truly ‘mingled into the economic life of the partnership’. Mostyn J found that this sum of money was ‘the bedrock on which [the] marriage was founded’. That is not the situation here.

It seems to me that the application of income generated by a capital asset (such as a commercial property portfolio) in order to sustain – in part – the domestic economy of a marriage (or, indeed to prop up the temporarily ailing fortunes of a parallel but unrelated business venture) does not thereby change the fundamental nature of that capital asset. It was non-matrimonial from the outset. The evidence is that, when from time to time a property from the commercial portfolio was sold, the equity was ploughed into the acquisition of a substitute property. There might have been ‘churn’ in the underlying composition of the property portfolio but as an entity it remained wholly external to this marriage.

It stands in exactly the same position as a significant sum of money inherited by a party prior to the celebration of a marriage. If those funds are invested and preserved throughout the marriage without any inroads being made into the underlying capital value, the use of interest generated in respect of those funds does not, in my judgment, impugn the fundamental nature of the inheritance as non-matrimonial property.”

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