The result of the major divorce case provides necessary guidance to what might seem a simple query: when does non-matrimonial property become shared if divorce takes place?

The following article about a major recent UK court ruling on the treatment of assets in divorce cases adds to other articles on the same topic (see here and here for examples). The latest article is from Edward Floyd (pictured), partner at law firm Farrer & Co. The editors are pleased to share these views; the usual editorial disclaimers apply to views of guest writers. Remember, these articles are designed to foster conversations. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

The Supreme Court’s decision in Standish v Standish provides much needed guidance on a deceptively simple question: when does non-matrimonial property become shared in the case of divorce? The judgment will have ripples for wealth planning professionals, tax advisors and family lawyers alike: it underscores the importance of early, coordinated advice on all three fronts for clients. 

The facts: tax planning gone awry
The case concerned Clive Standish, former CFO of UBS, and his second wife, Anna. In 2017, Mr Standish transferred nearly £78 million ($104.6 million) of assets (held offshore) into his wife’s sole name. Most of these assets had been built up by Mr Standish prior to the marriage.

The transfer was part of an inheritance tax planning strategy, designed to take advantage of Mrs Standish’s Australian domiciled status. Mr Standish, on the other hand, was due to become deemed domiciled in the UK in April 2017. 

The intention was that Mrs Standish would later settle the assets into Jersey-based discretionary trusts for the benefit of their children. The trusts were never created, and when the marriage broke down, the assets remained in her sole name. By the time the case came to court, the transferred assets had risen in value to ÂŁ80 million.

The legal journey from High Court to Supreme Court
At first instance, Mr Justice Moor held that the transfer of the assets from Mr Standish to his wife meant that the assets had become matrimonial in nature, coining the phrase that these assets had been “matrimonialised.”  However, to reflect that the source of the assets was overwhelmingly Mr Standish, the judge departed from equal sharing and instead granted Mrs Standish a 40 per cent share. Mrs Standish was awarded ÂŁ45 million in total, factoring in other assets which the parties owned.

The Court of Appeal overturned that decision, holding that the source of the assets – rather than the transfer of legal title – was the decisive factor in whether the assets had become “matrimonialised,” and therefore the majority of the funds were non-matrimonial. It reduced Mrs Standish’s award to £25 million, the largest ever reduction of a divorce award on appeal.

Mrs Standish was granted permission to take her case to the Supreme Court.

The Supreme Court’s five key principles
The judgment sets out five principles that now underpin the law relating to finances and divorce:

1. There is a clear distinction between matrimonial and non-matrimonial property. Matrimonial property reflects the fruits of the marriage partnership; whereas non-matrimonial property is typically acquired by one party before the marriage, or received by one party through inheritance or gift.

2. The sharing principle applies only to matrimonial property. Non-matrimonial assets should not be shared on divorce unless required to meet needs or, in rare cases, to compensate for financial opportunities given up because of the marriage.

3. Matrimonial property should normally be divided equally.

4. Non-matrimonial property can become matrimonial if, over time, the parties treat it as shared between them. This process of “matrimonialisation” depends on how the parties have dealt with and treated the asset.  

5. Transfers between spouses made for tax planning purposes do not normally result in matrimonialisation.  The intention is usually to save tax, rather than to share the assets between the parties.

The Supreme Court unanimously dismissed Mrs Standish’s appeal, leaving her award at ÂŁ25 million. The judges concluded that there was no evidence that the parties had treated the ÂŁ80 million as shared between them – the transfer was made purely to mitigate tax and the benefit was entirely for their children. 

Why this matters for wealth planning
While most divorces are resolved based on needs, in cases where there is surplus wealth, the court’s starting point is to share the matrimonial assets equally, whilst ring-fencing each party’s non-matrimonial assets. The challenge lies in identifying, at the time of divorce, whether an asset that was originally non-matrimonial now falls into that category, i.e. has been matrimonialised. The Supreme Court has now clarified what the applicable test is: have the parties over time treated the (formerly non-matrimonial) assets as shared between them?  

In doing so it has, perhaps unintentionally, opened the door to more factual disputes between couples as to what they intended and how they dealt with their assets. Wealth planning and tax advisors need to be alive to how decisions taken during the marriage may impact their clients later at the point of divorce.  Could the proposed course of action lead to assets unexpectedly being viewed as matrimonial? Even where a transfer is made for tax planning purposes, how the parties deal with that asset in the years that follow may give rise to arguments about matrimonialisation.

The rise of pre-nups and post-nups
The Supreme Court ruling has underlined that pre-nups and post-nups remain the most effective way to have clarity as to which assets will be protected from sharing on divorce. A well-drafted agreement can make clear what property is to be treated as matrimonial and what is not, reducing the scope for argument and litigation. It can also address the scenario where it is envisaged that non-matrimonial assets will be used jointly during the marriage, for example, as a home, providing protection against “matrimonialisation.”

Had Mr and Mrs Standish entered a post-nup as part of the tax planning exercise, it is highly unlikely that their divorce would have reached the Supreme Court.

Record-keeping: a new priority
Standish v Standish creates a new evidential challenge for parties seeking to prove that an asset brought into a marriage by one spouse, has – or has not – been treated as shared over time. Clients should be encouraged to keep clear records of the origin of such assets, the purpose of any transfers, and how assets have been dealt with during the marriage. This will be particularly important in cases involving transfers between spouses for the purposes of tax planning or asset protection.

Passive vs active gains
Although not directly addressed in the judgment, the case also highlights the importance of distinguishing between passive and active gains. Passive growth – such as market appreciation on a stocks and shares ISA accumulated before the marriage – is more likely to retain its non-matrimonial character. Active gains – such as the growth in value of a business driven by one or both spouses â€“ may be treated as matrimonial, particularly if they reflect joint endeavour.

Final thoughts
The Supreme Court’s decision in Standish is a reminder that wealth planning schemes can unravel without proper advice and safeguards across all disciplines. The message for tax advisors, wealth managers and lawyers is clear: early coordinated advice is key, and never underestimate the value of a pre-nup or post-nup.