Dividing pre marriage assets on divorce – new case

Long marriages and the unequal division of assets – Hart v Hart [2017] EWCA Civ 1306

September 25, 2017

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In this blog, Family Law in Partnership associate Carla Ditz looks at the recent decision of the Court of Appeal in the case of Hart v Hart [2017] EWCA Civ 1306 which concerned a marriage lasting 23 years and the division of just under £9.4 million worth of assets. Judgment was handed down on 31 August 2017. Please click here for a copy of the judgment:

In the case of Hart v Hart, the court had to consider the approach to be taken in relation to non-matrimonial property when determining a financial remedy claim by applying the sharing principle. The case has generated interest because, despite the long marriage, the wife was not awarded half of the total assets. A significant proportion of the assets held were acquired by the husband before the marriage (and therefore did not form part of the marital acquest). The amount which the judge at first instance ultimately calculated as his final award amounted to approximately one third of the total assets, a sum which was  said to be sufficient in any event to cater for the wife’s needs.

Background

The parties married in 1987 (having cohabited since 1983) and separated in 2006. There were (by the time of the court proceedings) two adult children of the marriage. During the 1970s, the husband embarked on property development having previously been involved in a number of business enterprises. By 1979, when the parties met, the husband had amassed considerable wealth as a result of his business endeavours although it was noted that the accumulation of his wealth was not a simple progression but “involved a number of overlapping strands”. Pre-marital wealth was assessed at approximately £2.6million although this figure was a “wholly speculative guess” given that the husband was said to have produced no reliable evidence of his worth pre-marriage. The wife (who was working as an air hostess) on the other hand, had no independent wealth at the start of the relationship save for a Porsche in her name. When the parties met, the husband was nearly 50 years old and the wife was not yet 30 years old. By her own admission, the wife described the husband as a ‘man of substance’ by the time they were living together.

The decision at first instance

Proceedings were commenced by the wife in November 2011 and the parties first came before HHJ Wildblood QC in June 2015. At the time, the husband was 80 and the wife was 59. Total assets were approximately £9.4million of which £5.5million were trust assets. The judge, having taken a ‘multi-faceted’ approach awarded the wife approximately £3.47 million (plus arrears of maintenance of £92,000) which, ultimately, he assessed as the amount required to meet her needs. The sum represented approximately one third of the matrimonial pot. The husband’s poor financial disclosure as regards his pre-marital wealth and litigation misconduct was evident and undoubtedly caused significant problems for the judge in the quantifying the pre-marital assets (referred to at [15] and [16] of the judgment).

The decision at first instance was considered by reference to the following:

  1. Needs
  2. ‘Mingled assets’
  3. Non-matrimonial property and
  4. W’s current proprietary rights plus a 25% share of the trust assets

Each calculation produced a different figure ranging from £3.47million to £3.94million. Ultimately, HHJ Wildblood concluded that the correct approach was to apply a calculation based on the wife’s needs which resulted in the lower figure of £3.47million. This was on the basis that it represented ‘the most principled and scientific of the awards calculated’.

Despite the wife’s claims that the assets should be split equally, HHJ Wildblood held that an equal division of the assets would simply be unfair given the extent of the husband’s pre-marital wealth, which had indeed been accepted by the wife. This was a factor that the judge felt should be reflected in the outcome of the case.

The wife appealed to the Court of Appeal.

The wife’s appeal was dismissed. The lead judgment was given by Moylan LJ who undertook an in depth look at the law surrounding matrimonial and non-matrimonial property.

As Moylan LJ noted, the classification of property as matrimonial and non-matrimonial property is relevant when the court is looking to apply the sharing principle. The judge reflected on the case of Charman in which it was held that the sharing principle applies to “all the parties’ property but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality”. Non-matrimonial property is likely to be divided only if it is required to do so to meet one party’s needs (or if for example, the assets have become mingled to such an extent that they can no longer be considered to be non-matrimonial). Indeed, it was noted that since the case of Charman, there have been no reported cases in which a spouse has received share of non-matrimonial property by application of the sharing principle.

The matter for the appeal was instead how to reflect the existence of non-matrimonial property when determining what award was appropriate and whether this assessment must be undertaken using a formulaic approach or whether a broader approach can be justified. [68] Ultimately Moylan LJ determined that a formulaic approach was not required to achieve consistency or to guarantee a fair outcome [84].

Further, Moylan LJ reflected on the fact that the concept of property being either matrimonial or non-matrimonial property is a “legal construct”. He states, “moreover, it is a construct which is not always capable of clear identification…When property is a combination, it can be artificial even to seek to identify a sharp division because the weight to be given to each type of contribution will not be susceptible of clear reflection in the asset’s value. The exercise is more of an art than a science.” [85] Importantly, a case management decision will need to be made as to whether or not a proportionate factual investigation is required when determining the extent of non-matrimonial property – in the interests of furthering the overriding objective [89]. Mostyn LJ refers to a “clear dividing line” between matrimonial and non-matrimonial property and “If, however, at the other end of the spectrum, there is a complicated continuum, it would be neither proportionate nor feasible to seek to determine a clear line” [94]. Further, “if the court has not been able to make a specific factual demarcation but has come to the conclusion that the parties’ wealth includes an element of non-matrimonial property, the court will also have to fit this determination into the section 25 discretionary exercise” [95]. Finally, Moylan LJ states, “the court has a discretion as to how to arrive at a fair division and can simply apply a broad assessment of the division which would affect “overall fairness“”[96].

Consequently, by adopting a ‘cross-check broad approach’ in determining the award, HHJ Wildblood had not fallen into error in his judgment and the award could therefore not be successfully challenged by the wife. There was no need to adopt a formulaic approach [99].

The judge was plainly entitled to find that the husband had substantial wealth at the commencement of the relationship, because this was agreed. Further, he was also entitled, when determining how to exercise his discretion, to conclude that an equal division would be unfair to the husband and, equally, that an unequal division would be fair to the wife” [104]. In essence, HHJ Wildblood’s inability to quantify with precision the husband’s pre-marital wealth did not preclude him from concluding that unequal division would indeed be fair in this case. Moylan LJ went further to say that he would have considered it wrong if the judge had “concluded that all the parties’ wealth should be deemed to be or treated as solely matrimonial property” [105]

Accordingly, Moylan LJ held that the judge did not fall into error when awarding the wife £3.5 million [107]. “His award was not outside the bounds of fairness… but was one which was plainly within the bounds of his discretion” [111].

Lords Justice Lloyd Jones and Beatson agreed. The appeal was dismissed.

What does the outcome mean?

Following the judgment, the decision was described by the wife’s legal team as being demonstrably ‘unfair’ and ‘discriminatory’ producing the ‘worst possible result for her’. The wife held that the husband’s material non-disclosure or ‘frustration’ of that process meant that the extent of his pre-marital fortunes could not be accurately assessed and she was prejudiced as a result. The court was not swayed by this argument, “Deficiencies in evidence and/or litigation conduct do not mandate a particular outcome” [101].

Those in the husband’s camp argued that he was an established and successful businessman before was in the relationship and why should he not be able to preserve the fruits of his labour from a time when he had not even met his wife or contemplated marriage. This is, in essence, the very basis of our law surrounding marital acquest and if the wife’s reasonable needs can be met by one third of the assets, to which she is entitled, then arguably justice has been done and a departure from equality can be justified.

Might we see therefore an increase in the number of pre-nuptial agreements as a result of this ruling as the financially stronger party seeks to ring-fence and emphatically identify those assets brought into the marriage and thus preserve them from a future claim?

The last word…

With over £500,000 spent on legal bills between the parties, this case is a cruel reminder of how legal costs can and will escalate when parties are engaged in long, drawn out legal disputes, in this case, over the course of 7 years. It is an unfortunate state of affairs and sadly, it will not be the last.  Indeed, Moylan LJ in his judgment made the comment that it was an “unhappy observation” that the parties had been engaged in litigation for as long as they had, a similar sentiment that is heard time and time again in the courts.

For more information please contact any of our specialists divorce and family lawyers at Family Law in Partnership: T: 020 7420 5000 or E: hello@flip.co.uk.