When splitting up and getting a divorce, are assets matrimonial or non-matrimonial and does it matter?
Before answering that question, it is important to start at the beginning and not jump right into answering that question.
What is the background to understanding whether property is matrimonial?
Under English law, which also covers Wales, but differs from the law in Scotland, when people get divorced and have their marriage terminated, family court judges are obliged to impose their view of ‘fairness’ on the separating couple if they apply to the court to decide because they have been unable to agree.
As a result, when people negotiate and discuss arrangements, they should do it against that background and professional family lawyers always consider that legal background when advising, negotiating, formalising or (as a last resort) going to court (which they call litigating).
What are the steps lawyers take when assessing what is likely on divorce?
The process was helpfully set out by senior judges is a 2022 case and summarised the way that lawyers should think about distributing assets on divorce:
The court should take things one step at a time and not rush into decisions because somebody thinks it is ‘obvious’
Step 1 Computation
The court needs to know what resources are available to meet the needs of the separated couple/family which means understanding what they have now
Step 2 Distribution
The court needs to devise an allocation of those resources which is as fair as possible in all the circumstances
What principles apply to those steps?
Knowing the present value of assets is crucial.
Who brought assets into the marriage is usually unimportant.
There should be no prejudice simply because one earned more and the parties should be treated as having equal rights to an allocation of resources.
In reaching a conclusion about fairness, the statutory factors set out in Section 25 (of the Matrimonial Causes Act) must be considered.
First consideration must be given to the welfare of any minor child of the family, which means that the judges are directed to start with thinking about that, but it is worded carefully to show that the needs of the child do not ‘trump’ other factors. It is not the same as being the ‘paramount’ consideration which it is in cases about the welfare of the child and not the overall resources of the adults.
The judge should look to enabling the separated couple to be financial independent of each other if at all possible which includes considering whether future rights between them should be terminated either immediately (clean break} or at a time in the foreseeable future (deferred clean break).
What are the main three factors at work in that process?
Which is the most important factor when resources are to be allocated by a judge?
Unquestionably the answer is ‘needs’ and it is only when reasonable needs have been able to be met by the resources that either compensation or sharing come into play.
The vast majority of cases do not involve more resources than the people need and so the other factors do not arise.
When does it matter if assets are matrimonial and non-matrimonial?
If the needs of the parties have been able to be met from their resources and there is a surplus, then the origin and nature of assets might be considered.
What are matrimonial and non-matrimonial assets?
Matrimonial assets include anything that the couple own which does not fall into the definition of non-matrimonial: the default is that an asset is ‘matrimonial’ and proving otherwise is rarely necessary due to the limited scope for it making any difference to the allocation.
What are the most likely types of non-matrimonial property?
The most common reasons why an asset might be non-matrimonial are:
- Property brought into the marriage by one or other person such as a home bought before marriage
- Property generated or acquired after the breakdown of the marriage, particularly through work
- Inheritance or gifts made exclusively to one party
Does it matter when the non-matrimonial property was acquired?
In the limited circumstances where non-matrimonial property might be treated differently to matrimonial property, it can make a difference when the sole owner of that property obtained it.
The answer is ‘it depends’.
How does the court look at the distinction between matrimonial and non-matrimonial property?
The starting point must be whether the distinction might have any influence whatsoever on the eventual needs-based distribution – if there is not enough money/resources to meet the reasonable needs of the family, the court will not authorise enquiries and the collation of evidence.
The court will decide on what are proportionate enquiries at case-management stages- particularly at the First Appointment at which time a broad overview of the circumstances is available to both parties and the judge making procedural decisions.
The default position is that evidential enquiries will only be permitted by the judge if there is a clearly useful purpose to it: marginal cases will not justify expense and delay of such an exercise and court time will not be allocated to decide peripheral issues, no matter how strongly a party feels that the distinction should be drawn.
The court only needs proportionate evidence which can be almost to the degree that ‘common sense’ dictates that an inference can be drawn from known circumstances without the detail being laboriously gathered in.
The court may decide that there is insufficient evidence to determine the matter either way, but doing so is rarely likely to result in injustice as the discretion the judge enjoys can be applied. The broad requirement that the judge applies the s.25 factors to achieve a ‘fair’ outcome means that the judge will decide whether, if needs have been met, sharing demands that the assets of indeterminate status be transferred or retained.
What is clearly a ‘matrimonial asset’?
Some assets are very obvious and others are not.
Is the family home always a ‘matrimonial asset’?
Often the family home is registered in joint names, even if one party is the primary earner and brings in the money to pay the mortgage. Jointly-owned assets will be ‘matrimonial’ by default.
Whilst not inevitable ‘matrimonial’ it is usually part of the lifestyle of the family and so must be regarded for that reason alone. So even if there are factors about the family home that might otherwise make it non-matrimonial, it is usually regarded as an asset to be fully shared.
What is the nature of other assets that are probably matrimonial?
The following is a non-exhaustive list of potential types of matrimonial assets using wording from a number of cases that tried to express the ideas:
- Property acquired during the marriage – even if the money mainly came from one person
- The financial product of the parties’ common endeavour – resources developed together
- The fruit of the parties’ partnership
- Property arising from effort during the span of the relationship
- Property acquired other than by external gift
What are examples of assets that a probably matrimonial?
Typically the following will be considered likely to be found to be matrimonial assets, even if held in the name of one or other person
- Bank accounts
- Savings accounts
- Policies with an investment element
- Business interests
Are matrimonial assets always equally divided?
The simply answer is usually ‘no’ the matrimonial pool of assets is not divided on a rigid equal basis. Despite a landmark case in 2001 which was interpreted as making equality almost inevitable (a principle which the case itself did not follow), the expectation is now that 50/50 equal sharing is a starting point not a rigid formula. There are often reasons why equality does not best suit the circumstances of a family and indeed with all assets being different unless sold, a basket of oranges and a bag of apples are not the same, even if of broadly equal resale value. It is the same with other more complex assets.
The court says that whilst ‘matrimonial assets will normally be divided equally, it is not an invariable rule’.
What 5 key points should I take from this explanation?
The distinction between matrimonial and non-matrimonial assets is often unimportant
- The court needs to look at all the available resources
- By default, most resources will be shared
- Sharing is to meet needs not be a slave to mathematical equality
- The judge has a wide discretion and may impose a solution that is not the preference of either party so better to retain control by private agreement
- Sensible and principled negotiation is very much preferable to ‘dying in a ditch’ over a largely unimportant distinction
Resources on the internet are no substitute for taking expert legal advice from a specialist family lawyer.