In the recent decision of RN v DA [2023] EWFC 255 (HHJ Vincent – 30 November 2023) the court was faced with an application by a wife to rescind a decree nisi that had been pronounced in 2012. The husband, conversely, had applied for the decree to be made absolute.

The paragraphs of the judgment dealing with costs reveal that the wife’s legal fees incurred in pursuing her application to rescind alone (she had also made an unsuccessful application to strike out the decree for want of prosecution) were a whopping £188,221.80, on which significant interest was also being incurred as her legal representation had been funded by a litigation loan.

Although the judgment does not set out a precise figure for the husband’s costs, it is said that the husband accepted they were ‘… likely to have significantly exceeded those claimed by the wife’.

These costs related only to the satellite issue in respect of the 2012 decree. Other than a recent exchange of Forms E, the substantial financial remedy proceedings had not yet got off the ground pending the determination of that preliminary issue.

The driving force behind this expensive skirmish? The judge observed at [26]:

‘The main reason that the dispute over the divorce has become so charged is that in recent years the husband has become exceptionally wealthy. His estimate of the joint assets in 2012 was £3.2 million. In his Form E exchanged over the weekend preceding this hearing, he put his gross assets at £100 million … He asserts that none of this wealth should fall to be considered within the pot of marital assets that are the subject of the wife’s application for financial remedies.’

Although an extreme example – and one in which, given the size of the assets at stake, the wife may well have considered her £188,221.80 to be money well spent – the issues raised in this case highlight the potential for arguments in respect of the source and nature of the assets to dominate a case, consume disproportionate amounts of time and effort, and reduce the chances of early, amicable, settlement.

The reason for this – quite simply – is that in cases in which the sharing principle (as opposed to the needs principle) prevails, assets classed as ‘matrimonial’ will ordinarily be divided equally, whereas the non-matrimonial assets (the white leopard population continuing to be vulnerable but not – as yet – extinct) are highly likely to be excluded from sharing.

As is often observed, legal constructs that have evolved in the context of so-called Big Money financial remedy cases can have unintended (and potentially adverse) consequences when extracted and applied to cases in which the assets are much more modest.

In a case in which the assets run into the tens of millions (or the hundreds of millions) the impact on the elusive search for a ‘fair outcome’ of separating out assets acquired prior to the marriage, gifted by way of inheritance, or earned in the no man’s land between separation and the final hearing may appear – to the informed observer at least – less acute.

If, for example, the assets are £100m and one party is provided with 60% of them to reflect a very significant pre-marital contribution, the fact that the other spouse will still be left with a sum vastly in excess of their reasonable needs is likely to satisfy most people’s litmus test for fairness, subjective as that test may be.

Likewise, where a case very obviously falls into the ‘needs’ end of the spectrum the court’s focus will rightly be on the struggle to meet those needs and it will be largely untroubled by handwringing over the provenance of the limited assets under consideration.

The difficulty arises, in my experience, when dealing with those cases that land somewhere in the middle: where there is sufficient money for a party’s needs to be classed as ‘elastic’, but where there is no large surplus left over after needs have been met; where an argument about the characterisation of the assets might be arguable, but where the cost of protracted litigation will have a very significant financial consequence.

In these cases, my concern is that the merits (and cost/benefit analysis) of a matrimonial/non-matrimonial argument are not being identified and triaged at an early stage. This is despite the fact that, as Moylan LJ emphasised in Hart v Hart [2017] EWCA 1306 Civ at [85]:

‘First, a case management decision will need to be made as whether, and if so what, proportionate factual investigation is required. As the Supreme Court said in Wyatt v Vince [2015] 1 FLR 972 (paragraph 29) the overriding objective requires the court to manage financial remedy proceedings cases actively and to identify those issues which need full investigation and those which do not.’

It is now common in cases in which a party raises ‘conduct’ pursuant to s 25(2)(g) Matrimonial Causes Act 1973 for the court to require that party to set out their stall early by ordering an exchange of focussed narrative statements.

Again in the context of s 25(2)(g), Peel J in Tsvetkov v Khayrova [2023] EWFC 130 stressed that factual assertions should be pleaded ‘… with particularised specificity …’; that the party should identify clearly how the allegation is said to be material to a fair financial outcome; and that the court has the power to strike out conduct arguments at a first appointment hearing where it is clear that further investigation of those issues would be disproportionate.

Despite this being a standard approach in the context of ‘conduct’, in my experience the same case management rigour is not routinely (ever?) applied where a spouse advances a case based on allegedly non-matrimonial contributions.

Moreover, where attention is given to the issue prior to the final hearing, the focus is often on evidence gathering (e.g. a request for a completion statement from 1994 or bank statements evidencing receipt of a gift from an aunt and so forth), and not on establishing the causal link between the existence of the non-matrimonial property and the fairness of the ultimate financial order sought.

In other words, rather than just identifying what the non-matrimonial assets are said to be and their value, in my view parties ought to go further and openly state how they say that the existence of the non-matrimonial asset should be factored into the evaluation of the issues in the case (e.g. to confirm whether they will be asking for the entire value of the asset to be excluded from consideration and, if so, what the net effect of that approach is said to be).

In my view, too often the issue of non-matrimonial property is either: (1) left as an issue on which parties choose to reserve their positions until the final hearing; or (2) not properly pleaded leading to generalised assertions such as a request for an award which ‘reflects the substantial contributions made by my parents’.

The sharing principle, of course, applies in theory to all the parties’ property – not just the ‘matrimonial’ property (Charman v Charman [2007] EWCA Civ 503).

In other words (and I appreciate I run the risk of here of oversimplifying c.20 years of nuanced case law) the court will consider all the parties’ property – irrespective of source – and then decide how it should be divided by reference to the s 25 factors and the need to achieve a fair outcome. The existence of non-matrimonial property is a factor relevant to the question of how the sharing principle should be applied (i.e. should the assets be shared equally or unequally).

This is one of the reasons why – as Moylan LJ identified in Hart – it is not always necessary to adopt a formulaic approach either when determining whether the parties’ wealth comprises both matrimonial and non-matrimonial property or when the court is deciding what award to make.

We should not lose sight of the fact that the ultimate objective is a ‘fair outcome’ and in some cases the strict ringfencing of a particular ‘species’ of asset would prevent the court from appropriately balancing all relevant factors (such as the extent to which non-matrimonial resources have been utilised for the economy of the family and mingled with matrimonial assets, or the duration of the marriage).

I have also observed in practice that is not uncommon for a party to describe non-matrimonial property in their Form E as an ‘unmatched contribution’. The ‘contributions’ referred to at s 25(2)(f) are specifically and deliberately defined in the Act as contributions ‘… to the welfare of the family’ and the words ‘… including any contribution by looking after the home or caring for the family …’ are plainly designed to remind the court of the importance of not discriminating between breadwinner and homemaker.

There is, in my view, a real risk of precisely this kind of discriminatory approach being adopted if non-matrimonial property is unquestionably accepted to be a relevant and important ‘contribution’ by one party and one that should lead to its exclusion from division without appropriately balancing that contribution against the (potentially non-financial) contributions made by the other party.

An example of this is in the treatment of assets earned by one party between separation and trial. There is surely a risk of unfairness if the law excludes from equal sharing savings built up over the months between separation and trial held in the sole savings account of the ‘breadwinner’ spouse without acknowledging the other spouse’s non-financial contributions to the welfare of the family over the corresponding period (e.g. continuing to be responsible for the bulk of the practical arrangements when looking after young children). The fact that those domestic contributions cannot be quantified in monetary terms (still less transferred into a separate bank account and ‘ringfenced’) should not invalidate them.

Before anyone points out that a similar argument has already been dismissed for being ‘completely unprincipled’ by Mostyn J in A v M [2021] EWFC 89, those comments were made in the context of anticipated domestic contributions post trial and after the distribution of the assets had taken place, as opposed to evaluating the parties’ respective contributions between the date of separation and trial, where divorcing couples are (often) still financially intertwined, and where the court has not yet embarked on the s 25 exercise.

Added to this is the fact that the process of identifying property as matrimonial or non-matrimonial can lead to exactly the kind of accusatory spreadsheet of marital contribution/behaviour that the courts try to avoid in the context of s 25(2)(g) (and notwithstanding the fact that a party’s ‘conduct’, unlike the question of the source of the assets, is an express factor included in the s 25(2) checklist).

Absent a nuptial agreement, I venture to suggest that (until they separate, or at least until they receive legal advice) many married couples do not give a moment’s further thought to the issue of the characterisation of the assets they enjoy as a family. This may be even more likely after a long marriage where recollections about the original source of the parties’ financial resources and the intention with which they have been deployed fade (or, worse, begin to be viewed through the distorting prism of litigation).

Furthermore, the ability to argue about the nature of an asset (in a context in which there is now effectively a ‘starting point’ that in a sharing case the non-matrimonial asset will be excluded from sharing) invariably increases tension and risks reducing the prospects of settlement.

In ‘medium asset’ cases the fact that, as Peel J observed in WC v HC [2022] EWFC 22, ‘… In practice, needs will generally be the only justification for a spouse pursuing a claim against non-marital assets …’ may have the unintended effect of disincentivising the parties from agreeing what those reasonable needs are.

Examples

Consider the following three examples:

• Parties approaching retirement age after a 30-year marriage where H seeks a valuation of his pre-marital contributions to a private pension fund. W had always assumed that H’s pension would provide for them both in retirement and it never crossed her mind that H might be able to ‘ringfence’ the contributions he made in the early 1990s. It is arguable that W’s needs can be met from an equal share of the matrimonial pension contributions, but this rather depends on what the judge ultimately decides ‘needs’ means. Costs are front loaded as the pension report is the first large item of expenditure and the argument about non-matrimonial contributions sets the tone for the rest of the litigation.
• H inherited £100,000 during the marriage that he used to pay off debts. W later inherits £100,000 6 months before separation which remains in a sole bank account in her name. Although W’s inheritance is, prima facie, a non-matrimonial asset which has never been ‘mingled’, H questions the overall fairness of excluding it from consideration in circumstances where he says he used his own inheritance to benefit the family during the marriage. W counters by asking H to prove that he used his inheritance to pay debts, seeking disclosure of his bank statements from 2006.
• Part way through the marriage W and H buy a holiday home using funds gifted by W’s mother during the marriage as part of inheritance tax planning. The holiday home (and the capital contained within it) is not ‘needed’ by either party in a strict sense, but it was a second home that they both enjoyed during the marriage. The parties argue about whether the property is matrimonial or non-matrimonial: W says that her mother made a gift to her alone; H says it was a gift to them jointly and that, in any event, it was used by them and their children for a number of years such that it has been ‘mingled’ by virtue of being used by the family as a whole. Due to the ongoing disagreement about whether this property is to be shared, neither party has any incentive to compromise on an estimated market value; as W wishes to keep the property she says H is trying to artificially inflate the price, H says the opposite.

Although hypothetical scenarios, I suspect many of you will recognise aspects of them in your own cases and be familiar with the obstacles they can place in the way of settlement. Other thorny conundrums include:

• ‘mixed’ assets: for example, where pre-acquired savings are used to discharge the mortgage on a jointly owned property otherwise purchased with matrimonial funds;
• the characterisation of the family home, which is always a matrimonial asset apart from when it isn’t (Vaughan v Vaughan [2007] EWCA Civ 1085).

So what might be done to improve the situation?

Of course, that question presumes that we agree the situation should be improved upon in the first place. After all, Mostyn J suggested in JL v SL (No 2) (Appeal: Non-Matrimonial Property) [2015] EWHC 360 (Fam) that:

‘Given that a claim to share non-matrimonial property (as opposed to having a sum awarded from it to meet needs) would have no moral or principled foundation it is hard to envisage a case where such an award would be made.’ (emphasis added)

The broad discretion inherent in the application of s 25 acknowledges that every family is unique and that whilst there are overlapping themes the duty on the court is to find a bespoke solution that achieves a fair outcome in the facts of the case in hand. In addition to the scenarios I developed in the ‘Examples’ section above, I suggest that we would not have to look too hard to identify family situations in which there could very well be a moral or principled foundation for sharing all the parties’ property equally irrespective of source.

An example might be a long marriage case in which the parties made choices (such as a decision not to invest in a pension) based on an implicit understanding that any inheritance would be used for the family as a whole. Of course, that same scenario could be characterised as a ‘mingling’ case, but I wonder whether there is a risk that nebulous concepts such as mingling or ‘matrimonialising’ are used as a fudge in scenarios in which disapplying the sharing principle to the non-matrimonial assets would lead to a subjectively unfair outcome but where the court does not want to be the first one to spot a white leopard.

The word limit for this article (conveniently) does not permit me to advance detailed theories about the development of the law relating to non-matrimonial property and what might be done to improve upon it, but a suggestion might be to introduce an ‘inequitable to disregard’ threshold akin to that applied to special contribution cases. This would mean that where there has been a very significant and readily identifiable non-marital contribution by one side this would continue to be appropriately reflected in the overall outcome, whilst the majority of medium asset cases and/or those cases in which there are mixed assets with no clear dividing line would fail to pass through the filter.

A (more radical/controversial) alternative (and one which would require legislative change) would be an assumption that the parties intended all of their assets existing at the date of trial to be divided equally (subject to needs) unless they have elected otherwise through a nuptial agreement.

In the meantime, we should remember the extensive case management powers available and, in an appropriate case, consider inviting the court to adopt a robust approach to the question of which issues require further investigation and which do not. Where financial resources allow, the use of early neutral evaluation/PFDR at the earliest opportunity is a very good way of testing the strength of any non-matrimonial property argument before significant costs are incurred.