Hart v Hart – the Court of Appeal decision – divorce and pre-acquired assets

11 / 09 / 2017

The Court of Appeal has recently dismissed a wife’s appeal in relation to the settlement that she was awarded upon divorce.

By way of background, the husband and wife, Mr and Mrs Hart were aged 80 and 59 respectively at the date of the Court of Appeal’s Judgment. Mr and Mrs Hart met in 1979 and started cohabiting in about 1983, with them marrying in 1987 and later separating in 2006.

The husband, was 48 years old when they married and the wife was 27 years old.  The husband, prior to his relationship with the wife, was involved in various businesses, including as a market fruit trader, trading in motor vehicles, thereafter, also offering finance in relation to the same and the setting up of two offshore companies in the Channel Islands. Around the time he started living with who would become his wife, he became involved in property development. The wife said that the husband was a “man of substance” when they met. Conversely, the wife’s financial position was far less established in that at the time the parties started living together, her only asset was a Porsche car and she was working as an air stewardess.

The Judge in the case, at the time of the hearing (the wife having started proceedings many years ago, back in November 2011), determined that the capital resources included assets in the parties’ names (worth a total of £3.9 million) and assets in a trust (with a value of £5.5 million), totalling £9.4 million.

As Lord Justice Moylan explained in the recent Court of Appeal Judgment “This case concerns the approach which the court should take to non-matrimonial property when determining a financial remedy claim by application of the sharing principle.  I emphasise that what I say in this judgment, is confined to this principle.  It raises both evidential and legal issues. How is such property to be assessed? What degree of assessment is required?  Is the approach formulaic or does the court have a broader discretion?”.

This case was looking at the husband’s pre-acquired assets – non-matrimonial property – and to what extent they should be excluded when sharing.

The wife had (at a previous Court hearing) been awarded £3.5 million (out of the £9.4 million), so circa 37%. This is against the backdrop that the starting point is to divide the assets equally however the Court must take into account all the circumstances of the case, and one such consideration for the Court is whether there is the existence of non-matrimonial/pre-acquired assets.

The Judgment explained that the term “non-matrimonial” has been described to mean “from a source wholly external to the marriage” and it was said that “Non-matrimonial property can…be broadly defined in the negative, namely as being assets (or that part of the value of an asset) which are not the financial product of or generated by the endeavours during the marriage. Examples usually given are assets owned by one spouse before the marriage and assets which have been inherited or otherwise given to a spouse from, typically, a relative of theirs during the marriage”.

Generally speaking, matrimonial assets will be shared between the parties, with non-matrimonial assets being retained by the person to whom had pre-acquired them, inherited them or otherwise owned them (e.g. they are “ring-fenced” so to speak). There is however an exception to this whereby if there are insufficient matrimonial assets/resources to meet the other spouse’s needs, then the Court can look towards the non-matrimonial assets so that needs can be met.

The previous Judge in this case had considered matters and was said by Lord Justice Moylan in the Court of Appeal to have undertaken “what he described as a multi-faceted approach but, ultimately, the sum he awarded the wife was equal to the amount he had calculated as being required to meet her needs”.

It was submitted on the wife’s behalf at the Court of Appel hearing that 1) it was impossible to fairly assess what was non-matrimonial property and what was not and therefore it should all be treated as matrimonial property to be shared (save for a property owned by the wife) and 2) The Judge should not have only considered needs as she would have received a higher award had the award been based on other calculations carried out.

Conversely, it was submitted on the husband’s behalf at the Court of Appeal hearing that the Court’s previous decision was correct – the husband should receive credit for the non-matrimonial property that he brought to the marriage (e.g. pre-acquired assets) and that consideration of the wife’s needs was the correct approach.

The previous Judge had looked at the husband’s pre-owned assets but it was said to be difficult to assess that with any great certainty, not least because of the time that had passed but also down to the poor disclosure of the husband.

The previous Judge had looked at different ways of calculating what sum the wife should receive. These were as follows:

  1. The figure at which the Judge placed the wife’s needs: £3.47million;
  2. The “mingled” figure (taking into account how much the parties had intermingled their assets, as well as the husband having done so with his sister): £3.5million;
  3. The non-matrimonial “guess”: £3.85million; and
  4. The figure made up of a) the assets in the parties joint names, b) the wife’s sole assets (apart from a property in her sole name) and c) 25% of the trust’s assets: £3.94million.

The Judge decided on 1 above – £3.47million, that being what he assessed the wife’s “needs” to be plus an additional sum of £92,000, that being maintenance arrears, totalling the circa £3.5million referred to above.

The Judge said that “an equal division of the assets would be unfair”.  It was said, in the Court of Appeal that “This was because of the existence of the husband’s pre-marital wealth and the weight which the judge clearly considered should be given to this factor. At the start of the relationship the husband was, as is accepted by the wife, wealthy whilst she had no significant capital assets.  This was a factor which, as set out below, the judge expressly concluded “must be reflected in the outcome”.”.

The Court of Appeal referred to the obligation on the Court to “achieve a fair outcome”, taking into account the principles of needs, sharing and compensation.

It was said that “Sharing reflects marriage being a “partnership of equals” with each spouse being “entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary”.”.

It was then said that this is where the distinction between matrimonial property and non-matrimonial property comes into play in that if it is the latter then it will not have been the result of joint marital endeavour. The Judge went onto explain that “the sharing principle applies with force to matrimonial property but does not apply, or applies with significantly less force, to non-matrimonial property”.

“The court ultimately has to decide, as part of the discretionary exercise, how to weigh or reflect the existence of non-matrimonial property when determining the award. A key question which has emerged, and which is engaged in the current case, is whether this should be undertaken in a formulaic manner or whether the court can adopt a broader approach”.

The Judge at the Court of Appeal said that the Court was “not required to adopt a formulaic approach either when determining whether the parties’ wealth comprises both matrimonial or non-matrimonial property or when deciding what award to make”. It was said that it was not required in order to achieve fairness and it was said in some cases it would not be appropriate to adopt a formulaic approach.

The Judge said that an asset can be matrimonial, non-matrimonial or a mixture of both.  He went onto say that “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”.

The Court will look at what investigation is required to determine the facts of the case.

The Judge went onto say that:

  • “The court may decide that the non-marital contribution is not sufficiently material or bears insufficient weight to justify a finding that any property is non-matrimonial.
  • Alternatively, if the evidence establishes a clear dividing line between matrimonial and non-matrimonial property, the court will obviously apply that differentiation at the next, discretionary stage.
  • 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…In those circumstances the court will undertake a broad evidential assessment and leave the specific determination of how the parties’ wealth should be divided to the next stage. As I have said, where in the spectrum of the case lies depends on the circumstances of the case and is for the judge to decide”.

The Court still has to consider all the circumstances of the case when making a decision, to get to a fair outcome.

If the Court has determined that there is an element of non-matrimonial property in the case, that needs to be decided against the other factors and all the circumstances in the case too.

The Court may award someone more than 50% of the assets to allow for their pre-acquired assets.

The Court is said to have discretion how to deal with the balance of overall fairness, which is said to be broad and the Court has flexibility about how best to achieve this (it does not have to be a formulaic approach).

Together with other reasons, the Court of Appeal set out the main reason that the judge’s award could not be successfully challenged namely that:

“…the judge independently conducted an overview of the case to ensure that his proposed award was fair.  He expressly performed the alternative approach endorsed in Jones and which, as set out in Jones, he had to perform at some stage of the process he was seeking to undertake so as to test his other tentative conclusions or as a “cross-check”… This approach required him to assess what weight to give to the husband’s pre-marital wealth when assessing the extent to which the parties’ current wealth reflected marital endeavour and the extent to which is did not. The judge plainly concluded that his proposed award gave proper weight to that factor…”.

The Court of Appeal also concluded that the wife did not suffer “the consequences of the husband’s litigation misconduct” because the Judge was aware of it (e.g. the husband’s non-disclosure, etc.) and took it into account, still determined his award was fair and further, the Court of Appeal held that the award was still within the realms of fairness.

The Court of Appeal, as I started this blog saying, dismissed the wife’s appeal and her settlement remains at the figure of circa £3.5 million (therefore less than 50/50) due to the existence of the husband’s pre-acquired assets and that the judge determined that the wife’s needs could be met without a 50/50 split.

No doubt the wife would have received more if that have had been required to meet her needs – to house her and meet her income needs, for example.