21 March 2019 - Article
It has been a matter of debate, since White , as to how inherited wealth should be dealt with on divorce in England. The recent Court of Appeal case of Robson (2010 EWCA Civ1171), in which almost the entirety of the husband's wealth (£22m) was accumulated before the marriage and inherited from his father, provides an indication of the court's approach. The husband owned a ‘magnificent' estate in Oxfordshire on which the family home was situated, a tenancy in respect of the farm estate, an estate in the Scottish Highlands, two London properties, and two parcels of development land. His annual pre-tax income was said to be in the region of £470,000.
The Judge at first instance (Mr Justice Charles) found that the husband had mismanaged the farm estate. The family had lived beyond the level of income that he was generating and the Judge was scathing of his argument that he was the caretaker of the estate for future generations. Contrary to the husband's assertion that the estate was ‘dynastic', the Judge found that ‘as a couple they were living off the wealth inherited by the husband and in a manner and a level that focused on their enjoyment and sporting passions rather than on preserving the inheritance for the children and future generations'.
The Judge awarded the wife £8m by way of a clean break divorce settlement (which included £5m for property and £3m by way of capitalised income). This figure represented a discount on the amount sought by the wife but nevertheless required the husband to sell the estate. Charles J's main reason for awarding a clean break was that the way the inherited property had been used during the marriage supported the conclusion that its value should be treated as available for distribution.
The husband appealed the order. Before the appeal was heard, the wife bought a property at a total cost of £4.3m, £700,000 less than she had been awarded. The wife's award was reduced on appeal by £1m to £7m on the basis that she had purchased a property for less than the £5m awarded, and because Charles J had assessed her income needs too highly.
The Court of Appeal noted that although the assets were inherited from the husband's family, the parties had jointly elected to live off them and, in effect, use them as a substitute for earned income. Hughes LJ commented ‘there can be no possible complaint about an Order which treated the capital in this case in the way the parties had themselves jointly treated it'.
The Court of Appeal also set down some important guiding principles:
- The court's objective within the exercise of its discretion must always be to achieve a fair result.
- Reference to the principles of need, compensation and sharing (established in the case of Miller and Macfarlane ) will usually guide the search for fairness.
- The fact that wealth is inherited and not earned does not justify it being treated differently from wealth accruing during the marriage. The nature of the inheritance is relevant, as is the duration of the marriage together with for how long and in what ways the inheritance has been enjoyed by the parties. The more and longer the wealth has been enjoyed, the less fair it is to leave it out of account. However, ‘where property is acquired before the marriage or when inherited property is acquired during the marriage, thus coming from a source external to the marriage, then it may be said that the spouse to whom it is given should in fairness be allowed to keep it. On the other hand, the more and the longer that wealth has been enjoyed, the less fair it is that it should be ring-fenced and excluded from distribution so as to render it unavailable to meet the claimant's financial needs generated by the relationship'.
In the exercise of its discretion, the court will strive to meet the needs of both parties, even if that results in the division of value, and possible realisation, of inherited assets.
Another case involving assets acquired by the husband before the marriage (also heard by Charles J at first instance), Jones  went to the Court of Appeal at the end of 2010. Judgment, and an indication as to how the principles set out above will be applied to different facts, is awaited and on which we will be commenting on in the next issue of the newsletter.