23 March 2011

Family Courts invade inherited wealth

Claire Harris
Partner | UK

Since the decision of the House of Lords in White v White in 2000, the Family Court’s treatment of the inherited wealth of one party to a divorce has been a matter of significant debate. The end of 2010 brought a Court of Appeal decision in this area that will assist individuals and their advisers in considering the potential impact of divorce on inherited property.

On 27 October 2010, the Court of Appeal handed down judgment in the case of Robson v Robson. This case involved a 21 year marriage during which the parties had two children who were aged 17 and 20 at the time of the proceedings. The husband’s assets, predominately inherited from his father, were valued at more than £22 million and were made up almost entirely of rural estates – the principle one in the Cotswolds and a smaller estate in Scotland. In contrast the wife had assets valued at less than £350,000. Both the husband and wife were found to have enjoyed the full fruits of the husband’s inheritance to fund their lifestyle at the expense of protecting it for future generations. The Court of Appeal awarded the wife £7 million, which was made up of £3.5 million to purchase a suitable property and the balance, capitalised periodical payments. The husband was forced to sell a substantial part of his inherited estates in order to fund this settlement.

In reaching this decision the Court was heavily swayed by the husband’s management of and apparent disregard for the future of the estate. As the couple had ‘lived off the fruit of the land without properly husbanding it’ the Court found it acceptable to award the wife a settlement out of the estates, given that during the marriage ‘the parties had jointly elected to live off [the inherited assets] and, in effect, use them as a substitute for earned income’. It was held that since they had drawn heavily upon capital during the marriage, these same assets should not be ring-fenced for the purposes of the divorce. The husband’s claim that the estates were being managed for future generations was rejected, in part, because he did not come up with a viable proposal to safeguard their future.

However, the Court was clear that the approach to inherited assets will not always be the same. Important considerations are the nature of the assets, the time of inheritance (it was suggested that an asset acquired by the previous generation might be considered differently from one which had been in the family several generations), the use made of the assets by the parties and the needs of the parties at the time of separation. The Court of Appeal confirmed that the nature and source of an asset may justify a departure from the principle of equality of division and the suggestion was that in cases where the inherited or pre-acquired assets have not been depleted for general living expenses and there were sufficient marital assets to meet the needs of each of the husband and wife on divorce, ring-fencing of inherited wealth may be justifiable. It would very much depend on the circumstances of each case.

This case demonstrates the inquisitorial nature of the Family Courts and makes it clear that no asset is off limits when it comes to a divorce settlement. However, the special character of inherited assets was recognised, even if it was not enough in the particular circumstances of this case to ensure their protection. The case highlights another benefit of an estate having in place a strategic plan for the future.

Category: Article

Client types: Farms and estates