30 July 2010

Family law news: Focus on inherited assets

In the recent case of J v J, summarised in our March 2010 family law newsletter, Mr Justice Charles considered the extent to which pre-acquired or gifted assets could justify a departure from equality of division of assets on divorce.

The spotlight remains on gifted/inherited assets in two more recent cases, D v D and N v N, both also decisions of Charles J.

D v D [2010] EWHC 138

This case concerned an 18-year marriage. The key asset in the case was a farming company, which the husband (‘H') had inherited and in which he still worked. H's shareholding in the company was entirely gifted/inherited and had been increased by a company buy-back.

The Arguments and Principles of the Judgment

1. H claimed that as his interest in the company was inherited, it should be left wholly out of account and the wife's (‘W') award should be calculated by reference to her needs only. Charles J disagreed. He held that the fact that the assets were inherited farms did not mean that the sharing principle was irrelevant to the question of what was a fair award.

2. H argued that where there was good reason for departing from equality, the extent of the departure should be determined by W's needs, as this was the only principled route by which an award could be quantified. Charles J held that whilst needs inform the extent of the departure from equality and whilst there are difficulties in quantifying an award that contains a departure and is in excess of needs, a principled award must be based on sharing and needs.

3. Charles J held that an award which compelled H to sell the farm would be unfair. He described the need for H to be permitted to continue farming through the company if reasonably possible as a magnetic factor in the case. 

4. In conclusion, Charles J accepted that it was very difficult to quantify the platform or springboard effect of the gifted assets and their contribution to the current value of the company. He held that a fair approach was to attribute 30% to the gifted nature of H's shares, leaving 70% to be shared. Charles J accepted that ‘this percentage has a spurious accuracy and has to be considered as being within a range'.

N v N [2010] EWHC 717

N v N involved a 29-year marriage. The inherited asset was H's shareholding in a company, REC, which had been incorporated by H's father. REC owned a property, S Hall, which had been in H's family for some time, as well as a portfolio of land and other buildings. H's shareholding in REC was gifted to him (primarily following the marriage) and increased by company buy-backs, also following the marriage. S Hall was the matrimonial home for much of the marriage.

The Arguments and Principles of the Judgment

W accepted that the inherited source of H's shares in REC and the chattels provided a good reason for departure from equality, but taking this into account she still sought 40% of the total assets.

Charles J held:

1. In considering the appropriate departure from equality, the Court should not only look at the assets as a composite whole but should consider the extent of the departure in relation to the particular inherited assets in question.

2. Assets may be subject to 100:0 division, however this is only likely to be appropriate where it is not fair or possible for that asset to be sold or given a cash value or where the asset cannot be shared. He awarded photograph albums (worth £1m) 100% to H on this basis.

3. The chattels, although inherited by H and an important part of the character of S Hall, had been used by the parties as an aspect of the matrimonial home. Charles J held that the length of the marriage and the parties' commitments to S Hall as their home supported a 50:50 sharing of the chattels. He acknowledged that this may be generous to W as some of the chattels could be said to be family heirlooms, but held that it was necessary to take a broad approach.

4. Charles J held that, as in D v D, the company buy-backs had been funded from the sale of assets owned by the company prior to the marriage. They therefore supported a departure from equality.

5. In conclusion, Charles J attributed 50% of H's shareholding in REC to the marriage, leading to a 75:25 division of his shareholding. W was given a total award of £5.3m (to include a housing fund and capitalised periodical payments), which was approximately 33% of the total assets.

Charles J continues to attempt to clarify in these cases the circumstances in which a spouse will be able to justify a departure from equal division of assets on divorce. Whilst it is clear that gifted/inherited assets do provide a strong reason to depart from equality, Charles J emphasises in both cases that sharing of all capital resources will still be a relevant consideration in determining the level of a fair award, particularly when those inherited assets have been used to support the lifestyle of the marriage.


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