30 November 2017

Rural news - winter edition: lessons to be learned from the Family Court

Two recent decisions in the Family Court will be of interest to estate owners and rural businesses. We discuss here the court's treatment of assets owned prior to the marriage or received during the marriage from family by gift, inheritance or distribution from a trust. Rural estates can include complex holding structures, the involvement of wider family and ownership spanning several generations so taking measures to mitigate against disruption is key.

The court's overall aim in determining finances following a divorce is to achieve fairness and so has to decide how to reflect the existence of non-matrimonial property in the outcome of a case. However, what counts as non-matrimonial property is not always simple; it may be that it can be easily identified; or there may be a 'complicated continuum' whereby non-matrimonial property morphs into matrimonial property.

The nature of the assets and manner in which they have been used during the marriage will influence the court's approach. Where pre-acquired or inherited assets have not been kept separate during the marriage, but merged or co-mingled with the matrimonial property to fund lifestyle or the joint acquisition of assets, such as the family home, then the sharing principle will be more readily applied. Unfortunately this can lead to the break up or sale of a long held family property.

In a case this year, although the parties agreed that the husband had substantial wealth at the start of the relationship, he was unable to provide documentary evidence of the extent of this wealth. On appeal, the wife claimed that if the non-matrimonial property could not be identified, the husband should not be given credit for it. Although the husband was criticised by the Judge for being opaque with his financial disclosure, it was decided that to achieve 'overall fairness' it was not necessary to adopt a formulaic approach to the exact identification and valuation of his pre-marital wealth or the extent of co-mingling. The acknowledged existence of pre-marital wealth was sufficient to warrant an unequal division of the assets and the court was able to make a broad assessment to achieve a fair outcome.

Even when non-matrimonial property is identifiable, valuation can be a difficult question. In another case this year, which involved a long marriage, the judge looked at different valuation techniques to establish a fair historic value for the spouse who owned the interest prior to the marriage. In some cases an indexation approach may be fair, in others, a discounted rate working backwards from the marriage breakdown might be fairer. Alternatively linear time apportionment may be more appropriate. In this case, the Judge concluded that the linear discount method more fairly reflected the true potential of the business at the time the marital partnership was formed. Consequently, approximately 20% of the business was held to be non-marital and protected from division on divorce, with the rest subject to division.

Pre-nups can provide certainty

Both these cases demonstrate the reluctance of the family court to have their overall discretion fettered. An obvious lesson to be learnt for those looking to protect non-matrimonial assets is the benefit of entering into a pre or post-nuptial agreement setting out what constitutes non-matrimonial property so that it can be ring fenced if a relationship is unsuccessful.

Category: Article