UK-Supreme-Court

Supreme Court rules tax planning asset transfer was not a matrimonial asset

The Supreme Court has ruled on a case concerning the transfer of assets for the purposes of estate planning in a landmark divorce case. Standish v Standish has been through the courts system with a decision this week at the Supreme Court ruling in favour of the husband who contended a transfer of assets pre-divorce, were not matrimonial assets and there not subject to the ‘sharing principle’ in divorce. 

The background to the case concerns the divorce of Mr Standish and Mrs Standish. Pre-divorce, Mr Standish transferred the sum of £77.8m to his then-wife for the purposes of tax planning and avoiding inheritance tax. The asset had been accumulated before his marriage and were for the purposes of placing into trust for the children. The relationship broke down before this could be done and the wife contended the assets should be part of the matrimonial assets during divorce proceedings; a contention the first judge upheld, dividing the matrimonial property unequally (60/40) in the husband’s favour to reflect the fact that it was derived from an unmatched contribution by the husband. and awarding the wife assets worth £45m and ordering the transfer to the husband the other assets owned by her.

Mr Standish appealed to the Court of Appeal who ruled the assets transferred to the wife in 2017 were not transformed into matrimonial property. It held that at least 75% of the 2017 assets were not matrimonial, and therefore reduced the wife’s total award by 40% to £25 million.

Now in the Supreme Court Lord Burrows and Lord Stephens have delivered their verdict, with which the other Justices agree, dismissing the claims of the wife and reinstating the decision of the Court of Appeal.

In its judgement, the Supreme Court laid out five key elements of the decision, clarifying the view of the courts on what constitutes a process of ‘matrimonialisation’; the process by which non-matrimonial assets become matrimonial assets.

In dismissing the wife’s claims the Supreme Court said there were five principles relevant to the application of the sharing principle.

1) There is a ‘conceptual distinction’ between non-matrimonial property and matrimonial property

which is typically pre-marital property brought into the marriage by one of the parties, or property acquired by one party by external gift or inheritance – and MP – which is property which comprises the fruits of the marriage, reflects the marriage partnership or is the product of the parties’ common endeavour

2) Reading the decision Lord Burrows said although courts have been reluctant previously to say so, the time has come to recognise that the sharing principle applies only to matrimonial property and not to non-matrimonial property (although NMP can be subject to what have been termed the “needs” and “compensation” principles that are not in issue on this appeal)

3) The starting point for matrimonial property is it should be shared on an equal basis.

4) One of the key elements of whether matrimonialisation has taken place is how the parties have been treating the asset and whether, over time, they have treated it as shared.

5) and a transfer of an asset between spouses in a scheme designed to save tax, irrespective of the time period involved, will

not normally show that the asset is being treated as shared 2 between the spouses. Therefore, such a transfer will not normally constitute matrimonialisation

Applying those rules to Standish v Standish Lord Burrows said the Court of Appeal decision that 25% of the 2017 assets were MP and 75% were NMP was correct. The 25% should there be shared equally. There was no evidence the 2017 assets had been treated as shared, and as they were clearly for the purposes of tax planning and not for the benefit of the wife, they had therefore not be matrimonialised

The Court of Appeal therefore correctly decided (although the Supreme Court does not agree with all its reasoning) that the husband was entitled to 75% of the 2017 Assets plus half of 25% of those Assets.

The judgement can be found in full here. 

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