You may have read about Madonna’s recent court battles regarding the residency of her son...
We need to divide our finances on divorce but...I had assets before we met
This is a phrase matrimonial lawyers are hearing more and more frequently. Homeowners marrying in their 30’s and second marriages are playing a part in this increasing trend. Why should your spouse receive a share in your inheritance or assets you owned before you met?
The latest Court of Appeal decision dealing with pre-owned assets
In May 2011, the Court of Appeal had to consider a case which the judge described as an extreme example of the problem. The parties’ entire wealth of £57 million came from inherited assets the wife received in 1975.
The parties lived together from 1986 until 2007 when the wife and three children left the family home. The parties did not work and their only income throughout their relationship was that generated by the wife’s inherited wealth. The family had a very modest lifestyle when compared with the wife’s assets of £57 million. They lived in a semi-detached house worth £225,000, drove the same modest car for many years and no individual item in their home was worth more than £500. They spent £79,000 per year on the family’s living expenses.
As part of the divorce, the husband sought a dramatic change in his standard of living. He wanted a house worth £2 million near Regents Park in London, a second home in Israel for £450,000 and a car costing £60,000. He said that he needed £105,000 per year to support himself, in addition to money for the children. He was awarded £5.3 million and appealed the decision, saying he should receive £18 million. If the family’s wealth had been accrued by their joint efforts during the marriage, the parties would have received half each.
The Court of Appeal said that the husband should not receive more. He could purchase a house worth £2 million and receive an income of £130,000 for the rest of his life from the remaining funds. The court said that, because all of the assets came from the wife’s inheritance before the parties lived together, the husband’s award would be limited to his needs, generously interpreted.
Back to the question
So, back to those of us who do not have £57 million but who have a combination of inherited assets, assets acquired prior to the relationship and assets that have been built together during the relationship. The case cited above is the last in a long line of cases, which makes it clear that:
- You can try and ring fence pre-owned and inherited assets to prevent your spouse from obtaining part of those assets. However, where the only way to meet everyone’s needs is to use those assets, they will be divided. The parties’ needs are paramount.
- The more assets that parties acquire during their relationship, the less importance is attached to pre-owned or inherited assets. For example, if a husband enters a relationship with shares worth £11,000, but 25 years later, he and his partner own a house worth £300,000 mortgage free, they have pensions, ISA’s and investments, then the need to ring fence the £11,000 is diminished because it represents only a small percentage of the parties’ overall wealth.
- Where pre-owned assets are mixed with assets obtained during the marriage (for example, invested within the same savings account), it becomes far more difficult to argue that the person should have their pre-owned assets returned to them. If the same husband had £11,000 in shares, which he sold and invested with a bonus received during the marriage, it would be hard to distinguish between the money from the shares and money from the bonus. The fact that the husband owned the shares before the marriage might therefore be ignored.
- Where the pre-owned asset is the family home, it is likely to be included in the assets to be divided.
This is a complicated area of family law. Each case is different and a detailed assessment of the facts is needed. At Birkett Long, our team of family law experts will be able to assist you with this assessment at an early stage in your divorce. They will be able to help ascertain whether you are likely to keep pre-owned assets and inherited assets out of the equation when dividing your finances on divorce.