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You are here: BAILII >> Databases >> England and Wales Family Court Decisions (High Court Judges) >> WX v HX (Treatment of Matrimonial and Non-Matrimonial Property) [2021] EWFC 14 (10 February 2021) URL: https://www.bailii.org/ew/cases/EWFC/HCJ/2021/14.html Cite as: [2021] EWFC 14 |
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(TREATMENT OF MATRIMONIAL
AND NON-MATRIMONIAL PROPERTY)
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
WX |
Applicant |
|
and |
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HX |
Respondent |
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and |
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NX and LX |
Intervenors |
____________________
(instructed by Payne Hicks Beach) for the Applicant
Lewis Marks QC and Catherine Cowton QC (instructed by Katz Partners) for the Respondent
Edward Cumming QC (instructed by Farrer & Co) for the Intervenors
Hearing dates: 1st, 2nd, 3rd and 4th December 2020
____________________
Crown Copyright ©
Covid-19 Protocol: This judgment was handed down by Mrs Justice Roberts remotely by circulation to the parties' representatives by email and release to Bailii. The date and time for hand-down is deemed to be on Wednesday, 10th February 2021, at 10.30 am.
Mrs Justice Roberts :
Background
(i) The A Trust
This Bermudan-based trust was settled in May 1999. It was settled by H's late father although thereafter he took no further role in its operation. H and the children were, and are, the beneficiaries. Mr SZ was, and is, the Protector.
(ii) The S Trust
Some four months later, in September 1999, a second trust was established in Barbados. The settlor of that trust was a Bermudan shelf company (itself an SPV for these purposes) called N Investments Limited ('N Ltd'). That company was (and is) a BVI entity which had been incorporated in June 1999 in anticipation of its role as corporate settlor of the S Trust. N Ltd was a wholly owned asset of the A Trust. Thus, whilst the beneficiaries of the S Trust were N Ltd and the children, H retained through N Ltd an indirect interest in the S Trust as a beneficiary of the A Trust.
(iii) N Ltd
In September 1999, H sold his shares in the North American family business to N Ltd for CAD$25 million. In return he received from the company a promissory note for just under £10.5 million. That sum was expressed to be interest free and payable on demand either in whole or in part. To complete the structure, N Ltd then sold the shares it had acquired to the S Trust. In turn, it received a further promissory note for an equivalent value which reflected in US dollars the full value of the consideration it had paid by way of its earlier promissory note drawn in H's favour. N Ltd had already issued a special class of voting shares to H which enabled him to continue to control the voting rights attached to his original shares rather than having to relinquish these rights to the trustee.
"[H] was a gifted investment picker and astute businessman, and throughout all major investments made by [the S Trust] were thereafter made at [his] suggestion and with his effective direction." (para 30)
Specific issues re: computation
(i) The value to be attributed to the Oxfordshire property held within the H Trust
"(a) Where a husband can only raise further capital … as the result of a decision made at the discretion of the trustee, the court should not put improper pressure on the trustees to exercise that discretion for the benefit of the wife.
(b) The court should not, however, be 'misled by appearances'; it should 'look at the reality of the situation'.
(c) If on the balance of probability the evidence shows that, if trustees exercised their discretion to release more capital or income to a husband, the interests of the trust or of other beneficiaries would not be appreciably damaged, the court can assume that a genuine request for the exercise of such discretion would probably be met by a favourable response. In that situation if the court decides that it would be reasonable for a husband to seek to persuade trustees to release more capital or income to him to enable him to make proper provision for his children and his former wife, the court would not in so deciding be putting improper pressure on the trustees."
Conclusions in relation to the Oxfordshire property
(ii) B House and the art owned by the S Trust
(iii) Chattels and art owned by the parties personally
(iv) Tax
H's potential tax liabilities
W's potential tax liabilities
Law
"Counsel submitted that the use of net values in this situation should be discontinued. I do not agree. As with so much else in this field, there can be no hard and fast rule, either way. When making a comparison it is important to compare like with like, so far as this may be possible in the particular case."
Property | Husband | Wife |
London property (net) | 13,337,500 | |
The Oxfordshire property (net) | 10,330,500 | |
Canadian property | 29,012 | |
W Estate (1/24th) | 63,334 | |
Surrey property (1/24th) | 4,128 | |
Bank accounts | 1,007,517 | 159,609 |
Investments / Trust assets | ||
Credit Suisse portfolio | 357,285 | |
Y shares | 63,183 | |
Bank of Montreal | 2,646,271 | |
1,518,372 | ||
M Inc / promissory note | 9,285,770 | |
A Trust (residual value) | 1,032,556 | |
N Ltd / M Inc (residual value) | 1,248,118 | |
Less tax (assumed at 50%) | (2,429,176) | |
Quilter Cheviot/Overstone (net) | 4,974,536 | |
Chattels (not general) | 2,828,396 | 102,319 |
Less o/s legal costs/liabilities | (387,633) | (523,159) |
Total | 27,530,171 | 18,118,267 |
W's Trust assets | 8,998,280 | |
TOTAL | 27,530,171 | 27,116,547 |
GRAND TOTAL : £54,646,718 |
(v) Premarital / non-matrimonial assets
(vi) H's case in relation to the "matrimonialisation" of W's separate property
Law in relation to matrimonial and non-matrimonial property in the context of the parties' sharing claims
(i) The fact that property or assets owned by a party derive from a source outside the marriage (such as inheritance or pre-acquired wealth) does not per se lead to its exclusion altogether from the court's consideration of a fair outcome to both parties. Insofar as it represents a contribution by one of the parties to the welfare of the family, it is a factor which the judge should take into account: per Lord Nicholls in White v White (above).
(ii) The overarching principle which supports fairness to both parties is that of 'non-discrimination'. The court will treat the contributions made by each of the parties to the marriage as having a broadly equivalent value even though they be different in kind: Miller v Miller;McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618, [2006] 1 FLR 1186.
(iii) Each case has to be considered on its own facts and the court's assessment of fairness in that particular case. The judge must consider whether the existence of such property should be reflected in outcome at all. This will depend on the extent to which it has been 'mingled' with matrimonial property and the length of time over which that 'mingling' has taken place: per Mostyn J in N v F (Financial Orders: Pre-acquired Wealth) [2011] EWHC 586 (Fam), [2011] 2 FLR 533. In other words, the way in which such property has been used over the course of the marriage has the potential to affect whether it remains 'separate' property: Miller/McFarlane (above) at para [25]. There may be cases where, over the course of a long marriage, the importance of the source of a significant element of one party's wealth, or even the entire wealth, has been maintained through ring-fencing in one party's name, kept safely and left to grow in value: K v L (above) at para [17] per Wilson LJ.
(iv) Assets or property which are matrimonial in character will be captured by the 'sharing principle' and divided equally between the parties. Matrimonial property is now recognised as being property which is the product of, or reflective of, marital endeavour or 'generated during the marriage otherwise than by external donation': Charman v Charman (No 4) (cited above) at para [66]; Jones v Jones [2011] EWCA Civ 41, [2012] Fam 1, [2011] 1 FLR 1723 at para [33]; Hart v Hart [2017]EWCA Civ 1306, [2018] 2 WLR 509, [2018] 1 FLR 1283 at paras [67] and [85]; and Waggott v Waggott [2018] EWCA Civ 727, [2019] 2 WLR 297, [2018] 2 FLR 406 at para [128].
(v) The application of the sharing principle impacts, in practice, only on the division of marital property and not on non-marital property: Scatliffe v Scatliffe [2016] UKPC 36, [2017] AC 93, [2017] 2 FLR 933 at para [25] Waggott at para [128], and XW v XH (Financial Remedies: Business Assets) [2019] EWCA Civ 2262, [2020] 1 FLR 1015, para [136].
(vi) The application of the sharing principle will not always lead to an arithmetically equal division of the marital wealth. In appropriate circumstances factors such as risk and liquidity may impact the means by which sharing is achieved: XW v XH (above) at para [136].
"Therefore, the law is now reasonably clear. In the application of the sharing principle (as opposed to the needs principle) matrimonial property will normally be divided equally (see para 14(iii) of my judgment in N v F). By contrast, it will be a rare case where the sharing principle will lead to any distribution to the claimant of non-matrimonial property. Of course an award from non-matrimonial property to meet needs is commonplace, but as Wilson LJ has pointed out we await the first decision where the sharing principle has led to an award from non-matrimonial property in excess of needs."
"Given that a claim to share non-matrimonial property (as opposed to having a sum awarded from it to meet needs) would have no moral or principled foundation it is hard to envisage a case where such an award would be made. If you like, such a case would be as rare as a white leopard."
"(a) Over time matrimonial property of such value has been acquired as to diminish the significance of the initial contribution by one spouse of non-matrimonial property.
(b) Over time the non-matrimonial property initially contributed has been mixed with matrimonial property in circumstances in which the contributor may be said to have accepted that it should be treated as matrimonial property or in which, at any rate, the task of identifying its current value is too difficult.
(c) The contributor of non-matrimonial property has chosen to invest it in the purchase of a matrimonial home which, although vested in his or her sole name has – as in most cases one would expect – come over time to be treated by the parties as a central item of matrimonial property."
(i) the contribution of his pre-marital wealth into the matrimonial pot. This, he submits, neutralises the value of the family wealth which W held when they married in the mid-1980s;
(ii) the contribution he made in dealing with the practical division of her late father's estate thereby maximising her share and removing W's exposure to an over-valuation of the land and house retained by her sister and mother-in-law;
(iii) the 'liberation' of her funds from the family YTC structure;
(iv) his management of her investment portfolio for over 16 years;
(v) his 'pivotal' role in the negotiations with the provider of service facilities which resulted in the option agreement;
(vi) during periods when W's mental health has been fragile, he has made a substantial contribution towards caring for her. He says that the marriage survived as long as it did because this husband observed the vows he made to cherish his wife both in sickness and in health.
"….. When property is a combination, it can be artificial even to seek to identify a sharp division because the weight to be given to each type of contribution will not be susceptible of clear reflection in the asset's value. The exercise is more of an art than a science ….".
"[93] … if the evidence establishes a clear dividing line between matrimonial and non-matrimonial property, the court will obviously apply that differentiation at the next, discretionary stage.
[94] If, however, at the other end of the spectrum, there is a complicated continuum, it would be neither proportionate nor feasible to seek to determine a clear line. C v C was an example of such a case. In those circumstances the court will undertake a broad evidential assessment and leave the specific determination of how the parties' wealth should be divided to the next stage. As I have said, where in the spectrum a case lies depends on the circumstances of the case and is for the judge to decide.
[95] The third and final stage of the process is when the court undertakes the s 25 discretionary exercise. Even if the court has made a factual determination as to the extent of the parties' wealth which is matrimonial property and that which is not, the court still has to fit this determination into the exercise of the discretion having regard to all the relevant factors in this case. This is not to suggest that, by application of the sharing principle, the court will share non-matrimonial property, but the court has an obligation to determine that its proposed award is a fair outcome having regard to all the relevant s 25 factors.
[96] If the court has not been able to make a specific factual demarcation but has come to the conclusion that the parties' wealth includes an element of non-matrimonial property, the court will also have to fit this determination into the s 25 discretionary exercise. The court will have to decide, adopting Wilson LJ's formulation of the broad approach in Jones, what award of such less percentage than 50% makes fair allowance for the parties' wealth in part comprising or reflecting the product of non-marital endeavour. In arriving at this determination, the court does not have to apply any particular mathematical or other specific methodology. The court has a discretion as to how to arrive at a fair division and can simply apply a broad assessment of the division which would affect 'overall fairness'. This accords with what Lord Nicholls of Birkenhead said in Miller and, in my view, with the decision in Jones….
"I should perhaps have emphasised that, as I said in the next sentence, I was talking about a broad assessment as being a permissible route to the division of the wealth which would be fair and not that the ultimate effect of this determination need not be identified. As I have said above, the answer will be clear when the only issue is what proportion of the parties' wealth is marital, as it was in Hart. It will not be clear when there are a number of issues as in this case."
"H does not dispute that the vast bulk of his premarital assets have been mingled in the domestic economy in a way which renders it now pointless to attempt to attribute separate value to them. That does not mean that the fact of his contribution of those assets ceases to be relevant as one of the circumstances of the case, or as a contribution unmatched by W."
The W Estate
In much the same way as H took personal responsibility for the management of W's independent wealth, he also intervened on her behalf for the purpose of some discussions which were ongoing within her family in relation to her late father's country estate. Following her father's death in 1990, some five years into the marriage, there was a difference of opinion between family members as to the value of the main property. W told me that there were many family discussions at the time but I accept that H took the lead in identifying and instructing the valuers and selling agents. A solution was reached whereby it was agreed that W and her sister would take their share of the value of the estate in the form of shares in Y whilst her other sister and stepmother would acquire sole ownership of the estate.
The Service Facilities agreement
Determination and conclusion
Summary of matrimonial assets
Husband | Wife | |
London property | 13,337,500 | |
The Oxfordshire property | 10,330,500 | |
Bank accounts | 1,007,517 | 159,609 |
Credit Suisse portfolio | 357,285 | |
Y shares | 63,183 | |
Bank of Montreal | 4,164,643 | |
Less allowance for NMP | (1,700,000) | |
Net value promissory note | 6,856,594[6] | |
Residual value A Trust | 1,032,556 | |
Residual value N Ltd / M Inc | 1,248,118 | |
Chattels | 2,828,396 | 102,319 |
Less legal costs | (387,633) | (523,159) |
25,801,159 | 13,076,269 | |
TOTAL: £38,877,428 (50% of which = £19,438,714) |
The pension for M
(i) H will transfer to W his legal and beneficial interest in the London property and the private roadway rights.
(ii) At the same time as the transfer of the London property, H will pay to W a lump sum of £6,362,445. The payment will be made on the basis of the well-recognised route which I have identified earlier in my judgment. W must co-operate in ensuring that maximum tax efficiency is achieved so as to ensure that there are no adverse tax implications for H.
(iii) Chattels, including the art, will be divided in accordance with the agreement which has already been reached.
(iv) Save as provided for, the parties shall each retain the assets and liabilities in their sole names.
(v) There will be a clean break in life and death. W's application in respect of a variation of the H Trust will stand dismissed on payment to her of the lump sum in (ii) above.
(vi) There will be no order as to costs.
Order accordingly
Note 1 comprising c.£9 million held in trust and a further c.£5 million held personally in her sole name albeit deriving from inherited wealth [Back] Note 2 Mr Marks QC makes the point that this was now H’s money and not the Trust’s and that he was only able to benefit from those funds on a tax free basis because he did not remit the funds to the UK. [Back] Note 3 [£4,178,597 + £679,755] = £4,858,352 x 50% = £2,429,176 [Back] Note 4 a total across both of 29.17% (or 7/24) [Back] Note 5 W’s own section 25 statement suggests that the value of her original Y investments was £5.89 million at the point of extraction (para 71). [Back] Note 6 assuming a 50% allowance for tax on remittance (as above) in relation to repatriation of the loan note repayments (including an allowance for any tax payable on realisation of the residual assets in the A Trust including N Ltd and M Inc). [Back] Note 7 For these purposes I have ignored the capital represented by his ring-fenced inheritance (£1.7 million) in the same way I have excluded W’s non-matrimonial property. [Back]