The concept of matrimonial property is something we are very comfortable with in Scotland thanks to clear legislative guidance and a 40-year body of divorce cases to refer to.
What is matrimonial property?
Matrimonial property is a theoretical concept and only comes into effect if a couple separates with a view to getting divorced. It is one of a myriad of legal oddities that separating couples have to get to grips with when they separate – it would be fairly unusual for a couple to go through their married life asking themselves "is this matrimonial property?" each time an asset is acquired. The disclaimer here is that divorce lawyers would say that they should!
In Scotland, matrimonial property is property acquired during the marriage up until the couple separates. Exceptions include a family home and its contents bought before the marriage and assets gifted or inherited from a third party, where that gift or inheritance remains substantially unchanged. An asset owned prior to marriage which are retained and still held by either person at the point of separating is also not matrimonial property. What is, or is not, matrimonial property is significant because it is the value of the matrimonial property which is subject to sharing in a Scottish divorce. Establishing, valuing and then considering various legal principles to determine a fair sharing of matrimonial property is the main focus of a Scottish divorce.
A new dawn of matrimonialisation
What is or is not matrimonial property is now having its heyday in England & Wales with the recent Supreme Court decision Standish -v- Standish. It has also had a rebrand in the shorthand form of "matrimonialisation" – the process by which an asset that is non-matrimonial property may become matrimonial property during the marriage.
It would be fair to say Scotland and England & Wales have always gone their separate ways when it comes to how assets should be treated on divorce. The position in England & Wales affords significantly more discretion to the treatment of assets on divorce compared to Scotland. However, in recent years, similarities been the two have started to creep in – the clear definition of what is or is not matrimonial property now being one of those.
As with most divorce cases, the factual circumstances are unique to the Standish case, and I would defer to my friends in England & Wales who have written clear and concise summaries of the case already and the eventual outcome. In brief, the key point of contention was the treatment of £80m of assets placed in the hands of Mrs Standish by Mr Standish in 2017 with the agreement that Mrs Standish would place this sum into trust for their children, to save the children from a significant inheritance tax bill of roughly £32m. However, Mrs Standish did not place the assets into a trust and upon separation, the £80m of assets were in the name of Mrs Standish. This transfer of assets from Mr Standish to Mrs Standish led to an argument over what is or is not matrimonial property, what may become matrimonial property, and how assets which have become matrimonialised should be treated. It is this which is most interesting in a comparison between the treatment of assets on divorce north and south of the border.
A view from the terrace
It is interesting to hear from someone practising in the jurisdiction where the decision has been made. In a recent conversation with Simon Blain at Forsters LLP in London, I was keen to hear his perspective, as he specialises in high-value divorce cases in London. Here is his main takeaway from the Standish case and the likely impact on future cases:
"Standish has provided welcome clarity for individuals divorcing in England. The Supreme Court has stated that non-matrimonial property can never be shared on divorce, except to meet needs or compensation. The Supreme Court has also clarified the circumstances in which non-matrimonial property can become "matrimonialised". This is helpful, as it enables us to advise clients how to avoid such a situation and to draft nuptial agreements to provide maximum protection" – Simon Blain, Partner, Forsters LLP
Would the outcome of Standish be the same in Scotland?
Matrimonial property
Perhaps most notable is that the Scottish courts may have been
closely aligned to the Standish decision when considering
what is matrimonial and non-matrimonial property. It would have
also accepted the matrimonialisation of non-matrimonial assets
transferred from one spouse to the other as was the case in
Standish.
Conversely, the Scottish court would likely consider that assets which have been transferred from one person to the other during the marriage to have become matrimonialised notwithstanding what was intended by the transfer. It may have then been willing to consider the nature and intention of the asset transferred for a particular purpose as was the case in Standish. However, the assets matrimonialised in 2017 would have been treated as matrimonial property as a starting point and the nature and source of the assets then considered in terms of how the value of those assets should be shared.
Sharing of matrimonial property
The Scottish court is also likely to have followed the same logic
in Standish that matrimonial property should be shared,
and non-matrimonial property should not be shared.
In determining how the matrimonial property should be shared, the Scottish court would then consider whether any special circumstances apply which may lead to departure from the equal sharing of the matrimonial property to produce a fair outcome. The nature of the matrimonial property and the source of funds used to acquire it are factors which may form part of this analysis. This exercise (considering the division of matrimonial property where special circumstances apply) is entirely discretionary and would lie in the hands of the judge.
Outcome
Whether the Scottish court would have followed how the English
court exercised its discretion in Standish is difficult to
say in my view - it would be an extreme outcome for the nature and
source of the assets to be entirely discounted against the backdrop
of our body of cases.
Some would say that the outcome in Scotland would be most likely to land in line with how the English court originally determined matters – the 2017 assets being treated as matrimonial property then shared unequally in percentage terms 60/40. In theory, that's how the Scottish Court is likely to have worked matters through. The question would then be to what extent the unequal sharing should apply.
That is difficult to say with any certainty in my view. The reason being the value of the assets in the Standish case were remarkable and the circumstances unique. Very few (if any) cases have come before a Scottish court of commensurate value. It is much easier to exercise discretion on a particular basis where the sums of money involved are considerable. There would be few families considering transferring assets to children of such value and even less so with a seven figure tax bill in mind.
Covering off conversion
Going back to my original disclaimer, if a married couple decides to move non-matrimonial property around during the marriage, it is wise to take advice on this and consider the implication of those non-matrimonial assets converting to matrimonial assets – but who does?
Another way to be clear on this is to enter a marital agreement, as Simon suggests, and this would work equally well in Scotland. An agreement can be entered either pre or post marriage, setting out which assets will be treated as matrimonial property and which assets will remain separate and not subject to the sharing exercise. We have been putting these types of agreement in place in Scotland for some time now and that is only likely to increase as couples seek clarity around how best to define their assets in the event of a divorce. Ultimately recording what is intended is key to avoiding any future dispute.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
