In a ruling that clarifies the circumstances in which non-matrimonial assets can become ‘matrimonialised’, the Supreme Court has upheld a decision of the Court of Appeal that a transfer of assets from a husband to a wife as part of a tax planning exercise did not make those assets matrimonial property.
The husband had had a very successful career in financial services over 35 years before retiring in 2007. He and the wife had married in 2005. After he retired they had lived in Australia, where the wife had been born, before moving to England in 2010. The marriage ended in 2020.
In 2017 the husband had transferred investment funds worth nearly £78 million from his sole name into the wife’s sole name, with the aim of preventing them from being subject to Inheritance Tax (IHT). The Family Court found that the element of the funds that represented the husband’s pre-marital wealth had become matrimonial property by virtue of the transfer and was therefore subject to the sharing principle. The Court of Appeal disagreed, concluding that the transfer had not matrimonialised any of the funds and that a fair application of the sharing principle would have resulted in the wife receiving about £25 million, rather than the £45 million awarded to her by the Family Court.
The wife appealed that decision to the Supreme Court, contending that the transfer had been effective as a gift and that the Court of Appeal had erred by relying solely on the source of the funds rather than what the husband had done with them.
The Supreme Court noted that it has long been recognised that who has title to property is not determinative of whether it is matrimonial property. The Court also considered that the time had come to make clear that non-matrimonial property should not be subject to the sharing principle. In determining whether non-matrimonial property has become matrimonialised, the Court considered that what is important is to consider how the parties have been dealing with the asset and whether that shows that, over time, they have been treating it as shared between them.
The Court saw no reason to interfere with the Court of Appeal’s assessment that 25 per cent of the funds comprised earnings of the husband during the marriage and were thus matrimonial property. However, the source of the remaining funds was exclusively the husband. The transfer had been carried out to save IHT and was for the benefit of the couple’s children, not the wife. The funds had not been treated by the husband and wife as assets shared between them and had not been matrimonialised. The appeal was dismissed.