|Treatment of Inherited Assets upon Divorce|
Ever since the House of Lords decision in White v White  UKHL 54, there has been an ongoing debate among family lawyers regarding the treatment of inherited assets upon divorce. As Lord Nicholls stated in White: ‘The judge should take it into account,’ he should decide how important it is in the particular case.
It is accepted that the fact that an asset is inherited will count for little in limited means divorces. As Lord Nicholls stated in White: ‘In the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this [inherited] property.’ Accordingly, although the situation may be relatively clear in limited means cases, each year sees a series of reported cases where the relevance of inherited assets is considered in the context of a medium or big money divorce; 2010 was no exception.
In N v N (Ancillary Relief)  EWHC 717 (Fam), Charles J considered the relevance of inherited assets in the context of a 30-year marriage, and in which the wife was awarded approximately 32% of the total assets.
Applying the detailed consideration applied in his earlier decision of J v J  EWHC 2654 (Fam), Charles J held that it was appropriate to ascertain the value of the particular inherited assets, and the extent to which there should be a departure from equality in respect of those assets. This is in contrast to an award simply based upon a percentage of all of the assets because that would fail to have proper regard to all the circumstances of the case. Accordingly, the departure from equality in respect of specific assets would underlie and give rise to the overall departure from equality when assessing the wife’s award.
Charles J held that this exercise could be carried out without the need for a detailed consideration of the entire matrimonial acquest. Accordingly, the court could consider the assets with whatever degree of detail was apt in the given case. In the present case, relevant additional ways of approaching the sharing principle were twofold. First, there was an assessment of the extent of the departure from equality in respect of specific assets where appropriate. Second, a comparison of the respective positions of the parties as against the likely position of the parties once the award has been made.
Of particular note in the decision in N v N was that Charles J was clear that the inherited assets should not be sold to fund the wife’s settlement. His desire was to ensure that the inherited assets could be passed on to the next generation.
In K v L  EWHC 1234 (Fam), Bodey J considered significant assets inherited by the wife in the context of a 20-year marriage. The wife had inherited shares nearly 20 years before the parties’ marriage. By the time of the final ancillary relief hearing, the shares were worth £57.4m which represented the lion’s share of the total asset base of £59m. The husband was awarded a lump sum of £5m together with the former matrimonial home, worth £225,000.
The wife’s inheritance was of ‘central relevance’ to the case. She had acquired the shares 13 years before the parties met and they had grown passively in value rather than as a result of active management. A further ‘key feature’ was the parties’ modest standard of living during the marriage. Furthermore, Bodey J had regard to how the parties had ordered their affairs during the marriage. At no stage had they considered putting any of the wife’s inheritance into joint names; the shares had remained her own assets throughout the marriage and had never been intermingled with other assets.
A further consideration was that, in light of the modest standard of living enjoyed by the parties, the offer that had been made by the wife not only met, but in fact exceeded, the husband’s reasonable needs. It therefore included some element of sharing. Fairness did not require the court to award further money to the husband in pursuance of the sharing concept.
Big money guidance
Finally, in Robson v Robson  EWCA Civ 1171, the Court of Appeal considered significant inherited wealth in the context of a 21-year marriage. The leading judgment was given by Lord Justice Ward, who provided guidance for dealing with big money cases where wealth is inherited as follows:
● Concentrate on the wording of section 25 and the precise language of statute. There should be the avoidance of judicial gloss such as ‘reasonable requirements’ or ‘need’ having to be ‘generously interpreted’;
● The weight to be given to each of the section 25(2) factors depends upon the particular facts of each case. The factors are not listed in any order of importance;
● By adopting that approach, flexibility is built into the exercise of discretion. Flexibility is necessary to find the right answer to suit the circumstances of the case;
● Justice is attained when the result is fair as between the parties. Needs, compensation and sharing will inform and usually guide the search for fairness;
● Inherited wealth forms part of the property and financial resources which a party has, and therefore must be taken into account pursuant to section 25(2)(a). It is not therefore to be quarantined;
● Inherited wealth justifies it from being treated differently from wealth accrued from joint efforts. The nature of the inheritance is relevant as is the source of the wealth. An asset passed down through generations may be treated differently to an asset acquired by the previous generation;
● The duration of the marriage and the time during which the wealth has been enjoyed by the parties will be relevant. This is also the case with regard to the standard of living and the extent to which that has been afforded and enhanced by drawing down on the added wealth. The more and longer the wealth has been enjoyed during the marriage, the less fair it is that it should be ring-fenced and excluded from distribution;
● It does not help to encourage judges to be cautious and not invade the inherited property unnecessarily. Circumstances of the case may often starkly call for such an approach. There is no formula and no resort to percentages will provide the right answer.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Feb.15, 2011