The author of this article argues that the "best advice" for HNW individuals is to agree to a pre- and post-nuptial agreement.

The following article comes from Julian Ribet, founding partner at Ribet Myles, a UK boutique law firm specialising in family law. Ribet talks about the important Standish v Standish divorce settlement case, and its implications. (See this article for a roundup of reactions from lawyers.)

With the ripple effect of this judgment spreading far and wide, we expect that legal experts will want to explore what happens next, and how this will affect London’s traditional status as a “divorce capital of the world.”

The editors are grateful for these insights; the usual editorial caveats apply to views of outside contributors. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

The recent Supreme Court judgment in Standish v Standish underscores the importance of prenuptial and postnuptial agreements for high net worth (HNW) couples. The case explored when and how non-marital assets can become “matrimonialised,” ie treated as part of the shared pot for division on divorce, despite originating outside the marriage.

Importantly, the ruling offers clear legal principles on this issue, providing definition in a previously grey area. We now have structured guidance on how courts will assess whether assets have been merged into the matrimonial pot. However, perhaps the more practical takeaway from the case is this: had the Standishes entered into a well-drafted pre- or postnuptial agreement, defining and ringfencing their individual pre-marital assets, they may have avoided a lengthy and expensive legal battle.

Background to the case
At issue was whether a significant sum of money, (circa £80 million), transferred by Mr Standish to Mrs Standish in 2017 after their marriage, should be included in the matrimonial “pot” for the purpose of equal division on divorce. The money originated from Mr Standish’s pre-marital wealth, and the transfer had been made for tax planning purposes.

While the High Court initially held that the money had been “matrimonialised” and was therefore subject to the sharing principle, the Court of Appeal disagreed. The Supreme Court upheld the Court of Appeal’s decision, concluding that the transfer was made solely to achieve tax efficiency for the benefit of the couple’s children, not as a gift to Mrs Standish. As a result, the funds retained their non-matrimonial character and did not have to be shared on divorce.

The Supreme Court’s new tests on the “matrimonialisation” of assets
In Standish, the Supreme Court articulated a clearer framework for determining when non-marital assets become “matrimonialised,” stating that two elements are key:

1. A clear intention by the contributing party to share the asset, and
2. Conduct over time that reflects a shared treatment of the asset by both spouses.

The passage of time and how the asset is used during the marriage can serve as evidence of that settled intention. However, the court made clear that a transfer made solely for tax efficiency does not amount to sharing. In Standish, Mr Standish’s transfer to Mrs Standish was found to be intended for the benefit of their children, not for her personal benefit – so the asset retained its non-marital character.

This new approach draws on earlier judicial thinking, particularly Lord Nicholls’ emphasis in Miller/McFarlane on the relevance of how couples organise their finances, and Lord Justice Wilson’s view in K v L that the contributing party must accept that the asset should be treated as shared.

Importantly, the court’s test provides protection against opportunistic arguments at the point of divorce. It guards against one spouse claiming that an asset is matrimonial purely because it was transferred during the marriage, when in fact it was never intended to be shared (as in Standish). Conversely, it also ensures that genuinely shared treatment of non-marital assets – such as long-term use of such funds in joint accounts – cannot be ignored simply because of their original source.

Conclusion
How this new test will be applied to different couples in future cases depends very much upon the facts of each case, but it is welcome news that the principles have been clarified.

The best advice for high net worth individuals and their advisors is to agree to a pre- and post-nuptial agreement. That will reduce the risk of an ex-spouse drawing an individual into a long and expensive court battle.