When a couple are considering financial issues on divorce, the first step is to ascertain what is in the matrimonial pot, i.e. what is Matrimonial Property. The Court needs to know this before a financial settlement is made and property/assets divided. Matrimonial Property will generally comprise the matrimonial home and assets (savings, investments, shares, property, pensions, antiques and so on) built up during the marriage and which usually arise through the joint or individual efforts of the parties. An inheritance does not easily fall into this definition of Matrimonial Property as it has not arisen as the result of the efforts of either party.
It can be regarded as Non-Matrimonial Property. However, that does not mean that it is automatically excluded from being taken into account by the Family Court when looking at finances.
The Court will apply the sharing principle to Matrimonial Property, so that it is divided equally between the parties. The Court can depart from an equal division if the needs of the parties require that, for example one party earns less than the other and their housing needs cannot be met unless the matrimonial assets are divided other than equally.
The Courts have also applied the principle of ensuring that a parties’ needs are met by taking into consideration Non-Matrimonial Property and dividing that between the parties, although not necessarily in equal shares. The sharing principle does not apply to Non-Matrimonial Property, so it is not divided equally, but such property can be used to ensure that a parties’ needs are met. It has therefore followed that the Courts will also apply the same principles to inherited property as, strictly speaking, it is Non-Matrimonial Property and, in some instances, will be used in a settlement.
Although every case will, of course, turn on its own particular facts, some broad principles can be sketched out. Where property is inherited during the marriage, and separation takes place several years later, it is likely that property will be taken into account, but not necessarily divided equally.
In this scenario a further distinction can be drawn.
Where the inherited property has been used within the marriage (for example a legacy of £50,000 has been used in part by the couple to pay off debts or buy a new family car) then it can be regarded by the Court as having become, in part or whole, Matrimonial Property. It has become what the court describes as “matrimonialised”. The property can therefore fall to be divided between the parties, although not always equally.
In a case in 2022, the High Court decided that, although the husband’s business assets were derived from inheritance, some of those assets were used as investments during the marriage. The wife had also worked in the business as a Director, therefore those inherited assets had been matrimonialised and were taken into account but discounted by 50% (so only one half was taken into consideration when dividing the assets) to reflect their inherited origin.
Inherited wealth that has been used wholly or partly within the marriage for the benefit of the couple and their children is likely to assume a matrimonial quality, either in whole or part, and be taken into account on divorce.
Where parties separate shortly after one of them inherits property, there will be less scope to argue that the property should be taken into account unless the parties’ needs require the property to be “invaded”, as the Courts have put it. There will have been less time for the inherited property to be matrimonialised and therefore taken into account as matrimonial property, in whole or part.
These principles can also apply where the property is inherited after separation. The Courts have concluded that the assessment of the parties’ finances must take place at the date of any trial, which will often take place some time after separation. Therefore, the inherited property will not automatically be excluded and the principles set out above will apply.
There are certain types of property which can, on occasion, be treated differently by the Courts. For example, an heirloom of both financial and sentimental value which was intended to be passed down through the generations of a family could well be dealt with differently to an inherited portfolio of stocks and shares.
In one case from 2021, the wife had inherited Trust assets that had passed down through her family which, absent the divorce, were intended to pass on to future generations. The husband had managed the assets, but they remained separate and had not been “mixed” with other matrimonial assets and his management had not significantly increased their value. The fact that they had remained separate and were intended to be preserved for future generations led the Court to hold they were not matrimonialised and therefore not subject to the sharing principle.
Each case depends on its own circumstances. Inherited property will not automatically be excluded. The longer the time that has elapsed since the inheritance equates to the likelihood of it being regarded as Matrimonial Property, especially if the inheritance has been used within the marriage. However, as will be seen from the 2021 case referred to above, even if it appears that the asset has been used during the marriage, this does not always mean the inheritance should be taken into account.
Even if the inheritance is not used at all within the marriage, it could still be taken into account by the Courts (although not, as a starting point, shared equally) if the needs of the parties’ are such that it has to be “invaded”.
Written by Simon Brown
In every case where issues of inherited property arise, it is always best to get specialised legal advice. Call now to speak to our experienced Family Law Solicitors about your matrimonial finance matter.