Standish v Standish and the future of wealth protection

 “When does non-matrimonial property become matrimonial property in the context of financial remedy proceedings, and how should the sharing principle be applied to such property?”

The Supreme Court's long-awaited decision in Standish v Standish answers this key question.

The Court grappled with the familiar scenario where one party has wealth acquired prior to a relationship or from a source outside the relationship and transfers it to the other spouse during the marriage often for tax, estate planning or wealth protection purpose.  

Background

Mr Standish and Mrs Standish were married for 15 years and had two children together.

Mr Standish retired in 2007, having built up investment funds of £57 million in 2004 – before the couple began living together – which had since increased to £80 million. Mrs Standish had been a homemaker throughout the relationship and had modest pre-marital assets. The total asset pool was valued at £132.6 million.

Up until 2017, all of Mr Standish’s wealth – apart from two joint bank accounts and the former matrimonial home (valued at c.£20 million) – were held in his sole name. In 2017, Mr Standish transferred £77 million to Mrs Standish as part of an inheritance tax mitigation strategy for the benefit of the children. Mrs Standish didn't set up the intended discretionary trusts and commenced divorce proceedings. 

At the heart of the case was whether the £77 million transfer from husband to wife should be considered a matrimonial asset and be subject to the principle that matrimonial assets should be shared.

In a unanimous ruling, the UK Supreme Court dismissed the wife’s appeal, affirming the Court of Appeal’s decision that 75% of the assets transferred in 2017 were non-matrimonial and not subject to equal division.

Key takeaways from the judgment

• Non-matrimonial property isn't subject to the sharing principle. This is the first time the UK Supreme Court has explicitly confirmed this. While such property may still be accessed to meet needs or compensation, it isn't to be shared equally by default.

“Non-matrimonial property should not be subject to the sharing principle… The law is rendered clearer and more certain if one rejects the proposition that there can be sharing of non-matrimonial property.” – [para 49]

• The distinction between matrimonial property and non-matrimonial property turns on the source of the assets not the title.
• A transfer between spouses isn't enough to transform non-matrimonial property into matrimonial property. The Court was clear: the intention behind the transfer – in this case, estate planning for children – and how the asset was treated over time is critical. 

“There is nothing to show that, over time, the parties were treating the 2017 Assets as shared between them.” — [para 61]

• Matrimonialisation requires mutual treatment of assets as joint over time. The Court endorsed the principle that for non-matrimonial property to become matrimonial, it must be treated by both parties as a shared asset over a sustained period.

“Matrimonialisation rests on the parties, over time, treating the asset as shared.” – [para 52]

Collaboration and impact

This decision is welcomed for its sensible and principled approach – particularly for those who are concerned with protecting their wealth and advisors who assist with wealth protection. HNW individuals can be assured that pre-acquired wealth and inter-marital transfers do not automatically become matrimonial property but underscores the need to obtain integrated legal, tax and financial planning advice.

The impact of the decision is likely to be felt not only by lawyers but also estate planning professionals, tax advisors, wealth managers and financial advisors who need to be acutely aware of the need to record the source of assets and the intentions behind inter-marital transfers and to be aware that such transactions are likely to be subject to scrutiny on divorce.

Collaboration between professionals is vital when helping families structure their wealth and a balanced view is required. In the case of Mr Standish, the focus was on tax planning rather than wider considerations of the implications of relationship breakdown.

 Whether acting for the wealth-holder or the recipient, the implications are the same:

• Spouses and civil partners should be absolutely clear on whether a transfer is intended to be shared.
• The status of any intra-marital gift must be properly recorded and supported with not only financial advice but also with the benefit of legal advice.
• Those ‘gifting’ wealth must understand that if an asset isn't ringfenced, used jointly, or treated as part of shared wealth over time, it may become matrimonial property.

Practical steps 

For those with substantial personal or family wealth, this case underscores the need to:

• Enter into pre-nuptial or post-nuptial agreements that clearly define the nature and purpose of wealth and gifts.
• Take specialist succession and estate and tax planning advice when structuring family wealth and particularly when making intra-marital transfers.
• Keep comprehensive records and correspondence to evidence the intention behind any transfer.

Reaction

Ros Bever, Managing Partner of Irwin Mitchell’s Private Client Group and family law expert commented: “This is an excellent and entirely sensible judgment. The Supreme Court has delivered welcome clarity on the treatment of non-matrimonial property. It’s a decisive outcome for those focused on wealth preservation.”

This judgment brings welcome clarity and finality for family lawyers and their clients on how transfers during a marriage are treated. 

It is a timely reminder that those seeking to protect significant wealth should take specialist legal advice – for example, through carefully drafted pre and post nuptial agreements – to ensure their intentions are properly documented and upheld.