When is a gift not a gift? In the divorce courts?

Lord Sumption has long advocated the principle that "there are no desert islands in the law" arguing that "no area of law is completely self-contained".

The family case of Standish v Standish EWCA Civ 567 which will be heard in the Supreme Court on 30 April 2025 will stress test these boundaries once again.

Facts of the case: already substantially wealthy, Mr Standish (“H”) married for a second time in 2005. In 2010, the parties moved to England. In 2017, H was advised that, provided he transferred his assets, worth c.£80m (“the 2017 assets”), to Mrs Standish (“W”) before he became domiciled in England, the assets would escape UK IHT.

It was then intended – at least on H’s understanding – that, after a suitable lapse of time, W would place the assets into a discretionary trust in Jersey, to which H could subsequently be added as a beneficiary. Before the trust was set up but after the W had received about £80m from H, the marriage broke down.

W argued that the 2017 assets had become her separate property as there could not be any reserved benefit to H unless he was attempting to defraud HMRC. H argued that these assets were non-matrimonial (having been acquired prior to this marriage) and W should only have her needs met.

At first instance, Moor J rejected the argument that the transfer of assets in 2017 made those assets the W’s separate property but held instead that the transfer had “matrimonialised” them, making them thus open to sharing. The judge concluded that H “was giving the assets to the Wife without reservation of benefit as, if he had reserved benefit, the scheme would not have worked…Parties must understand that saving large sums in tax comes at a price.”

That said, he subsequently awarded approximately one third of the overall assets to W and the balance to H departing from equality on the grounds that the 2017 assets were to a significant extent pre-marital and had only been matrimonialised towards the end of the marriage. Both parties appealed to the Court of Appeal.

One of the W’s grounds of appeal was that the 2017 assets had not become matrimonial property arguing that there was no category of “matrimonialised” property. H rejected this submission arguing that neither title nor autonomy were relevant to the application of the sharing principle.

The Court of Appeal determined that:

1. Title and Fairness: the court emphasized that the title of an asset is not determinative. Ownership was not a “good guide to fairness” as this could be discriminatory (given that the non-working spouse is unlikely to hold any assets in his/her name).
2. The Sharing Principle: the court reaffirmed that the sharing principle applies to wealth generated during the course of a marital partnership as a result of the parties’ endeavour. Wealth that was not generated in this way is typically considered non-matrimonial and is not subject to the sharing principle.
3. Matrimonialisation: the concept of matrimonialisation, where non-matrimonial assets become subject to the sharing principle, was addressed. The court confirmed that this concept should be applied narrowly, ensuring that assets transferred into one spouse’s name during the marriage do not automatically become matrimonial property. The court emphasized that fairness requires a narrow application of matrimonialisation, and the division of assets should reflect the contributions and circumstances of both parties. Importantly, matrimonialisation of an asset does not mean it has to be shared equally.
4. Pre-Marital Wealth: The judgment highlighted that the majority of the wealth in question was created by Mr Standish prior to the marriage. Despite a large proportion of the assets being held in W’s name at the time of the divorce, the court concluded that these assets did not relate to endeavours during the marriage and therefore could not be considered matrimonial property.

On the basis of this reasoning, W’s award was reduced by £20 million. Both parties have now appealed to the Supreme Court. Regardless of the Supreme Court’s determination, this case illustrates how tax planning can come into conflict with potential outcomes on divorce.

An alternative to this expensive and gruelling litigation could have been a nuptial agreement. Before H made the 2017 transfer, his private client lawyer should perhaps have knocked on the door of his family lawyer colleague’s office asking whether the proposed tax planning came with any potential risks.

This article was first published by eprivateclient in April 2025.