Are all your eggs in one basket?

Thu 3rd May 2012

The saying goes don’t put all your eggs in one basket, the same could be said of inherited assets and how the court treats those assets upon divorce.

The treatment of inherited assets by the courts is far from predictable and is often reflective of the opinion of Lord Nicholls who stated that ” pre – marital property should be treated differently upon divorce because it represents a contribution made by one party which is unmatched by an equivalent contribution made by another “. There are no rules in relation to what happens to inherited assets in divorce as it is for the Judge to decide how important it is in a particular case.

The court take two approaches to non – matrimonial property;

1) The exclusionary approach which means that the non – matrimonial property is excluded from the principal that the matrimonial assets should be shared fairly. However this is subject to the parties the parties needs are upon divorce.

2) The inclusionary approach which means the non – matrimonial property is included in the calculations with the matrimonial property and the principal of sharing is applied to all of the property. However certain characteristics of the non – matrimonial property will justify a departure from the sharing principal such as it’s value, nature, when it was acquired and to what extent it has been mingled with matrimonial property.

Both approaches allow the Judge a degree of discretion and they can result in very different outcomes. The case of K V L ( 2011 ) applied the exclusionary approach and awarded the husband £5 million out of a total of £57 million of matrimonial assets all of which were non – marital assets. The court stated that this amount met the husbands needs and there was no justification for him sharing the non – matrimonial property in excess of his needs.

The different approaches of the court do create some uncertainty. The best way for any individual bringing inherited assets into the marriage, where practicable, may be to keep such assets separate, so that if the day comes, it can be argued that they have never been part of the matrimonial assets. Alternatively the parties could enter into a pre – nuptial or post nuptial agreement as these are increasingly carrying more weight with the court. Making prior agreement detailing what will happen to the inherited assets should divorce occur may assist the court in deciding how to divide the finances.

So try not to scramble your eggs and think of pickling them and keeping them in separate jars !

For further information contact our family team

Thu 3rd May 2012

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