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Inherited assets & dividing these in a divorce

Recent developments in the law relating to inherited wealth when the marriage breaks down.

Clients increasingly ask family lawyers about inherited assets and how these should be treated when the marriage breaks down.

Of all the assets that need to be divided on divorce, the treatment of inherited assets tends to give rise to the greatest emotion and feeling of injustice if either the husband or the wife feel that this has not been done fairly. This sense of injustice can also give rise to very strong feelings in the rest of the extended family if they feel that their side of the family is losing something that is by rights theirs. All of this generates a potent cocktail of emotions and it is therefore imperative that family lawyers carefully consider how to explain the law on inheritance when advising their clients.

Inheritance is relevant in family proceedings both where it may be received in the future and where it has actually already been received by one of the parties to the marriage. The first circumstance is easier to deal with, as ordinarily the future inheritance has to be what is called ‘reasonably foreseeable’ in order for it to be taken account by the court in dividing the assets. In many cases therefore inheritance will not be an important factor. However, even in these cases, the law leaves a sense that justice has not been done, particularly where one party to the marriage will not inherit anything in the future and the other party may well.

More difficult is how to deal with a situation where the inheritance has already been received by either the husband or the wife. This problem has been considered by the English courts on a number of occasions and most recently in the case of Robson v Robson. As family law in Jersey is very closely modelled on the law in England, it is essential that all of those advising on divorce are aware of the recent developments in this area.

Many will recollect that back in 2000 the case of White v White introduced into family law the concept of checking the division of assets on divorce against what is called the ‘yardstick of equality’. In the years since that case, it has generally been accepted that the starting point for the division of assets should be an equal division and that good reasons are required to depart from this. Again, over the years since 2000 the courts (both in England and Jersey) have considered what are the good reasons to depart from the 50/50 starting point. One of the major ‘good reasons’ to depart is where the assets has been inherited by or gifted to one of the spouses.

Does this mean, then, that inherited assets can be ring-fenced and not considered to be part of the matrimonial division? Many would respond by stating that the law should be as simple as that. However, this is not the way that the law has progressed.

Robson was what is called a ‘big money’ case, where the assets were calculated to be in the region of £22 million. The most valuable assets had been inherited by the husband, including the fact that part of an estate in the Cotswolds had actually been lived in by the parties during their marriage of 22 years. In the course of the judgment, the English Court of Appeal found in addition that the husband and the wife “were living off wealth inherited by the husband and in a manner and at a level that focussed on their own enjoyment and sporting passions rather than on preserving the inheritance for their children”. It also found that in the later years of the marriage this expenditure “became excessive, reckless and perhaps obsessive or compulsive”.

The above is extremely useful as the court was stating on the one hand that the needs of the parties during the marriage is important, but on the other hand the court is suggesting that if the lifestyle of the parties impacts upon the value of the inherited assets as in Robson then there will be far less of an argument not to include those assets in the matrimonial pot for division.

Lifestyle during the marriage is always one of the crucial factors that the court will need to consider in dividing assets, as the level of the division will be guided by the standard of living during the marriage and the choices made by the parties during their life together. However, in Robson, the parties had enjoyed a lifestyle that they could only afford due to the fact that were failing to preserve the inherited assets for future generations. The fact that the wife had been complicit in the profligate expenditure of the inherited wealth had an impact on the award that she obtained from the court. This in itself is an interesting development in the law.

As far as the division of the inherited wealth was concerned in Robson, the court concurred with earlier decisions that such wealth can be treated differently from that earned jointly during the marriage but that the longer the wealth has been enjoyed, the less fair it is that it should be ring fenced and excluded from the distribution.

Robson also gives credence to the fact that every matrimonial case is different and the court must always attempt to find the right answer to suit the individual circumstances of the case before it. There is also a suggestion in the decision of the appeal court that the nature of the inheritance might be relevant. For example, the ancestral castle may deserve different treatment from a farm inherited from a party’s parent who acquired it in their lifetime. Therefore the nature and source of an asset may be a reason to depart from equality in appropriate cases.

All of this probably does little to make the job of the family law and the court any easier when deciding on the thorny issue of inherited wealth and we are left with the words of Ward LJ in Robson:

“It does not add much to exhort judges to be ‘cautious’ and not to invade the inherited property ‘unnecessarily’ for the circumstances of the case may often call for such an approach. The fact is that no formula and no resort to percentages will provide the right answer. Weighing the various factors and striking the balance of fairness is, after all, an art and not a science”.

The job of the family lawyer and indeed the family court continues to be an exciting one, given that we now not only have to consider how to preserve the goose that lays the golden egg but also how to divide its carcass when it is dead!

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