The issue of the distribution of property acquired by a party to divorce proceedings acquired by them outside of the marriage has for some time been a topic of debate. The court has, since the landmark case of White v White, applied the principle of sharing the assets of the parties, with a yardstick of equality being applied to those assets. From the start, however, the issue arose of how to treat assets acquired by parties by gift or inheritance outside of the marriage.
The Privy Council (Lady Hale, Lord Wilson and Lord Carnwath) have given recent guidance on this in their judgment in the case of Scatliffe v Scatliffe  UKPC 36, a financial remedy case involving a divorcing couple of relatively modest means.
The case originated in the British Virgin Islands. The husband was 70 years old and the wife 63. They had been married for 38 years and had two adult children. The relevant local law was based upon the Matrimonial Causes Act 1973 and the criteria for decisions have ‘striking similarities’ to s. 25 of that Act, though in the BVI version the court is required to exercise its jurisdiction, so far as is practicable, to place the parties in the position they would have been in had the marriage not broken down.
The parties’ finances were modest. The husband was of an age where he could no longer work and the wife had a small income of $23,000. The parties owned four properties;
- An apartment rented out for $19,000 a year and had been the parties’ first matrimonial home valued at $600,000;
- An apartment in which the husband lived that was worth $350,000 (with potential to increase its value with various works, which would on completion also lead to a rental income);
- A leasehold property comprising various apartments from which the husband received $40,000 a year in rental income and which was valued at $425,000; and
- A fourth property owned by the wife and the parties’ son, but in which the wife had no interest.
The husband had also received a payment of $219,000 for some work he had done in recent years. The total assets were therefore around $1,594,000 – about £1,300,000 plus a nominal share portfolio. The judge transferred the first property to the wife, gave the husband a life interest in the second reverting to the children and allowed the husband to retain the third. The Court of Appeal varied the order to allow the wife a further $50,000 lump sum, leaving her with around $657,000 and the husband with $944,000. Findings were also made that the husband had other undisclosed, and unvalued, assets.
The husband appealed, unsuccessfully. The Privy Council observed that the above distribution was eminently fair, but went on to express concern about a perceived misunderstanding of the phrase ‘matrimonial property’ within the BVI Court of Appeal and at first instance, on which the Board gave guidance as follows;
- Non-matrimonial property refers to property owned by one or other of the parties by definition and therefore it runs contrary to the Act to disregard it.
- The manner in which the court should have regard to such property depends on the facts of the case. Having reviewed various cases in which the issue had arisen it was clear that the sharing principle (of entitlement to a share of property as a result of the marriage rather than to meet a party’s needs) could apply to non-matrimonial property but rarely would, with no reported case being highlighted where non-matrimonial property had been shared other than to meet needs. The importance of the issue wil, however, diminish over time.
- The proper approach, therefore, is to apply the sharing principle to matrimonial property and then ask whether, in light of the various statutory criteria, the result is overall an appropriate outcome, particularly having regard to the principles of need and (more unusually) compensation, which may require an additional distribution, potentially including the non-matrimonial assets.
Given the distribution of the assets and the fact that there was, after all, some non-matrimonial but undisclosed property, the husband’s appeal was hopeless.
The judgment, however, has a broader importance. It represents an approval at the highest level of the approach to non-matrimonial property built up in the authorities reported over the past 15 years since White v White. Non-matrimonial property is not to be ring-fenced but sharing should first apply (in the ordinary case) to the matrimonial property and, if the outcome is fair and meets the needs of each party then there will be no need to distribute the balance.