Inherited wealth on divorce - the rewards of a virtuous life

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20 July 2011

Those who hope to preserve their inherited wealth on divorce may take heart from a recent case in which the Court of Appeal left more than 90% of the family's assets with the wife, who had inherited them prior to her marriage. 

The Court of Appeal upheld an earlier decision which gave the Husband a lump sum of £5million on a clean break basis, while the Wife retained her inheritance which had been valued at the date of the original hearing at £57million.  The Husband took less than 10% of the assets following a marriage which lasted over 21 years. 

This outcome goes against the trend of equal sharing which has dominated the divorce courts for the last 10 years. The court justified the low award because the family had lived a very frugal life and this suppressed the settlement.

The Facts

The Wife was aged 52 and the Husband aged 49 and they were both Israeli citizens.  They were married in 1987 and relocated to England in 1991. They had three children who were aged between 9 and 16.  They separated in 2007. 

The Wife jointly inherited (with her brother) shares in her father's business which were worth £300,000 when the parties' relationship began, and which had increased in value to £700,000 when the parties relocated to England. The shares and other assets were worth £28million in 2007 when the parties' separated, and up to £57 million at the date of the first hearing.

They lived in a semi-detached house in the suburbs of London and lived very modestly. The children attended state schools. Neither parent worked and they were secretive about their true wealth. It was accepted that all of the assets had derived solely from Wife's inheritance either by capital appreciation or retained income and dividends. 

The Legal Arguments

The Husband argued that his award should be based on a "sharing" principle, given the length of their marriage; he sought a lump sum of £18million which was approximately one third of the assets. 

Those arguments were rejected by the Court of Appeal on the grounds that:

  • the family's wealth arose from the Wife's inheritance;
  • her inheritance was received prior to the marriage; 
  • the inheritance had always been maintained in the Wife's sole name and was never treated as jointly held;
  • the Husband's needs at the standard of living could comfortably be met from the £5m award. 

It was felt by the Court of Appeal that the award would even allow him a more affluent lifestyle than that he had previously enjoyed during the marriage.

It is expected that the Husband will appeal to the Supreme Court. This case suggests that the Court may depart in quite an extreme way on specific facts. 

Previous lifestyle is significant.  Those who have lived frugally can expect to do rather better than those where their lifestyle was extravagant.  This is generally perceived as an extreme result, and it highlights again the unpredictable judgments of the divorce courts in which the discretion of an individual judge determines the outcome.

Where does this take us?  Should inheritance be advanced prior to the marriage and as early as possible, with appropriate advice and management to retain it separately?  Consideration should be given as to the timing for advancing inheritance, and the control and use of that wealth considered with care.  A pre-nuptial agreement (or where the inheritance is received after marriage a post-nuptial agreement) can only help.  That agreement should however, always provide for needs unless the other party has their own independent wealth.

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