Court ruling raises need to consider divorce in IHT planning

A recent Supreme Court judgment on the division of assets in a “big money” divorce has been hailed by the legal and accountancy professions as a landmark ruling.

While it was atypical because of the sums involved, it was important because it concerned the movement of assets between spouses for tax purposes and how those assets should be treated, as a result, on divorce

See also: IHT planning must include an all round review of assets

The divorce case

Standish v Standish (2025) concerned a couple who married in 2005. They have two children together and the marriage broke down in early 2020.

The husband had a very successful financial services career and amassed considerable wealth.

In 2017 he transferred assets then worth about £77m from his sole name into his wife’s sole name.

This was part of a tax planning exercise, with the intention that his wife would then put these assets in trusts for the children, negating inheritance tax.

However, at the point of separation, the assets were still in the wife’s name and the trusts had not been established. By the time the case came to trial they were worth £80m, and still in the wife’s name.

Initially the Family Court awarded the wife 40% (£45m) of the total of £112m of the assets assessed at that time as matrimonial property, and the husband 60% (£67m).

Taking all assets into account, overall the husband was awarded £87m (66%) and the wife £45m (34%).

The important feature in this decision is that Mr Justice Moor held that the £80m of assets had been matrimonialised and so subject to what is known as the “sharing principle”.

This says that such assets are generally shared equally between the parties, although there are exceptions.

Appeal

The wife appealed, saying she should have got more, but the Court of Appeal reduced her award to £25m, reversing the decision of Mr Justice Moor on the £80m, finding that putting these assets into the wife’s name had not matrimonialised them.

Mrs Standish then appealed again to the Supreme Court, which upheld the Court of Appeal’s decision, with the judgment saying: “What it is important to consider is how the parties have been dealing with the asset and whether this shows that, over time, they have been treating the asset as shared between them.

“In short, there was no matrimonialisation of the 2017 assets [the £80m] because, first, the transfer was to save tax and, secondly, it was for the benefit of the children not the wife. The 2017 assets were not, therefore, being treated by the husband and wife for any period of time as an asset that was shared between them.”

Courts seek fair outcome

Assets considered “matrimonial assets” will generally be shared on divorce, says Sarah Hoskinson, head of the family law team at Burges Salmon, who advises in many farming divorce cases.

These are things that have been treated as joint assets or have been acquired during the course of the relationship.

These might include property, savings, pensions and investments and, in the case of farming families, business assets such as machinery and livestock.   

In a farming context, a fairly typical situation is for someone to be given a farm or land in their sole name, who subsequently brings their spouse into the farming partnership.

“The farm or land may then appear in the partnership accounts and the question is, does that make it a matrimonial asset?” says Sarah, who stresses that every case is considered on its merits and individual circumstances.

Needs of the parties

Financial settlements must consider the needs of each party.

“In almost all cases where there is an owned family home, its value will be considered matrimonial, regardless of it coming from one party, and so will be shared,” she says.

“Whether any of the remaining assets will be split depends on many factors, including most importantly the needs of the parties, then what each party brought to the marriage in the first place, the contributions of each spouse to the business and to care for the family, which in turn supports and aids the business.”

Leaving non matrimonial assets out of sharing will only be considered in the financial settlement if a division of the matrimonial assets is sufficient to provide for the needs of the parties, says Sarah.

If there is not enough to meet needs, matrimonialisation will not be an issue, as needs have to be met, even if that means using assets which came from one party or prior inheritance from their family.

She points out that where assets are being transferred for tax purposes, showing the intention is important.

“If assets are being moved to a spouse or civil partner, is the intention that they should stay with that person or be passed on to children or others? So much of the focus of the IHT changes has been on saving tax but the other risks need attention too.

“Where assets are moved for tax-planning purposes and it is not the intention that they become what is known as ‘matrimonial’ [shared] assets, then a pre- or post-nuptial agreement can cover this, making it clear what the ­intention is.

“With good professional advice, this can avoid an own goal in the rush to legitimately save tax – it’s all about evidencing the reason for the movement of assets, and people are now more comfortable to talk about nuptial agreements.”

Alex Davies, head of the family division at law firm Wedlake Bell, points out that in Standish, the Supreme Court held that tax-motivated transfers between spouses do not, in themselves, convert non-matrimonial property into matrimonial property.

“Importantly, the court has drawn a ­principled distinction between assets built within the marriage and those brought into it, while recognising that, over time, non-matrimonial property may become matrimonial if it is shared or integrated into the marital partnership.”

This clarification is particularly relevant for transfers between spouses for inheritance tax or capital gains tax efficiency, says Alex.

“The ruling is expected to influence how pre-nuptial and post-nuptial agreements are drafted and interpreted, as it strengthens the legal framework for distinguishing between different classes of property.”