Insights
06 Nov 24
Relationship breakdown for co-owners of a family business
Fiona Turner and Emma Collins
Spoiler alert: wealth planning should not be done in isolation.
2025 promises to bring to a close the long-running saga of Mr and Mrs Standish’s divorce.
In May 2024, the Court of Appeal case of Standish v Standish [2024] EWCA Civ 567 demonstrated how wealth planning during marriage risks a significantly higher settlement for the other spouse than might otherwise be the case.
The case is now on its way to the Supreme Court, with permission to appeal granted to the wife in October 2024.
The hearing is scheduled for the Spring of 2025.
Where does the story begin?
Chapter 1: the family wealth was £132 million. A second marriage for both, the husband brought into the marriage significantly more wealth than his wife.
Chapter 2: during the marriage, the husband transferred £77 million, previously held in his sole name, to his wife as part of a tax planning exercise.
The parties separated.
How does the story unfold?
At first instance: Mrs Standish argued that by transferring £77 million into her sole name, her husband intended for his wealth to be shared and divided 50:50. She argued that of the £132 million overall assets, £112 million was capable of being divided equally.
The judge agreed that the resources should be shared, but not quite equally. The court awarded her £45 million. After a 15-year marriage, this was approximately one third of the parties’ total wealth.
Court of Appeal: the wife sought to appeal, seeking an uplift to nearer 50%. This claim for more backfired though. Her husband cross-appealed, arguing that the money was acquired before the marriage and so should be deemed to be a non-matrimonial asset and not be subject to a sharing claim.
The Court of Appeal reduced the wife’s award from £45 million to £20 million. This is believed to be the largest ever reduction in UK divorce history.
Supreme Court: permission to appeal was granted to Mrs Standish in October 2024. The Supreme Court is scheduled to hear the case in the Spring of 2025.
What could have happened differently?
Chapter 1: the family wealth was £132 million. A second marriage for both, the husband brought into the marriage significantly more wealth than his wife.
Lesson 1: there should have been a pre-nuptial agreement.
A pre-nuptial agreement would have assisted Mr Standish considerably.
A pre-nuptial agreement is an agreement that a couple enter into before they marry or civilly partner, setting out how resources and assets would be split if the relationship ends.
A pre-nup can:
- Predetermine the outcome of a divorce settlement, taking away the stress, uncertainty and cost of a court dealing with it if there were a divorce.
- Endeavour to safeguard or ringfence certain assets to protect them from future claims if there were a divorce. Pre-nups are commonly used if there is a wealth imbalance between the parties.
Although a pre-nup is not legally binding in England and Wales, since 2010 and the Supreme Court’s judgment in Radmacher v Granatino [2010] UKSC 42, the law has evolved such that a pre or post-nuptial agreement will provide significant protection to those seeking to protect assets.
Current law means that the court is not obliged to give effect to the agreement, but the court must give it appropriate weight when exercising its discretion. Subject to certain safeguards being adhered to when entering into the agreement, and provided that the agreement reached is not unfair and does not leave one party in need, those signing a nuptial agreement can expect to be held to it. Even if they successfully argue otherwise, it is very likely that their divorce settlement will be lower than that which they might have expected had they not entered into a pre or post-nup.
For chapter and verse on nuptial agreements see A guide to prenuptial and postnuptial agreements | Weightmans
In their report of 18 December 2024, the Law Commission repeated their recommendations, initially made in 2014, for a review of the law relating to nuptial agreements. It is thought that the wind of change is moving towards more certainty of outcome, and so a nuptial agreement to become more, not less, likely to be upheld in the future.
Chapter 2: during the marriage, the husband transferred £77 million, previously held in his sole name, to his wife as part of a tax planning exercise.
Lesson 2: at the time of the transfer of money from husband to wife, all eyes were on the tax planning possibilities this presented. A balanced review from both private client and family lawyers would have highlighted how the wealth planning may impact a future divorce. Informed decisions could then have been made, with pros and cons calculated and considered.
The tax rationale was that if the husband transferred assets to his wife before he became domiciled in England, the assets would escape UK IHT. It was then intended that, after a suitable lapse of time, the wife could place the assets into an offshore discretionary trust. It was an option for the husband to be added as a beneficiary and benefit from them.
At first instance, the court found that the transfer of assets ‘matrimonialised’ them, at least in part, allowing the wife to make a sharing claim over them when she filed for divorce.
The Court of Appeal decided that the source of the asset is the critical aspect, not in whose name it is held, and so held that a large proportion of it was ‘non-matrimonial’. However, at least a portion of the gift, (which had increased in value during the marriage), was generated during the marriage and so matrimonial property.
Why does this matter?
If an asset is ‘matrimonial’ it means that it has been built up or acquired during a marriage. As a result, the starting point is that they should share equally in all matrimonial property.
If an asset is ‘non-matrimonial’ it means that is has been brought into the marriage by one spouse only. Non-matrimonial assets are less likely to be shared equally. It may be possible to argue that that resource should be ring-fenced or otherwise preserved for the party bringing it into the marriage.
Examples of what may be argued as non-matrimonial resources might be assets acquired before the marriage or relationship, or those generated after it has ended, or assets gained through inheritances or a family business.
Even if an asset is ‘non-matrimonial’, a divorce settlement is always subject to the court’s discretion and the issues outlined in s25 Matrimonial Causes Act 1973. If there is insufficient wealth, it may not be possible to “ring-fence” or protect non-matrimonial assets. But for wealthy individuals such as Mr and Mrs Standish, the distinction between what is capable of being shared as matrimonial assets – or not – is crucial to the ultimate settlement.
Lesson 3: there was no consideration given to a post-nuptial agreement.
A post-nup operates in a similar way to a pre-nup.
Mr Standish had transferred his resources to his wife with a view to avoiding inheritance tax and with the ultimate plan of those assets being held in a discretionary offshore trust, (although in practice, the trust was not established by the point of divorce).
There is a clear tension between what the family lawyers may seek to achieve, (protecting the source of the asset and limiting sharing claims for the gifting party or, conversely, promoting sharing claims for the recipient), and what the financial advisors and private client lawyers seek to achieve, (minimising tax and showing that there is no retained interest in the asset).
It is our view that a post-nup must always be given consideration at a time when an asset transfer is being contemplated, even if it is subsequently discounted for fear of it undermining the tax planning exercise.
A post-nup could make clear whether a transfer of resources is fully intended by the parties to be an outright gift or some form of “conditional” gift arrangement. This intention may affect a later claim that the source of the wealth protects it from being shared on divorce, and could affect the efficacy of the tax planning, but at least the parties would have clearly weighed up the pros and cons.
The final chapter
Later this year, we will find out how the Supreme Court approach the division of assets for Mr and Mrs Standish. How the story ends remain to be seen.
Whatever the outcome, on which we will update you, the main lesson to be learned has to be this: look at the situation in the round with advisors from across the spectrum. Failure to do so could cost you dearly.
Fiona deals exclusively with family law issues. She has a global practice, dealing with matters for clients wherever they are based — whether in the North West region, London or elsewhere in the UK or overseas.
Main practice areas include advising on wealth protection strategies, (including pre and post-nuptial agreements and cohabitation agreements); divorce and dissolution (including international issues), financial settlements for married and unmarried couples (often involving businesses, land (including farms), trusts and pensions), children law and international relocation cases.
Fiona and the team at Weightmans provide a bespoke, tailor-made service for each individual client.
Richard heads Weightmans’ national private wealth team. Richard advises clients on all aspects of estate planning including wills, trusts, family investment companies and probate matters. He has a particular specialism in tax mitigation and assisting business owners and those with more complicated family arrangements and asset structures with succession planning and wealth protection.
Richard works closely with the firm's Owner Managed Business and family teams and often with accountants and independent financial advisors to ensure that clients receive broad-based holistic advice.
