K v L

In ancillary relief proceedings, inherited wealth brought into a marriage before it began may justify a substantial departure from equal sharing, particularly where the asset remains identifiable and has not been intermingled with matrimonial assets. The court must assess fairness under the statutory discretion, giving proper weight to needs, source of wealth, duration of the marriage, the parties’ standard of living and the way their financial affairs were organised. A long marriage does not automatically entitle the other spouse to share inherited wealth beyond generously assessed reasonable requirements. No fixed percentage or outcome is appropriate. Latent capital gains tax and the valuation date are matters of judicial discretion, assessed according to the particular facts.

The husband applied for ancillary relief following a long marriage to a wife whose substantial wealth derived from shares inherited before the parties met. The shares remained identifiable, generated the family’s income and increased substantially in value through passive growth. The parties had lived modestly and had no significant matrimonial capital apart from property and savings.

The husband sought a lump sum of £18 million. The wife offered £5 million, together with payment of reasonable legal costs and other agreed arrangements. The issues were the appropriate treatment of inherited wealth, whether fairness required sharing beyond the husband’s needs, the treatment of latent capital gains tax, and the date for valuing the assets.

1. The husband’s ancillary relief application was determined by ordering the wife to pay a lump sum of £5 million, or such other sum as resulted from the agreed formula. The wife was also to pay the husband’s reasonable costs and implement the other agreed arrangements.

2. Under section 25 of the Matrimonial Causes Act 1973, fairness required consideration of all the circumstances, with first consideration given to the children’s welfare and particular regard to the statutory factors. The relevant concepts of fairness were needs, compensation and sharing, as explained in Miller and McFarlane [2006] 3 All ER 1. Compensation was not in issue.

3. Equal sharing is a yardstick rather than an inflexible rule. Inherited or pre-marital property is a distinct source of contribution. Its treatment depends on matters including its nature, value, timing, duration of the marriage, whether it remained identifiable, whether it was intermingled with matrimonial assets, and how the parties organised their financial affairs. The court applied the guidance in White v. White [2000] 2 FLR 981 and Miller and McFarlane [2006] 3 All ER 1.

4. The wife’s inherited shares had been acquired thirteen years before the relationship, remained discrete, and had funded the family without being substantially converted into matrimonial capital. The parties had chosen a modest lifestyle. Those factors justified a significant departure from equality. The wife’s offer met the husband’s reasonable requirements fully and generously, and fairness did not require further redistribution.

5. The analogy with exceptional contribution in Charman (No.4) [2007] 1 FLR 124 was not useful. Guidance suggesting minimum or maximum percentages was of limited assistance; each case required an assessment of its own facts and the statutory discretion.

6. There was no hard-and-fast rule requiring latent capital gains tax either to be deducted or ignored. Having regard to the wife’s intentions, lifestyle and likely future use of the shares, the court adopted a broad-brush approach and deducted latent tax on £10 million of the shareholding only.

7. The assets were valued at the date of trial. The authorities, including N v. N [2001] 2 FLR 69 and Cowan v. Cowan [2001] 2 FLR 192, supported that approach. The post-separation passive increase in the wife’s shares did not justify an award exceeding the husband’s generously assessed needs.