JL v SL

In financial remedy proceedings, inherited or gifted property does not lose its non-matrimonial character merely because it has been mingled with matrimonial funds or placed in the other spouse’s name. The court must assess whether, and to what extent, the non-matrimonial source should be reflected, having regard to duration, mingling, passive growth and the parties’ needs. A transfer made for tax, investment or practical family reasons does not, without more, establish an intention that the property should be equally shared on divorce. Where an appeal exposes an error in the exercise of discretion and significant new events have occurred, the appellate court may order a rehearing rather than determine the financial remedy afresh.

The applicant sought permission to appeal, and permission if granted, from a District Judge’s financial remedy decision. The grounds concerned the treatment of a substantial inheritance, a stepped reduction in spousal maintenance when the parties’ children completed university, and the absence of index-linking.

The High Court refused permission on index-linking, allowed the appeal concerning the inheritance, and held that the maintenance decision required reconsideration because the capital division had to be revisited. Subsequent events included the respondent’s receipt of substantial proceeds from company shares and his later redundancy. The central issues were whether the inheritance had become matrimonial property and whether the appellate court should exercise the discretion afresh or order a rehearing.

1. Permission and index-linking. Permission to appeal was refused on the third ground. The issue had not been raised at trial, and the District Judge’s decision not to index-link maintenance fell within her discretion.
2. Non-matrimonial property. The court applied the approach summarised in N v F [2011] 2FLR 533. The court should first decide whether the existence of non-matrimonial property should be reflected, considering matters including duration and mingling. If reflection is appropriate, it should determine how much should be excluded, divide the remaining matrimonial property, and test the result by the overall percentage technique, subject to needs.
3. The fact that inherited funds had been placed in the respondent’s name and used within the family’s savings arrangements did not destroy their non-matrimonial source. The evidence showed practical decisions about interest, taxation and access to funds on death, rather than an intention that the inheritance should acquire the same character as property generated by joint endeavour. The District Judge’s contrary finding was untenable.
4. The District Judge had also erred in treating the inheritance as part of the applicant’s contribution to the family on an equal footing with the respondent’s earnings and the applicant’s domestic contributions. The appeal on ground 1 was therefore allowed. The capital division had to reflect the inheritance through an unequal division, subject to needs.
5. That correction necessarily affected spousal maintenance. Although the stepped reduction was difficult to fault as a standalone decision, the maintenance award had to be reconsidered after the capital division was corrected.
6. Because significant new events had occurred, including the respondent’s receipt of net share-sale proceeds and subsequent redundancy, the court could not fairly determine the discretion afresh immediately. The matter was directed to be reheard by the judge, with further evidence on employment prospects. The parties were encouraged to mediate or use a private FDR. The applicant was awarded £15,000 inclusive of VAT towards her costs, enforceable only upon final distribution of the assets.

• High Court (Family Division): The appeal from the District Judge’s judgment and order was allowed on the inheritance issue. Permission was refused on index-linking. The matter was directed to be reheard after further evidence.