Legal update: Will your inheritance count towards the matrimonial pot in your divorce?

18Feb2016

The guidelines for how judges should deal with financial provision in a divorce case are set out by the Court of Final Appeal in the landmark case of DD v LKW (2010) 13 HKCFAR 537.  Generally after providing for the needs of both spouses any surplus of matrimonial assets shall be shared between the parties.  The starting point for sharing would be considered at a ratio of 50/50 equal sharing unless there is a good reason to depart from equality.

There is no hard and fast rule about what constitutes a matrimonial asset or a point of time about when the asset falls into the matrimonial pot; it depends on the circumstances of each case.  Whilst income earned and assets acquired after the date of marriage are usually considered matrimonial assets, the Court has broad discretion to make exceptions in each case taking into account crucial factors such as source of asset, duration of marriage and needs of the parties.

Departure from equality

In DD v LKW, Ribeiro PJ suggested that one of the reasons to depart from equality is the source of assets.  This means an asset acquired during marriage may be regarded as a non-matrimonial asset if its source is wholly external to the marriage, such as by gift or inheritance.  Emphasis is given to ‘may’ because it is ultimately a matter of the judge’s discretion to make this decision in the circumstances of each case.

Circumstances relevant to whether inheritance is a non-matrimonial asset

In respect of inheritance the judge would consider important questions such as whether the matrimonial pool has sufficient resources to provide for each party’s needs, the duration of the marriage, whether the inheritance funded the welfare of the family and the nature and value of the property and the time and circumstances at which it was acquired.

Generally, if it is a short marriage, the court might be inclined to regard inheritance as non-matrimonial property.  But after a long marriage those factors are likely to have much less weight with increased financial interdependence through time.

This is clearly explained by Ward LJ in the UK case of Robson v Robson [2011] 1 FLR 751 whereby one of the disputed assets is the husband’s inheritance received before the marriage of over 20 years.  Ward LJ found that on the circumstances of the case the couple had lived off the inherited wealth and thus included the property for sharing.   When discussing his approach with the inheritance, Ward LJ provided some useful guidelines which are summarised below:

  • The weight to be given to each factor depended on the particular facts and circumstances of each case and, although there was no order of importance, each relevant factor had to be given its due weight;
  • …as with every exercise of judicial discretion, the objective had to be to reach a just and fair result;
  • Need, compensation and sharing would usually guide that search for fairness;
  • As inherited wealth formed part of the property and financial resources of a party, it had to be taken into account;
  • The fact that wealth is inherited and not earned justifies it being treated differently from wealth accruing as the so-called ‘marital acquest’ from the joint efforts (often by one in the work place and the other at home);
  • It is not only the source of the wealth which is relevant but the nature of the inheritance. Thus the ancestral castle may (note that I say ‘may’ not ‘must’) deserve different treatment from a farm inherited from the party’s father who had acquired it in his lifetime, just as a valuable heirloom intended to be retained in specie is of a different character from an inherited portfolio of stocks and shares. The nature and source of the asset may well be a good reason for departing from equality within the sharing principle;
  • The duration of the marriage and the duration of the time the wealth had been enjoyed by the parties will also be relevant. So too their standard of living and the extent to which it has been afforded by and enhanced by drawing down on the added wealth;
  • The way the property was preserved, enhanced or depleted are factors to take into account.  Where property is acquired before the marriage or when inherited property is acquired during the marriage, thus coming from a source external to the marriage, then it may be said that the spouse to whom it is given should in fairness be allowed to keep it. On the other hand, the more and the longer that wealth has been enjoyed, the less fair it is that it should be ringfenced and excluded from distribution in such a way as to render it unavailable to meet the claimant’s financial needs generated by the relationship.

Protection of inheritance

Inheritance can be protected as a non-matrimonial asset with careful pre-marital planning as well as post-marital structuring.

Joanne Brown

The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.

If you would like to discuss any of the matters discussed in this brief article, please contact:

Joanne Brown
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.