Untangling the Knot: Navigating Post-Separation Assets in Divorce Proceedings

Who remembers the story of the cutting of the Gordian Knot? For those who don’t, it’s an Ancient Greek legend associated with Alexander the Great regarding a complex knot that tied an oxcart. Reputedly whoever could untie it would be destined to rule all of Asia. In 333 BC Alexander was challenged to untie it, and instead of laboriously untangling it as expected, fabulous pragmatist that he was, he dramatically cut through it with his sword. Genius, and a popular metaphor for a seemingly intractable problem which is solved by exercising brute force!

Sadly, brute force is not an accepted method of dispute resolution in the family courts – so faced with your own Gordian Knot of post separation assets on divorce, what can you do? You may recognise this scenario…

You have split up; you are getting divorced and trying to move on with your new life as best you can. In the meantime, you hear from mutual friends that your ex has being doing rather well since you parted ways – which could have been a few months ago, or even a few years ago, and you are only now sorting things out.

He got a big promotion with a much higher salary and great bonuses and share options; the business she set up with her friend as a “hobby” a few years ago is now winning awards and big accounts. He has bought an investment property with his new girlfriend. She has bought a lovely holiday apartment in Palma with her business partner. If only things could have been so good during the marriage, when money was not so plentiful, and real sacrifices had to be made to pay for the school fees and the holidays. Annoying, isn’t it!?

She made huge sacrifices to help and support him to get on at work and rise to the top. He says she used the family’s savings to start her business.

The scenario we describe above is one that clients frequently describe to us. Understandably, they want to know what they can claim from the assets their ex has accrued since they separated.  

As the name suggests, a ‘post-separation asset’ is an asset acquired after separation, but before a financial settlement. This can include (but is not limited to) property, company shares, and bonuses or other earned income post-separation.

So how does the court view these assets when dealing with the financial aspects of a divorce? This week Olivia Currie, paralegal at Manders Law, considers this question below.

Olivia Currie

Am I entitled to a share of my partner’s post-separation assets? Are they entitled to mine?

Dear reader, we get it – you want a yes or no answer. We’re afraid that the answer to this question will largely depend on whether the asset acquired post-separation is classed as matrimonial or non-matrimonial property.

When considering this question with regards to post-separation accrual, the principle of ‘continuum vs new ventures’ will be at the forefront of the court’s mind; in other words, to what extent is the property borne out of a ‘continuum’ of the marital partnership, rather than from a ‘new venture’ of either of the parties that is separate from the marriage? Ultimately, even where an asset held by one party is defined as non-matrimonial, the court is still able to distribute the asset where this is necessary to meet the other party’s needs. Read on to find out more.

Matrimonial vs non-matrimonial property

Generally, matrimonial property constitutes assets acquired during the marriage, including business and investment assets acquired other than by inheritance or gift to either party. Non-matrimonial property therefore often includes assets acquired prior to the marriage (provided they have not been “mingled” with matrimonial property), assets acquired by inheritance or gift, and, potentially, assets acquired post-separation.   

There is no statutory definition of matrimonial versus non-matrimonial property, so the court retains ultimate discretion as to the classification of assets in a particular case.

Why is this distinction important?

The reason the distinction between matrimonial and non-matrimonial property matters when it comes to post-separation accrual is that matrimonial property is subject to the principle of sharing (though more on sharing versus needs below). This means that the starting point is that any matrimonial property will be divided equally between the parties. Non-matrimonial property, on the other hand, can be retained in its entirety by the party whose property it is.  

You should note, however, that factors such as the length of the marriage may impact how property acquired by either party to the marriage is to be classified. For example, the longer the marriage, the likelier it is that non-matrimonial property may have been merged or “mingled” with matrimonial property; in a short marriage, the inverse will be true.

Continuum vs new ventures

So how does all this relate to post-separation assets?

When determining whether any assets accrued by a party post-separation should be shared, the court will want to consider whether those assets should be defined as matrimonial or non-matrimonial. When undertaking this exercise specifically in relation to post-separation accrual, the court’s task will be to ascertain:

‘…whether and to what extent the new work and new investments created by [one party] in the period after the parties separated falls to be considered in the character of matrimonial property in which the [other party] should be entitled to a share or whether some or all of it falls at a point too distant from the essential character of the matrimonial partnership to qualify.’ (per Roberts J in Cooper-Hohn v Hohn [2014], at [183])

The judge in this case went on to aptly summarise the essence of the issue as ‘continuum versus new ventures’. In other words, can it be argued that the asset generated is in some way a ‘continuum’ of the marital partnership? Or, instead, is it an entirely ‘new venture’ by one party, wholly unconnected to the marriage?

Say, for example, that during your marriage you and your partner developed an investment portfolio which, for the purposes of this example, was undoubtedly matrimonial property up to the point of separation. You and your partner separated a year or two ago, and you’re just now getting around to sorting out the finances. In the time since you separated, the portfolio has exploded in value, and is now worth double what it was when the relationship ended. The question now is: how should the growth in the portfolio’s value since you separated be divided?

On the one hand, your ex feels that the reason for the huge growth in the portfolio’s value was down to them: they identified key opportunities, made a number of shrewd investments and thereby single-handedly drove the value of the portfolio up at a rate way in excess of standard rates of investment return. In their eyes, it’s them who’s generated all of this post-separation growth; so why should you be entitled to any of it?

You, on the other hand, believe that your ex simply oversaw the growth of what began as an unquestionably matrimonial asset, and that the reason it has now become extremely profitable is in large due to the efforts that you jointly made as a partnership during the marriage. Moreover, you argue that your ex’s continued investments into the portfolio during the period of separation were only possible through the use of as yet undivided matrimonial assets. As such, your view is that the portfolio has thus remained a matrimonial asset even after the point of separation, and, therefore, you should be entitled to an equal share in its recent growth.

So, what’s the answer? A very similar scenario was analysed by the court in the case of Cooper-Hohn v Hohn. In that case, it was the husband who had overseen the growth of the parties’ investment portfolio during the period of separation. The court reached the conclusion that, because the fund had begun as a matrimonial asset and had retained this “character” at the point of proceedings, there was no doubt that the wife should be entitled to share in some of the post-separation profits. However, the court also acknowledged that the huge growth in the value of the portfolio during the period of separation was in large part attributable to the husband’s skilled ‘investment eye’. On this basis, the court concluded that whilst the wife should receive a share in the post-separation increase in value, her share should be less than that received by the husband, to reflect the husband’s greater active contribution to the growth of the asset in the period following separation.

Passive growth

Alternatively, imagine a scenario in which your joint investment portfolio had simply continued to grow passively during the period of separation. Neither you or your ex made any active effort to grow the value of the fund, and as a result it simply continued to grow in line with expected standard rates of investment return. In this instance, given the portfolio’s inception as a matrimonial asset and the absence of any active growth on behalf of either party, it is likely that there would be an equal division of any growth accrued during the period of separation.

New ventures

Now imagine another scenario, in which your partner alone created an entirely new investment portfolio in the period following separation, using their own funds kept in their own sole bank account, to which you did not have access. Here, it is much more likely that the new portfolio would be classed as non-matrimonial property. It is an entirely ‘new venture’ which has no connection to the marital partnership or the assets of the partnership. It is therefore unlikely that you would be entitled to any share of the portfolio’s value.

Other factors

Other factors that the court may have regard to include:

  • Whether the applicant has proceeded diligently with their claim;
  • Whether the person was treated fairly by the person who has the benefit of the post-separation accrual during the period of separation; and
  • Whether there is the prospect of further significant gains or earnings in the future and whether the applicant will be sharing in such future income or gains.

Needs vs sharing

Even where post-separation assets are determined to be non-matrimonial, the court may still take these assets into account as forming part of the matrimonial pot where the matrimonial assets alone are insufficient to meet the parties’ needs.

In the case of White v White [2000], Lord Nicholls stated that ‘in the ordinary course, this factor [matrimonial versus non-matrimonial property] can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this property’. In other words, if a party’s housing and income needs cannot be met through their half of the matrimonial property, the court may order that they receive a portion of the other party’s non-matrimonial property in order to make up the shortfall. This can include one party receiving some of the other party’s post-separation assets, even if those assets have been (or could be) classed by the court as non-matrimonial.

Top tips

  • Time is of the essence with post-separation accrual, as the nature of assets can change as more time elapses since separation. Seek legal advice (if only in the background) at an early stage.

For an initial FREE consultation on any aspect of family law, call Manders Law on 01245 895 105 or email us here.  

Note: this blog is intended to give an overview (rather than comprehensive guidance and advice) on your legal or financial position and is provided for information only. It is not an endorsement of any product or service provider.

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