New Quadrant partner Flora Hussey reviews the recent Supreme Court family law case which clarifies the status of “matrimonalisation” of assets and how it may impact on the division of assets on divorce from a private client perspective and highlights that when it comes to tax planning, it can be costly not to finish what you started.
The Supreme Court judgment in Standish v Standish [2025] UKSC 26 has recently been given. The case concerned a divorcing couple and their financial consent order. The case was principally concerned with the transfer of just under £80m in 2017 (the ‘2017 Transfer’) from Mr Standish to Mrs Standish under advice from tax lawyers and provides an interesting crossover between structuring to mitigate tax and the reach of financial orders in divorce cases.
The couple’s wealth, by the time of their divorce, was in the region of £120m, much of which had been earned by Mr Standish before their marriage. The 2017 Transfer took place because Mr Standish was to become deemed domiciled in the United Kingdom in 2017, having spent 15 out of the last 20 tax years as tax resident in the UK. This change of status to a deemed domiciled individual who was born in the UK will have meant that, amongst other things, if he had died without a change of status his entire estate would be subject to UK inheritance tax. In 2017 his wife remained non-domiciled and non-deemed domiciled, who was born outside of the UK. She could set up an offshore trust and as long as the settled assets remained non-UK situs and no UK domiciled individuals actually took benefit, the trust would be outside of the UK inheritance tax net (so-called excluded property trusts). In light of this rule, and taking advice, Mr Standish transferred money to his wife for her to set up two trusts for the benefit of their children.
Although it was clear from the Court documents that the drafting was completed, the wife never set up the two trusts. Instead the 2017 Transfer funds were kept in the wife’s name until the divorce. It was established that there had been some issues between the couple with the rules of the excluded property trusts, including that Mr Standish would be unable to benefit from the trusts.
The question for the courts was whether the assets transferred to Mrs Standish constituted matrimonial property and would likely be subject to the terms of any financial order. The Supreme Court, in support of the Court of Appeal, stated that the source of funds for the 2017 Transfer were pre-marital assets and therefore for the most part outside the scope of any financial order. 75% of the 2017 Transfer was considered non-matrimonial property, while 25% was subject to the so-called sharing principle and was to be part of the financial order. Mrs Standish was awarded £25m, rather than the £45m which had been awarded at the first hearing and subsequently appealed.
From a private client law perspective, the compelling point is the possible damage that comes from taking advice in respect of complex structing to mitigate tax and then failing to follow it through. If the trusts had been established validly and the assets transferred, some expensive litigation could have been avoided. There may have been an argument if the trusts had been established as originally planned, that the trusts should be considered ‘nuptialised’ and considered as part of the financial order, but it is likely this would have been dismissed very promptly in Court. Incomplete planning meant that the question was taken all the way up to the Supreme Court and, while it presents an interesting case for matrimonial and private client practitioners, it will have been an extremely costly exercise for the parties involved. What is the lesson? If you take advice, make sure to follow it through.
If you have any questions about the implications raised by Standish v Standish on your tax planning Flora, or any other member of the New Quadrant team, shall be pleased to assist.