It is not uncommon for separating married couples or those in civil partnerships to find it difficult to completely agree as to how to divide their assets upon divorce or dissolution. However, the law indicates that the equitable distribution of assets is generally of paramount concern so as to ensure that both spouses or civil partners’ housing and income needs are able to be met.

The Court’s starting point would be to consider whether a 50% division of the “matrimonial assets” is sufficient to meet the needs of both parties and any children in the short and longer term. Some disputes arise, however, when a decision has to be made as to what counts as a matrimonial asset, for example, would the court count critical illness policies as matrimonial assets?

How are assets usually divided?

Typically, if both parties housing and income needs can be met by the matrimonial assets and their income resources, then other important factors – sometimes referred to as Section 25 factors – may be brought in as justification for departing from equality as to the remainder of the assets.

The Court has discretion with regard to these factors and looks to achieve a fair outcome, meeting the needs of the parties, with first consideration to the welfare of any children under the age of 18. There are other factors that may be taken into account to include any physical or mental disability of either spouse i.e. their health.

Meeting needs is of particular importance where significant life changes and health challenges are involved for spouses or civil partners, as careful consideration of the complexities is necessary to ensure that any agreement reached is fair.

Does the court count critical illness policies as matrimonial assets? A case study

This principle is highlighted in the case of BC v SC [2023] EWFC 307, wherein the Court was asked to determine whether the husband’s payments from two critical illness insurance policies, totalling £1,410,000, should be considered to be matrimonial assets, and therefore shared.

In the absence of a previous case being leading authority on this particular point, the Court had to weigh up the following issues:

  • The parties were married for 19 years, separating in May 2021 upon the husband moving out of the former matrimonial home
  • The husband received the critical illness payments in March and June of 2021 and applied for financial orders in November 2021
  • The policies were designed to protect against the loss of future income due to ill health and to cover other expenses such as medical treatment and care costs but not as a substitute for future income

The Court had to strike a balance in meeting the specific needs of the spouses, notwithstanding the legal principle that damages (i.e. a sum of money claimed or awarded in compensation for a loss or an injury) are not generally considered a matrimonial asset.

Ultimately, the timing of husband’s diagnosis was of the utmost relevance and the Court decided that £802,835 of the policy proceeds be set aside for husband’s benefit for income replacement.

The total assets of the parties were divided 69.6% to the husband and 30.4% to the wife, reflecting their needs, especially husband’s medical condition, and the impact of his reduced earning capacity, and potential care needs.

This case sets a significant precedent as to the consideration given to critical illness policy proceeds as part of the matrimonial assets that can be apportioned to meet the needs of spouses or civil partners.

Get in touch

Every couple’s case is unique, with its own set of facts and circumstances, and it is important to seek legal advice that takes into account the specific details of your situation, to understand your options and the potential outcomes for division of financial assets upon divorce or dissolution that may be fair.

At Fisher Jones Greenwood, our team of family law experts have a wealth of experience in dealing with matrimonial finances and divorce matters and provide clear advice to guide you through this process. If you would like advice about matrimonial finances and divorce, please contact our Family Team by filling out our online contact form or call 08082 587 319