High-profile Family Court case establishes sharing principle and addresses post-separation accrual in complex business divorce proceedings.

Citation: [2023] EWFC 82
Judgment on

Introduction

In the high-profile case referenced by its neutral citation number [2023] EWFC 82, presided over by Sir Jonathan Cohen in the Family Court, a myriad of complex financial issues arose following the dissolution of a long marriage. The case serves as an insightful example of the application of several pivotal family law principles which UK legal professionals must be cognizant of when dealing with financial remedy orders amidst marital breakdowns.

Key Facts

The marriage under scrutiny spanned approximately 27-28 years, featuring a husband (‘H’) who established a successful hedge fund business (SC) during the marriage and a wife (‘W’) who supported this endeavour as a homemaker and mother. The separation occurred around the end of July 2020, invoking financial remedy proceedings. The matrimonial assets, including the business SC and properties, summed up to an estimated £27.188 million, with considerable dispute surrounding the valuation and treatment of H’s business interest.

The case addresses several issues including the valuation of a business with significant personal goodwill, the attribution of post-separation accrual, and a £1 million payment to W during the marriage following H’s admitted affair.

Sharing Principle and Matrimonial Assets

Central to the case is the application of the sharing principle, which dictates that assets accrued during a marriage are considered matrimonial assets and should be divided equitably upon divorce. This principle was applied when evaluating the investments in SC, which were made with funds accumulated during the marriage. Despite the post-separation accrual, the Court found that the invested funds, resulting in increased business value post-separation, should be shared, largely rejecting H’s claim to ring-fence post-separation profits (paragraphs [40]-[42], JL v SL (No.2) [2015] 2 FLR 1202).

Treatment of Post-Separation Accrual

The approach towards the post-separation accrual of H’s business profits was particularly nuanced. The Court largely followed the ethos set out in Versteegh v Versteegh [2018] 2 FLR 1417, where it was deemed appropriate to share the increased value of assets which were marital but appreciated post-separation due to one party’s efforts. The Court declined to strictly categorize the post-separation profits as non-matrimonial and, therefore, excludable from division, emphasizing that the business’s success was rooted in efforts made during the marriage (paragraph [64]-[70]).

Clean Break and Earning Capacity

In addressing H’s contention against W sharing future business profits, the court referenced Waggott v Waggott [2018] 2 FLR 406, distinguishing that while earning capacity may not be a matrimonial asset subject to sharing, the sharing of future business returns does not equate to sharing future income. It was emphasized that the business value was tied to marital assets, and thus, W was entitled to a share of future returns (paragraphs [121]-[124]).

Outcomes

The Court structured its remedy by, among other allocations, awarding W:

  • Ownership of the two properties.
  • 17.5% of H’s profits from SC for four subsequent years.
  • The £1 million she received from H as a standalone gift following his affair.
  • Sufficient lump sum to ensure a fair division of assets.

The Court struck a balance, safeguarding W’s future financial security by entitling her to share in SC profits, while also capping the time and amount to reflect the inevitable transition of the business’s income from marital to personal as H would move on post-divorce.

Conclusion

The EWFC 82 judgment offers a paradigm case for the application of family law principles regarding the distribution of assets in divorce proceedings, particularly when it involves complex business interests and post-separation accruals. While the Court advances the objective of achieving fairness, it also underscores the necessity of a predictable endpoint to financial ties, as evidenced by its structured approach to the division of future business profits. This case will serve as a profound reference for matrimonial finance practitioners in matters where business assets embody both marital and personal contributions, and the exact value cannot be readily ascertained.