These articles gives a general overview only and the legal position at the time of writing them. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print.

Divorce and Business Assets

 

When families separate they may often become entangled in the difficulties of dealing with their business. As the Court deals with each case on its own merits it is often helpful to look at a number of cases and their circumstances and how the Court dealt with them.

One example heard in 2008 was of a couple who had been married for fifteen years. They had two children who were attending private school. The husband was fifteen years older than his wife who was just under 50. Their main asset was their restaurant business owned by them both but run by the husband for over 33 years. It was a successful business and had been valued at about £5,000,000.00 and valuations ranged between £4,000,000.00 and £5,000,000.00 and there differences in opinion as to the value of the business and the total value of the family assets. In the light of this the expensive option of instructing forensic accountants was undertaken and as often happens the two experts came forward with different opinions. However, it appeared to be agreed that until relatively recently the business had had little value and had increased significantly in the more recent past. As the parties were looking for a clean break it was important to have a clear understanding of the total value of the family assets particularly as the wife looked to receive not only half the assets but also maintenance both for herself and for the children. Maintenance sought was not insignificant at £82,000.00 per annum. Not unnaturally the husband disagreed.

The Court in this case decided that despite the relatively high capital figures there were insufficient funds to provide a clean break. The Court agreed that the 33 years of input by the husband had a significant effect on the business value and as such it could not be treated solely as a matrimonial asset (marriage of 15 years). However the Court would not go as far as dividing between matrimonial and non-matrimonial property as such. The Court decided on the value for the business and decided it was not right to sell the business as the husband had had it for such a long time and intended to work in it for many years in the future. It was not fair either for the business to take on very significant borrowings. On the other hand in a separation a party, in this case the wife, had to have sufficient capital for an income for her needs and was therefore awarded about half the value of the business as a capital sum together with maintenance for herself as well as maintenance for the children of significant rates to meet the wife’s standard of living and needs and also to support the children. In addition her husband had to find the school fees. In percentage terms the lump sum payment to the wife represented 32% of all the assets (perhaps significantly 67% of the non-business assets).

What came out of this case was not only the way the Court dealt with the assets and the needs of the parties but also the costs of the case itself. It considered that forensic accountants for both parties was inappropriate particularly as valuations can be of a matter of opinion the Court is to look at a broad analysis of facts when applying the criteria under the Matrimonial Causes Act 1973, not a detailed accounting exercise. Therefore valuations are there to assist the Court in its testing the fairness of any proposed outcome (order) that it may make. This is more particularly the case when valuations of shares in private companies are difficult to value.

It must therefore always be remembered that the Court takes a broad and not a particularly detailed approach generally. Also when looking at businesses, by example if they were to be sold, a Court would not only look at the base value but also give consideration to the view that a vendor and purchaser may often agree a figure based on a warranted profit figure.

Pre-Marital Wealth

The above case brought into the discussion non-marital property. More and more couples either marry later in life or marry for a second time and bring into the marriage wealth that they accrued earlier in their life.

A number of cases are being brought before the Court to clarify the Court’s approach to these issues and how to deal with the Court’s discretion under the Matrimonial Causes Act 1973.

A case in 2007 before Judge Moylan provided such guidance. Firstly, the Matrimonial Causes Act was the main stay in dealing with any case. However any assessment of a fair division of assets should not be determined by a forensic approach but rather by having regard to the particular circumstances of the case in question, the general assets of the family and applying the yardstick of equality. Therefore it was not always necessary or possible to distinguish between assets accrued during the marriage and those brought into the marriage and the degree depended on the facts of the case. By example where the needs of the parties could not be met without taking into account all the assets then pre-marital assets would not be distinguished. Having said that however in a shorter marriage one party may have a much less right to acquire an interest in pre-marital assets whereas longer marriages may need to take these matters into account on a broad assessment approach.

In the case in question the parties were both over 50, met 4 years before their marriage and separated after 17 years. Of the family assets of about £22,000,000.00 about £3,000,000.00 was represented in the home, a third of a million in a London flat and about £12,000,000.00 in the husband’s Company with pensions of about £7,000,000.00. Although this is a fairly high worth case the issues are still relevant to every case.

The non-matrimonial assets came into dispute during the period that the parties were involved prior to marriage, ie. about four years. It was important to know when they became committed to each other or cohabited if that was the relevant date and how that affected pre-marital assets. Part of the case had to deal with these issues and the wealth that the wife may be entitled to. In this case, the Judge concluded that in this period there was a fluctuating relationship and thus effectively the relevant date was the date of the marriage. This would not have been the case had couples committed to each other by cohabitation and in that case the start date would be the cohabitation date. In this case the Judge was able to look at the wealth of the parties during the marriage and the needs of the parties and the Judge looked at deciding whether there was justification to depart from equality and in doing so the Judge found that the husband’s wealth prior to marriage was significant and would justify departing from an equal division of the assets. He saw that the pre-marriage Companies that had been formed were well established and successful and gave the wife 40% of the current wealth and dividing pensions and other assets in the same proportion.

Consent or Compromise Agreements

Often in family disputes parties will reach an agreement on their finances. In a case in 2009 an appeal arose because of the economic climate affecting the assets. The Court concluded that although it could set aside such a compromise agreement or consent order if there were dramatic subsequent events these would be few and far between and would not include the natural process of price fluctuation even though that may be dramatic. In this case the husband had retained his shareholdings in the Company he was Executive Chairman and will be able to benefit from those, the analogy being that where a businessman had taken a speculative position in compromising his wife’s claims he would have to take the consequences of this speculation. Also in this case the lump sum was spread over five instalments, part of which had been paid and thus any re-writing of the order would produce uncertain results.

In summary therefore the Courts are going to be reluctant to vary consent orders or compromise agreements.

October 2009

This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case.  Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Stephen Moss, Jayne McPherson, Andrea Ball, Vicky Emens or Bree Corrigan on 0800 135 7917 or alternatively by email on Stephen.Moss@lemon-co.co.uk, Jayne.McPherson@lemon-co.co.uk, Andrea.Ball@lemon.co-co.uk, Vicky.Emens@lemon-co.co.uk or Bree.Corrigan@lemon-co.co.uk.

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