The High Court ruled in favour of the principle of “fairness over strict equality” in cases involving high-risk business assets.
Facts:
The husband and wife met in 1994 when they were aged 25 and 20, respectively. They cohabited from 1995 and were married in November 1996. They have two adult children, X and Y. The husband is an investor and financier with a proven track record of acquiring and turning around businesses in distress, while the wife is a homemaker.
The family’s financial history was heavily influenced by tax planning and offshore relocations. A more permanent shift occurred in 2015 when the wife and their daughter Y moved offshore again. During this period, almost all of the family’s assets were transferred into the wife’s sole name. While the husband claimed this was for tax mitigation, the wife contended it was due to an ongoing HMRC investigation. Regardless of the motive, this arrangement gave the husband the authority to use the wife’s electronic signature for business documents, an authority that, remarkably, remained in effect until June 2023, well after they had separated.
On the advice of KPMG, the parties undertook a wholesale restructuring of their vast assets to minimise future tax liabilities. They moved the family wealth into a sophisticated corporate structure, or ‘umbrella’, comprising four main holding companies, known as BO 1, 2, 3, and 4, respectively. Under this umbrella, a series of further business interests were managed. Crucially, this structure issued £158m in loan notes. These notes were designed as a tax-efficient mechanism to allow the family to extract value from the companies in the years to come.
The parties separated in May 2021 and filed for a divorce order on 25th November 2022. A major point of contention involved “add-back” claims made by the wife regarding the husband’s recent financial conduct. The husband had repaid £6.7m to a business associate, a Mr. Z, to honour a verbal “handshake” guarantee following a failed investment in a pandemic-era venture. Although the guarantee was not legally enforceable in writing, the Court found the payment was a genuine commercial necessity to preserve the husband’s professional reputation and the ongoing success of Company A. Similarly, the wife’s claim that the husband had recklessly sold shares in a company called AA at a £6.8m loss was rejected, as the Court found he had sold them in good faith to raise capital while believing that the share price would continue to fall.
Decision:
Despite this having been a long marriage of almost 30 years, the Judge departed from a conventional 50/50 split to account for the different “types” of assets each party would walk away with. The husband was granted 55% of the matrimonial ‘pot’, while the wife received 45%, a figure estimated at £89,506,470. The Judge relied on the principle that a pound in cash is worth more than a pound tied up in a private company, noting that the former husband is retaining trading companies that face “economic headwinds”. By allotting the ex-wive 45%, she receives her share in “copper-bottomed” assets (cash and properties) that are deemed relatively safe. The husband, by keeping 55%, gets more value on paper, yet carries 100% of the risk that the businesses might fail tomorrow.
The Judge’s refusal to add back the £6.8m loss from the AA share sale reinforces the notion that “bad timing” or “poor investment choices” incurred during the breakdown of a marriage are not tantamount to “misconduct”.
Implications:
This case is a significant example of how the English Family Court handles “big money” cases involving complex corporate structures, international tax planning, and illiquid assets. This case reinforces a growing trend, whereby the Court accepts that an equal division by value is not necessarily an equal division by fairness. By awarding the husband 55%, the Court has sent a clear message, namely that, if one party takes “copper-bottomed” cash and the other takes “fragile” business interests, the party taking the risk may be entitled to a larger slice of the pie to compensate for that uncertainty.
The Judge has clearly prioritised “commercial reputation” over the Statute of Frauds 1677. This suggests that, in family law, a debt does not always have to be legally enforceable in a civil court to be recognised as a valid deduction from the matrimonial pot.
