“Ain’t nobody’s business but my own”: guidelines and tramlines in the family courts
In England and Wales, on divorce the law has regard to the financial resources available to the parties (s 25 (2)(a) Matrimonial Causes Act 1973). As in all common law jurisdictions, we then look to reported court judgments for interpretation. In WM v HM  EWFC 25, Mostyn J gave judgment on 9 May 2017. This case concerned a long marriage, with assets net of latent taxes of £182 million. The husband started the business in 1978 and began dating an employee in 1986. They married in 1989 after the birth of two children. They separated after 29 years of marriage in 2015. At trial, the private company was found to be worth £221,125,000.
Mostyn J confirmed, as he had done in an unreported judgment ( EWHS 147 (Fam)) that, “the correct approach to give effect to the sharing principle is to try to calculate the scale of the matrimonial property and then normally to share that equally leaving the non-matrimonial property untouched”. Because the definition of matrimonial assets is important, valuation must be based on evidence. In WM v HM, Mostyn J reminded us that there are essentially three routes to the value of assets at the time of the marriage:
- the linear time apportionment. For the husband, 20% of present value had been accumulated at the time of marriage, giving a valuation then of £44.5m;
- take a discount rate and work backwards from the current value. A rate of 5% would mean the husband started with £49m;
- separate lines showing increase in turnover and post-tax profit. On this basis, the husband’s business (which only began to be successful during the marriage) could be said to have been worth £46k at the time of marriage, leading to £221m for the judge to consider.
This evaluation does not mean just adding up the figures but is relevant to the final result – what Mostyn J refers to as “guidelines not tramlines”. Route (c) is out of line with the other two; here the judge preferred (a). Other points of note in this case are as follows:
- Like most other husbands, this husband failed in his claim of special contribution. Sir Paul McCartney has been one of the very few success stories in this arena when he succeeded in his divorce from Heather Mills. This surprised nobody given his outstanding contribution (see  EWHC 401 (Fam). But Randy Work recently failed in his claim when divorcing Mandy Gray. Their assets were $225m and the Court of Appeal upheld the High Court’s decision to divide assets equally (see  EWCA Civ 270).
- On the pre-White  UKHL 54 basis, claimants were usually awarded a reasonable income and reasonable provision for housing, with no check against the “yardstick of equality” to provide fairness. Afterwards, claimants then began to claim equal division of marital assets. The House of Lords endorsed this in Miller v Miller; McFarlane v McFarlane  UKH 24. The discretionary judicial interpretation of law has led to press reports calling London “the divorce capital of the world”. Certainly, many large awards to claimants who did not have equal business success are made by judges in England.
Business owners of public companies often have to sell shares to make the pay-outs on divorce. This was the experience of Nick Robertson of ASOS  EWHC 613 (Fam) There is a distinction between public companies (share valuations are easier) and private companies (where valuation is more of an art than a science). In WM v HM, Mostyn J’s neat solution was for the husband to increase the wife’s shareholding, so that part of the settlement is deferred until the company is sold, and to take a large dividend to pay the balance now in cash.
- Is the law discriminatory towards women? In this case, the wife claimed that it is. Other cases might support her. For example, it does look as if Mrs Cooper Hohn was discriminated against in her claim against Sir Chris Hohn  EWCA Civ 896. It was agreed that Jamie Cooper-Hohn could not have done more to contribute within the marriage. She was awarded one third of the wealth of the assets of over £1bn. Indeed, there is no reported case of a wife’s contribution being found to be exceptional or special.
- Why do business owners not have pre-nups? Most do have shareholder or partnership agreements (if only by default in the latter case (Partnerships Act 1890 – which many think is no longer fit for purpose). In most other jurisdictions, a pre-nup is the norm (again, sometimes by default) and will exclude as separate assets a pre-marriage business interest, or otherwise make provision for sharing if the marriage breaks down.
- We all now know a great deal about this marriage, this business and the couple’s lives. Most people want to avoid publicity. The case will often be heard in open court with permission for the press to report daily on the details of evidence. Family law arbitration provides for a private hearing where the parties choose the judge, venue, hearing date and can quickly get interim decisions, for example on company valuation. Everyone has a chance to settle the case. In WM v HM, we know the award was adjusted as the dividend would attract tax. In private agreements and arbitrations, no one outside the case knows the deal, save where company shares are sold to fund pay-outs.
Let us not forget that the costs of these final hearings can be horrendous. Of a fortune of £220m, the Robertson divorce incurred professional fees of over £1m. In the Hagen (Viking Cruises) divorce, when a three-week trial commenced in the High Court on 28 June 2017, the combined costs pre-trial were some £10m, with £770 million of assets. The case settled six days into the trial.
Much of the money is spent on matters where the judge has a discretion, including business valuations and contributions. WM v HM guides us on those important elements.
This article was originally published in Jordan’s Family Law Journal.
Hazel Wright, Partner