The ‘sharing principle’ – the idea that ‘marital assets’ should be divided upon divorce as spouses are equal partners in a marriage – is frequently relied upon in financial remedies cases by the Family Court.

In WW v XX [2024] EWFC 330(B), His Honour Judge Edward Hess adopted the ‘sharing principle’ in determining the split of matrimonial assets on divorce but significantly reduced the wife’s share to reflect the level of risk associated with the husband’s shareholding in a company he was to retain. Accordingly, the judge awarded the husband 62% of the assets, leaving the wife with a 38% share. Paralegal Anna Cope examines the decision in detail.

 

Background

The husband owned and ran a successful business that had been established in ‘Country A’ in 2004.

The wife had a career in events management but gave this up to pursue a competitive sports career in September 2021. While she had significant success, it was not financially lucrative and continued to be an expensive exercise. She relied on financial support from her husband.

The parties married in 2017, having cohabited since 2010. There were no children of the marriage, and the parties lived in London (in rented accommodation). Due to this pre-marital cohabitation, his Honour Judge Hess viewed this as a 12-year rather than a five-year marriage.

In spring 2022, the husband purchased a property in his sole name in Berkshire and moved there himself, terminating the tenancy in London. This coincided with the breakdown of the parties’ marriage. Aside from ‘Company Y’, this property was the only marital asset.

 

The value of Company Y

One of the main disputes in the case was the value to be attributed to the husband’s 100% shareholding in Company Y and the extent to which this figure should be treated as a matrimonial asset subject to the sharing principle – which the Family Court continues to rely upon in financial remedies cases.

Two experts were instructed to value the husband’s shareholding in Company Y, each reaching different conclusions as to the correct valuation. Unable to distinguish between the reliability of the two valuations, which had both been well supported by the experienced experts by way of evidence and justification, His Honour Judge Hess took a valuation midway between the two. The judge found that the husband’s shareholding in Company Y was worth £9,976,792. One expert concluded that the husband would receive a net income of £601,000; the other said it would be £583,000. The experts agreed that the value of the shares in September 2010, at the start of the parties’ relationship, was £1.25m before tax.

To bring the value up to date, the judge applied a methodology from the case of Jones v Jones [2011] EWCA Civ 41, namely doubling the initial valuation and then applying an appropriate share index. In doing so, he increased the 2010 value of the shareholding from £1.25m to £3.85m and then deducted the tax payable in Country A to reach a figure of £2,772,000. The judge found that the marital portion of the assets (the ‘marital acquest’) was, therefore, £7,204,792 (being £9,976,792 less £2,772,000).

 

The treatment of the shareholding and the sharing principle

As the wife was only 38, the judge found that if she wished to do so, she could fairly easily return to her previous career, where she earned approximately £50,000 per annum. The judge held that if she chose not to pursue her earning capacity, i.e. choosing instead to pursue a less lucrative career in professional sport, then the husband should not be expected to fund this.

His Honour Judge Hess did not believe a lifetime maintenance (‘Duxbury’) fund was reasonable. He concluded that a needs-based assessment for the wife would be properly assessed at £2m, to include a housing fund and a Duxbury income fund. If her sharing claim came in at above this level, then that would prevail.

His Honour Judge Hess distinguished between the wife’s receipt of a potentially guaranteed cash lump sum and the husband’s receipt of more risk-laden shares as part of the overall settlement. The shareholding was also significantly illiquid. To mitigate against this risk and since the shareholding represented the majority of the wealth available to the parties, he decided that the lump sum would be paid over seven years. The judge also decided that the balancing lump sum payment would be further reduced from £3,255,952, being the parties’ share of matrimonial assets, to £2,500,000 to account for the “copper-bottomed” cash lump sum the wife would receive and the “risk-laden” shares the husband would receive. This created a division of 38% to 62% in the husband’s favour.

His Honour Judge Hess decided that this sharing-based solution provided more for the wife than she might expect from the needs-based solution, so the sharing-based solution was more appropriate.

 

Conclusion

Partner Matthew Humphries comments: “The Matrimonial Causes Act refers to the duration of the marriage, yet in this decision (which is nowhere near the first), the judge makes no distinction between the period of cohabitation and the period of marriage. This is despite the fact that parties usually have different expectations regarding their responsibilities to each other during those different stages of their relationship. This decision is a helpful example of how to address the challenging question of the value of a shareholding existing prior to marriage (or, in this case, living together).”

 


 

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