In the recent case of ED v AP [2025] EWFC 399, the Family Court considered how carried interest (a long-term form of private equity remuneration contingent on future events) should be treated on divorce. The court rejected a rigid formulaic approach in favour of a more flexible approach to achieve fairness. Nazanin Ilbeigi Taher, a paralegal in our Divorce and Family team, reviews the decision.

The facts

The parties had been married for 28 years and had four adult children. During the marriage, the husband pursued a successful career as a senior manager in a private equity firm, while the wife was a homemaker. Their assets were divided into two categories:

1. Category 1: assets that exist now and upon which a present value can be placed. This comprises existing assets and liabilities valued at over £22m, including real property, pension funds, a trust, investments and cash.
2. Category 2: assets that are contingent upon future events, the outcome of which is unknown. This is principally the husband’s potential future entitlement to carried interest arising from private equity funds.

The wife sought to retain the family home and argued that she was entitled to an equal share of most assets, including the Category 2 assets. The husband proposed selling the family home due to liquidity concerns. He also contended that the wife should not receive 50% of the Category 2 assets, but that varying percentages should apply to reflect work undertaken both during and after the parties’ separation.

Applying established principles

In relation to Category 1, the court found these assets to be matrimonial property built up during the marriage. Applying the sharing principle established in Standish v Standish, the court divided this matrimonial property equally. The assets were divided broadly 50/50, with the family home transferred to the wife and adjustments made to reflect the husband’s anticipated housing costs.

Category 2 presented a more complex challenge. Carried interest is not guaranteed and may never be realised. It depends on a variety of future factors, including fund performance, market conditions and continued involvement in the business. Fixing a present-day value risks unfairness. The Category 2 assets are not purely the product of marital endeavour and therefore cannot be categorised entirely as matrimonial assets; there is still earning to be done.

The court adopted a Wells sharing approach, which allows both parties to retain an interest in the Category 2 assets, sharing the risk and reward, with the value only realised when the assets crystallise, rather than attempting to capitalise it at the point of divorce.

The percentage interest retained by the wife was specifically examined for each Category 2 asset. His Honour Judge Hess undertook a broad but mathematical assessment to work out to what extent the Category 2 assets were matrimonial and provided the wife with a fair percentage interest. For example, for those assets found to be the product of, or in the majority the product of, martial endeavour, the wife retained a 50% interest. However, for those found to have a significant dependence on future (non-matrimonial) endeavour, the wife’s percentage interest was much less, in some instances around 30%.

Rejection of rigid formulas

Two points of particular interest emerge from the judgment.

First, the court closely examined when the relevant effort, or ‘martial endeavour’, was made and applied this to the percentage of carried interest that each party retained. This approach highlights the importance post-Standish of clearly identifying matrimonial and non-matrimonial property and affirms that only matrimonial property will be shared equally.

Secondly, while a mathematical approach was taken, it was applied broadly, with the court rejecting the application of a strict mathematical formula for dividing carried interest. This is a departure from the approach suggested in A v M [2021], as His Honour Judge Hess observed that carried interest does not accrue linearly or predictably and cannot be divided by reference to a simple calculation. His Honour Judge Hess found that a “broad and mathematical” approach was required, combining numerical analysis with judicial discretion.

What this decision means for clients

This judgment will be of particular interest to individuals working in private equity and other sectors where remuneration is performance-based. It confirms that the court will not be constrained by rigid formulas when dealing with complex and contingent assets. Fairness remains the guiding principle, informed by a careful assessment of risk, reward and the timing of contribution.

Conclusions

Partner, Voirrey Ward, comments:

“This decision underscores the court’s pragmatic approach to complex financial structures and the importance of a careful, fact-sensitive analysis of carried interest. Where assets are contingent on future events, the imposition of rigid formulas may obscure the central question of fairness. It will be important for clients with private equity interests, for work to be undertaken at an early stage to identify such assets, assess the extent of the marital endeavour in respect of them, and the elements that rely on future endeavour, and accordingly may fall outside the principal of equal sharing.”