Debbie Chism, Matthew Humphries, Lewis Powers and Finn Smith acted on behalf of the respondent wife in a recently reported case that dealt with multiple issues, including the division of non-matrimonial assets and the tests applied to determine the validity of a pre-nuptial agreement.

In this article, our team considers the judgment handed down by Mr Justice Moor in IR v OR [2022] EWFC 20.

Background

The wife (W) is in her early 50s, and the husband (H) is in his early 60s. W and H married in 1997 in country X and have five children. In the 1950s, H’s father established a retail shop in country X. H joined the family business in 1987, initially as an accountant. H became the CEO in 1993 after which the business experienced a period of rapid growth and, in 2005, H became the executive chairman (having appointed a new CEO in his place). H’s father died just over ten years ago and the business (including its premises) was subsequently sold for more than $1bn.

Prior to the marriage, the parties entered into a pre-nuptial agreement (PNA) which intended to prevent W from making any claims on divorce as against H’s interest in the family business. W, in her evidence, said the PNA was produced out of nowhere one night when the parties were at home. She said H’s father insisted on the PNA, so she signed it without formality or witnesses at home that evening. Even though both parties were clear they signed a document, it was impossible to locate a signed copy of the PNA by the time of their divorce. Therefore, it could not be certain that the draft before the court was the final document. W’s position was that the PNA should have no effect on the outcome of her claims. H argued that any outcome should respect the PNA’s spirit and reflect the dynastic nature of the family business.

W and H separated in 2019 and H petitioned for divorce in May 2020. The parties were unable to resolve the issues between them and reach a settlement. As a result, the case was listed for a multi-day trial in March 2022 before Mr Justice Moor. Prior to the trial, the parties made their open proposals for settlement to one another. In summary, H proposed that W exit the marriage with a total “needs based” provision of £50m. W sought provision of £81m, assuming a sharing claim.

At the time of trial, there were various issues for Mr Justice Moor to deal with but in this article we will only address the main issues.

Judgment

W and H could not agree the overall value of their assets after tax. W contended that there were total assets of around £229m after tax whereas H contended there were total assets of around £148m after tax. The judge agreed with W’s arguments that certain tax liabilities estimated by H should not be deducted from the asset schedule in their entirety and ultimately decided that the correct overall net figure to adopt was £184m.

Mr Justice Moor then had to decide how the pot of £184m should be shared, bearing in mind a significant source of the wealth emanated from H’s father and the roots of the business established in the 1950s.

H attributed the success of the business to his father and, on that basis, said W’s award should be based entirely on her needs. When asked about his role in the business, H said he “stuck to the knitting”, and his achievement was that he didn’t “stuff up”. In contrast, W said she felt H underplayed his role in the business and that he was responsible for renaming the company and coining a successful marketing phrase. H was also instrumental in rolling out a business model that enabled the business to expand rapidly. W, therefore, contended she should receive a fair share of the assets as opposed to having just her needs met, albeit she accepted this should not be 50% and that there should be some departure from equality to reflect the fact that H’s father had established the business.

Mr Justice Moor was persuaded by W’s case and found that under H’s stewardship, there was huge growth. The business changed beyond recognition from a small regional chain of stores (at marriage, there were less than 20 stores) to one of the largest chains in country X (on sale, there were more than 100 stores). This all occurred during the marriage and led the judge to find that the huge increase in value created matrimonial property in which W was entitled to share (notwithstanding the origin of the business being dynastic and a product of H’s father’s work). However, as W anticipated, the judge made an allowance for the significant non-matrimonial element and commented that H would not have been able to achieve what he did had it not been for H’s father creating the business in the first place.

Mr Justice Moor helpfully summarised the law and the various approaches to dealing with non-matrimonial wealth in financial claims. The judge highlighted that one approach was to decide on a figure for the non-matrimonial element and deduct this from the pot of just over £184m. However, W’s counsel (citing Debbie Chism’s landmark Court of Appeal case, XW and XH [2019] EWCA Civ 2262) argued that this approach could lead to a disproportionately large and unfair departure from equality. The judge accepted the point made by W and approached the calculation on both the XW basis and by conducting a “broader brush” calculation (developed in the case of Hart v Hart).

On the first approach (top-slicing), the judge found that W should receive an award of £65.5m (35.6%). The judge then performed the broader brush Hart calculation, which he considered would produce a result for W of between 37.5% and 40% of the net assets. The average of all three calculations was £69.5m. The judge concluded that the first figure of £65.5m did not give W enough credit for the huge increase in value and growth achieved by the business during their long 22 year marriage. He determined that W should receive a total provision of £70m (just under 38% of the assets).

Additional considerations

The PNA was ignored entirely for several reasons, including the fact it failed the Radmacher v Granatino test by not making any provision for W on divorce. The judge also remarked that the fact H could not even lay his hands on a signed copy of the PNA pointed to the fact the parties had abandoned the agreement.

Lastly, both parties sought an order to transfer the property known as “the Z street property” to their sole name. The Z street property was valued for the purpose of proceedings at $19m. To resolve this dispute, Mr Justice Moor interestingly made an order for sale, directing that the equity be divided equally, but afforded each party the opportunity to send the other a sealed bid to secure the property (with a floor of the joint valuation of $19m placed on the bids). The party with the highest bid would then acquire the property, albeit they must pay the unsuccessful party half the value of their offer.

Conclusions

Mr Justice Moor’s judgment serves as a helpful reminder of the law regarding non-matrimonial wealth and how the court can approach a calculation of the non-matrimonial element of the asset pot.

We also consider Mr Justice Moor’s use of sealed bids to determine what is often a highly controversial and emotional issue (namely which party should retain a particular property) a novel and interesting approach. We expect practitioners will adopt this in the future, particularly in cases where there are sufficient resources for both parties to make substantial bids.

Partner Debbie Chism comments: “This case demonstrates that, after a long marriage, it is difficult successfully to run arguments that limit a spouse’s financial claims to a “needs based” award rather than a sharing award, including where family wealth is very substantial. However, the outcome would have been very different had a valid Pre-Nuptial Agreement been in existence.”

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