In the first of a special two part feature, Stowe Family Law Managing Partner Julian Hawkhead considers the many issues raised in recent case of X v X.
As lawyers, when we advise our clients on how the law might be applied in their case we rely on statutes (i.e. written laws created by parliament) – for example, the Matrimonial Causes Act 1973 or the Children Act 1989 – as well as on the reported decisions in past cases. Every now and again a case comes along with a bounty of legal issues for us to chew over and digest and the recent decision of Mr Justice Bodey in X v X is an excellent example.
It considers a few quite meaty legal issues which remain hot topics in financial remedy cases. There is the ever thorny question of whether assets held within a discretionary trust should be treated as a financial resource and whether the value of the husband’s shareholding in his company should be discounted because of his asserted unique role in that business. In this case the husband also argued, perhaps unusually, that in addition to his financial contributions, his additional contributions towards the family and home so greatly exceeded his wife’s that “sharing” the assets would not fairly reflect the situation and that therefore, his wife’s claims should be limited to her financial needs – despite this being a marriage of considerable length in which the majority of the wealth was acquired whilst the pair were together.
He referred to himself bringing into the marriage pre-existing wealth; said he had then created an exceptional amount of wealth through his own spark of genius as a special contribution and suggested that he transformed his company after the marriage had broken down; whilst at the same time claiming that he had played a greater role in raising their four children and looking after the house during the marriage as a result of his wife’s alcoholism.
The wife, by contrast, argued that there should not be such a substantial departure from an equal division and argued that she was entitled to a share of the assets which was closer to equality (actually 37.5 per cent). To the lawyers involved in the case it was therefore rife with issues they could litigate over.
The husband at the time of the decision was aged 46, his wife 45. She had left school with no qualifications and was working in the fashion industry. The husband was working for an investment bank at the time they met in 1996. By the time they married in 1999, his annual earnings were $1.4 million. His father also had money and when he floated a company in 1996 he was able to give his son $1 million.
In 2000, with some input from his father, the husband set up a business with two work colleagues in which he held shares personally and also indirectly as a beneficiary of a trust that his father had advised him to set up. The trust was created by the husband’s father in the British Virgin Islands and later moved to the Bahamas. A second trust was also set up a few years later and this, through dealings with the other trust, acquired ownership of the shares.
The husband was the main beneficiary of these trusts – however one of the issues in dispute in this case was whether the intention of the husband’s father in creating the trust was that the husband and his family should be the beneficiaries or whether it was intended to be for the benefit of the father’s wider family, thereby including the husband’s mother and his father’s other children and grandchildren. The effect of the latter would be to increase the number of people who could be entitled to benefit from the trust and therefore potentially dilute the benefit to the husband.
Should the trusts be regarded as a financial resource?
The issue that was argued before the court was whether these trusts could be regarded as financial resources available to the husband. There had been a history of the trusts making payments to him but there was an argument that the other beneficiaries of the trust would need to be considered as well and it could not be said that the husband was the only person who could benefit. On that particular issue the Court followed established precedents from cases such as Charman v Charman (2006), Whaley v Whaley (2012) and Thomas v Thomas (1995) to find that the husband was the primary beneficiary of the trusts.
The wife ran a sensible argument that 50 per cent of the trust capital should be regarded as a resource available to the husband that could be advanced to him by the trust if requested, and the Judge accepted this. The percentage proposed by the wife reflected her recognition that there were other beneficiaries in the trust and also that not all the assets were liquid so could not be easily paid out. It strikes me that the wife’s counsel (she did have two QCs and one junior counsel representing her vs the husband’s four barristers) were sensible and measured in his presentation of her case.
The appropriate date to value assets
Another issue was that in the period between the conclusion of the final hearing and the next hearing, when the Judge was to give his decision, the value of the company had increased in value by a staggering £15 million. It had been mentioned at the final hearing that the value of the company was therefore very volatile and prone to extreme movements in value.
The usual legal authorities on the issue of valuation dictate that the date for valuation should be the final hearing, but this usually contemplates a decision either being given immediately after the conclusion of the evidence and submissions by the parties’ lawyers – or shortly afterwards, but on the assumption that the values of the assets will be fixed at the date of trial. Those same authorities do not directly address what happens if there is a significant change in value between the hearing and the decision being given. The prospects of there being a change in the value of assets when there is a long delay in obtaining the decision of the court are quite high, though any change is usually not as significant as occurred in this case. It is, however, surprising that this issue did not appear to have arisen in previous reported cases.
Mr Justice Bodey decided that there “has to come a point in time in these cases when the snapshot of the assets is made. That is more logically the date of the hearing” This avoids the lottery that valuations could fluctuate either up or down in the uncertain period of “extra time” leading up to the date that the Judge reaches and provides his decision. The volatile nature of this company’s value meant that it was going up and down like a yo-yo.
So we have had further clarity from the court on the date of valuation and also further insight into the thought process of the court on the availability of trust assets which people often hope are protected from divorce. In the next part we will look at all arguments concerning different types of contribution and what impact they should have on the division of assets.
Photo by Images Money via Flickr under a Creative Commons licence