Gw (Petitioner) v Rw
| Jurisdiction | England & Wales |
| Judgment Date | 18 March 2003 |
| Judgment citation (vLex) | [2003] EWHC J0114-2 |
| Docket Number | FD01D0472 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 18 March 2003 |
[2003] EWHC J0114-2
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
FD01D0472
Martin Pointer QC and Justin Warshaw for the Petitioner (Wife) instructed by Seats Tooth
Lewis Marks QC and Duncan Brooks for the Respondent (Husband) instructed by Manches & Co
Appearances:
Introduction
The husband ("H") is aged 44. He was born in Cleveland, USA. The wife ("W") is aged 43. She was born in Sydney, Australia. They were married in Australia in April 1989. Prior to the marriage they lived together for about 18 months. Their cohabitation, both before and after marriage, has been in England. W presented her first petition for divorce in November 1995. The parties had by then separated. They were reconciled and the petition was dismissed in May 1997. In February 1998 their son Taylor was born. He is now 5. In July 2000 their daughter Lauren was born. She is now 2 1/2. In July 2001 W petitioned for divorce for the second time. This time there was no reconciliation. Decree Nisi was pronounced on 28 December 2001. On 30 April 2002 W returned with the children to live in Australia permanently. This is the judgment on her application for ancillary relief.
H and W now have net assets of about £12m. This fortune derives entirely from H's remuneration as a City worker. This is not a case where one party has had a clever business idea which he has later sold for a fortune. It is a case where a fortune has been built up from savings made from H's compensation package. W seeks an order granting her half of the assets.
The parties met and began their relationship in December 1986. At the time that they began to live together in 1987 H was already well established as a financier. He was then aged 29. He had been working for a well-known American bank since 1981 and had been made a Vice-President of it. He had moved to England with the bank in April 1986. He told me that at the time of the marriage in April 1989 he had net assets of "$500,000, maybe a little bit more" and was earning, inclusive of bonuses, on average $400,000 p.a. W agreed that he had an income of this order, but asserted that his net asset position at the time of the marriage was about $250,000. The evidence in this regard is not supported by any documentation. In his skeleton argument Mr Marks QC asserted that H had "about $1 m by the time of marriage". The explanation for this was that this figure included the bonus that H received shortly after the marriage. Even if the bonus was a substantial part of his remuneration of $400,000 I do not understand how $1m was arrived at. Now, in an affidavit dated 29 January 2003 (filed with my permission after the conclusion of speeches in order to deal with a different point that arose late in the case) H asserts that his pre-marital net worth was $700,000 to $800,000. The affidavit was not supposed to address the question of H's pre-marital net worth. I find that H's pre-marital net worth amounted to $500,000, as stated by him in the witness box. It is reasonable to assume that a significant part of this sum was built up during the period of pre-marital cohabitation.
At the time of the commencement of the relationship W was working for the same American bank. Following the marriage she stopped working, by agreement with H, and has not worked in remunerative employment since.
In June 1994 H left the bank and began to work for a substantial international corporation which I shall call X Corp. His compensation package, while extremely lucrative, is also, to use the words of Mr Pointer QC, fiendishly complex. In November 2002 H was effectively made redundant by X Corp. For the whole of 2003 H will continue to be paid a salary by X Corp at the annual rate of $300,000 unless, before the end of the year, he finds employment elsewhere.
The accretion of wealth
H is a meticulous man. Since 1994 he has prepared annual spreadsheets of the family wealth. This enables me to have an understanding of when and at what rate assets were accumulated. It is agreed by all that the spreadsheets are inaccurate inasmuch as they omit latent taxes on the assets; but provided that I am satisfied (which I am) that the omission is maintained consistently it does not alter the accuracy of the picture of accretion. H entered the marriage in 1989 with $500,000. With that datum I am able to plot a graph of the accretion of wealth for the entire marriage. The figures must be adjusted for the effect of inflation so that values are compared in the value of money today. The figures are as follows:
| $,000s | Adjusted for inflation | ||
| Apr-89 | 500 | 781 | |
| Apr-94 | 1,063 | 1,316 | |
| Feb-95 | 1,762 | 2,141 | |
| Apr-96 | 2,542 | 2,973 | |
| Feb-97 | 4,733 | 5,451 | |
| Jan-98 | 8,303 | 9,292 | |
| Mar-99 | 14,902 | 16,210 | |
| May-00 | 15,804 | 16,526 | |
| Dec-01 | 24,877 | 25,609 |
An issue in the case is how I should treat funds accumulated during the period of estrangement in 1995–1997. The parties are agreed that the period of separation was about 15–18 months. This is the same as the period between the date of the first petition and its dismissal, although the two periods will not have been exactly coincidental. The rate of accretion of wealth is demonstrated by the following graph upon which is marked the period of estrangement:
INSERT GRAPH
This graph shows that approximately $5m (in the value of money today) was accumulated during the period of estrangement. This was a period of steep accretion of capital. The amount accumulated is about 20% of the total gross assets as recorded in the final spreadsheet. Of course H cannot claim sole credit for money accumulated in the period of separation as some of the increase will be attributable to natural capital growth of existing funds. I will deal below with how this should affect my award. At this stage I am only establishing the facts.
The assets and their presentation
A significant component of H's wealth is in deferred stock and option plans in X Corp or in companies in which X Corp has invested. They have been denoted in the documentation by obscure acronyms, which do not require explanation here. For some of these deferred rights H borrowed money in order to invest in them. The terms of entitlement are extremely complex. When W went to see her solicitor for the first or second time she took with her the December 2001 spreadsheet of the family wealth which she had printed off the family computer. This showed that the family fortune was $24.877m, or £16.5m. W prepared her Form E and declared £4.4m. She exchanged it for H's Form E and saw that he declared £3.6m. Part of that total was the value of a loan made by H to W (for US tax reasons) in the sum of £1.4m. Ignoring that, H was declaring assets of £2.2m. The two Forms E totalled £6.6m, about £10m less than the document prepared by H which was now in W's solicitor's possession.
Even allowing for the omission of latent tax from the spreadsheet there was still an enormous discrepancy. The reason was that although H had identified all the elements of his deferred entitlements and options in Section 2.17 in his Form E (entitled "Capital: other assets"), and had attributed values to them as part of his narrative text, he replaced those values by nil values for all except those immediately realisable when it came to filling in Box G, where the actual value to be attributed to those assets is meant to be put. That figure in Box G is then amalgamated with the figures in the other boxes to give a statement of overall net wealth. It is to be noted that in Section 2.12 of his Form E H included the full amount of the loans for investment participation. But he attributed zero value to the investments themselves when it came to doing the computation of net wealth.
Mr Pointer QC (who appears for W) has criticised this presentation forcefully. He says it was misleading and unfair. Mr Marks QC has defended it equally forcefully. He says that the way in which the figures were presented was approved by his previous solicitor and Leading Counsel. He says that the items and their values were not concealed —they were there to see on the face of the Form E. He says that whatever number had been inserted in Box G would have been wrong: that had H tried to attribute a fair value to it he would have been "strangled" with it later by Mr Pointer QC. Basically he says that his client was faced with Hobson's choice.
Whatever the rights and wrongs of the way in which H and his team put forward the figures, the presentation has had unfortunate consequences. The complexity alone of H's compensation structure was such that the employment by W of a forensic accountant was inevitable. But given that W had in her hand a document prepared by H a few months earlier which stated that they were £10m richer than stated in Forms E it was obvious that the accountant was going to be instructed to undertake a rigorous process of investigation and verification. Once this process started things went from bad to worse, for in their preliminary report dated August 2002, the accountants instructed by W unfortunately made an elementary error in their calculation of the value of H's option rights. They calculated them without taking into the account the option price which H would have to pay to acquire the assets. They attributed over £6m to these options when the correct figure, net of tax, would have been only about £640,000. Thus they stated that H had understated his assets by some £11m, when the correct figure, when bringing into account the true value of the deferred assets, was nearer £5.3m.
It has taken a great deal of work and costs to sort out all the various misrepresentations, misunderstandings and mistakes, W's accountants have charged her over £90,000. However when the matter was opened it was apparent...
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