HD v WB
| Jurisdiction | England & Wales |
| Judge | PEEL J |
| Judgment Date | 13 January 2023 |
| Court | Family Court |
Financial remedies – Pre-nuptial agreement – Impact on needs-based award – Computation of interest in family business – Limitations on judicious encouragement of third parties.
Having had a three-year relationship previously, the husband and wife resumed living together in 2001/2002 and became engaged in 2003, but did not marry until 2014. An eight-page pre-nuptial agreement (PNA), based on the wife’s sister’s 2005 PNA, was negotiated in July 2014, in the lead up to the wedding; the husband made amendments in advance of the wedding and eventually signed a version of the PNA on the wedding day itself, having made further amendments, unnoticed by the wife, to the effect that he had not in fact had legal advice and that he had a 33.3 per cent interest in his family business. The PNA provided for separate property and claimed that both had given full and frank disclosure (although neither had provided detailed information about their respective interests in family businesses). During the discussions the husband had been advised that he should get legal advice, and had represented that he was doing so, but he had not in fact received any. The PNA also provided that the husband was entitled to specific funds on divorce, on a sliding scale referable to the length of the marriage (not relationship). Two years after the wedding, in 2016, the wife received £55 million gross from the sale of her family’s business. The couple had three children together. They separated in December 2020, after six years of marriage.
Both before and after the marriage, assets were held in separate names, with nothing of any significance in joint names. Two property-investment holding companies were structured in joint names, but subject to DLAs to the wife. The only significant exception was a valuable chattel sold in 2012 for €1.325 million, the proceeds of which were divided equally between the husband and wife (the husband had contributed to its improvement). Strictly, this was a gift by the wife of half of an asset owned by her. The husband accessed the wife’s bank account to meet his expenses, withdrawing over £800,000 between 2017 and 2021.
At the hearing of the husband’s financial remedies claim, the realisable assets, almost all in the wife’s name, exceeded £43 million. The validity of the PNA was a major issue. There was also an issue as to the value of the husband’s interest in his family business. This had been founded by the husband’s father in 1978; in 2011, as part of a restructure for inheritance tax purposes, the husband and his brothers had been given shares. A sale of the company agreed in 2019 (reluctantly in the case of the husband’s father), which would have produced £12.8 million gross for the husband, had been blocked by the competition authorities. Following this, a substantial dividend had been paid out and the husband had received £1.1 million net. The husband did not disclose this dividend in his Form E, only the element of it he had paid into his personal account. The business was not currently profitable and its borrowings had doubled.
In January 2022, the wife offered the husband £362,500, the amount she claimed he was entitled to under the pre-nuptial agreement (£112,000 referable to the length of the marriage and £250,000 referable to a loan repayable by her to the husband). At trial she offered a further £2 million for a housing fund, to revert to her after four years. In May 2022 the husband asked for £8 million, consisting of a housing fund of £2 million to £3 million and an income fund of £5 million to £6 million. He repeated this offer at trial, but by then was also seeking payment of all his legal costs.
Held, awarding the husband a needs-based award of about £1.9 million plus a housing fund of up to £2.5 million to revert to the wife but also making a £120,000 costs order against him—
(1) Taking into account what had been said in Thomas v Thomas [1995] 2 FLR 68 a two-stage process was required in relation to judicious encouragement of a third party:
(i)A finding as to the likelihood of the third party assisting the spouse in accessing funds within a structure where there were issues of (a) liquidity and (b) respect for the interests of the third party. That finding would depend on the facts of the case, to be judged by all relevant evidence including any pattern of previous such assistance.
(ii)Having reached the relevant finding, the court would then have the evidential platform to make an order, if thought fit, which might amount to judicious encouragement to the third party, whilst staying alert to make sure that it did not cross the boundary into improper pressure on the third party (see [35], [36], below).
(2) The court valued the husband’s business interest at about £3.7 million net, but was not prepared to find that the it was a ‘foreseeable’ resource, or that it was ‘accessible’ to him, or that it was open on the facts of this case to put pressure on his family to enable a release of funds to him. It was unrealistic to envisage anything other than a sale of the whole business, and unrealistic to attempt any reasoned assessment of a timeframe for such sale, let alone the likely value at that undefined point in the future. There was no history of sales of shares to family members, no-one in the family had a desire to acquire the husband’s shares, and none of them would countenance sale of the shares to a third party, not least because that would likely impact upon the value of the business. Moreover, sale to a third party would inevitably be subject to such a large discount for minority ownership as not to be remotely worthwhile. Dividends were not a way for the husband to extract significant value. Any dividend to the husband would have to be replicated for his brothers and the business was in no position to do this. There was no evidence of substantial cash funds which in some way could be made available to the husband, surplus to business requirements. Overall future dividend payments were unlikely because creditor banks had stated that dividends could not be paid out unless shareholders all gave personal guarantees for company debts. The court could not order the husband’s father to buy the husband’s shares. To frame an order on the basis that unless the husband’s father came to the husband’s financial aid by buying his shares the husband would be effectively penniless and unable to meet even his most basic needs, would be to place improper pressure on the husband’s father and it would not be proper to oblige the husband’s father to re-acquire shares he had parted with years ago, let alone at enormous cost. The court would treat the value of the husband’s interest in the family business as a potential, but somewhat speculative, long-term resource which was not available or accessible in the foreseeable future to meet his needs (see [33], [38], [39], below).
(3) The husband’s failure to disclose the large dividend had been unacceptable. The court did not accept the asserted technical distinction between dividends from the umbrella company to his holding company, and dividends from his holding company to himself. However, the funds, which had been spent, had been expended properly on the husband’s enormous legal fees, tax, rent and general living expenses. This was not a case for an addback (see [41], [42], below).
(4) Whether a party should be confined by a pre-nuptial agreement (PNA) to needs at the minimum level required to meet a ‘predicament of real need’ (Radmacher v Granatino[2010] UKSC 42) would depend on the circumstances of the case. There was a world of difference between (i) a childless couple whose marriage lasted for two years, enjoying only a modest lifestyle, at the end of which one party might need no more than short term maintenance or a highly attenuated housing budget (perhaps restricted to time limited rental), and (ii) as here, a couple with three children, who had been together 20 years, who had each contributed to the welfare of the family in different ways, and who had enjoyed a high standard of living. Applying Brack v Brack[2018] EWCA Civ 2862, the court retained a degree of latitude when it came to deciding on the level of generosity or frugality which should appropriately be brought to the assessment of those needs. Thus, in the right case, a minimal award to meet basic needs might be appropriate, but it must depend on all the factors, including the PNA, resources, length of marriage, contributions and lifestyle. In practice, the courts had been flexible, willing to meet needs while respecting the limitations intended by a PNA by, for example, making housing provision on a trust basis, rather than outright. The term of such a trust basis had generally been for life, but sometimes with a step down in quantum at the conclusion of the children’s tertiary education. An income fund, by definition (unlike housing) was usually a dwindling sum because monies were spent on living expenses. Courts had not shied away from a capitalised maintenance sum. To reflect a PNA, that sum could be limited by the level of maintenance (the multiplicand) or the length of term (the multiplier) (see [53]–[55], below).
(5) When considering how the PNA in this case had come to be signed, the key background features were that: before marriage, the parties had kept their finances strictly separate; both parties had had family business interests headed by their respective fathers, and both had wanted those business interests to be protected. At the time, neither had known the quantum of those potential interests; and, apart from these business interests, at the time of marriage the wife had had substantial liquid wealth (property and cash of c £10 million) all from her family, whereas the husband had had almost no liquid wealth (see [61], below).
(6) It could not possibly be fair to the wife to cast aside a PNA on the basis that the husband had not properly understood it, in circumstances...
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