IX v IY
| Jurisdiction | England & Wales |
| Judge | WILLIAMS J |
| Judgment Date | 16 October 2018 |
| Neutral Citation | [2018] EWHC 3053 (Fam) |
| Court | Family Division |
Financial remedies – Pre-marital assets – Unmatched contribution – Mingled pre-marital and marital asset in form of business – Valuing pre-marital element – Latent value and passive growth – Use of significant pre-marital capital to fund lavish lifestyle during marriage – Relevance of pre-marital cohabitation – Needs – Funding at similar level for period equivalent to duration of committed relationship – Relevance of interim maintenance disputes.
The couple met in 2006. The wife was a former model, who had not worked since 2003 in any formal capacity, although she had undertaken some commission-based work in relation to property and jewellery sales. She had a daughter by a previous relationship. The husband had, since 1994, established and sold businesses at the forefront of the deregulated industries. He had two children by a previous relationship.
When the couple met, the wife lived in London but the husband’s main home was in the Alps, although he also owned properties elsewhere, including France. In October 2007 the husband began to stay at the wife’s London property on a regular basis for about 60–80 nights per year. This involved not only staying with the wife but also with her daughter; he took on the role of stepfather, including assuming financial responsibility for the daughter’s school fees and general maintenance. The wife at the same time began to spend significant periods of time at the husband’s home in the Alps. From the summer of 2008 the husband and wife rented a property in France and in due course they purchased this and it became the husband’s main home and the family’s main base for the summer. In early 2010, the parties explored fertility investigation, although nothing ever came of this. The couple had a number of dramatic rows over the years and plans to marry in 2012 were cancelled; however, in 2013 they were married.
In 2017, the wife petitioned for divorce and applied for financial remedies, claiming that this should be treated as a medium marriage of about 10 years, including cohabitation from 2007. The husband argued that in fact there had been nothing akin to cohabitation prior to the marriage. The agreed asset schedule was between £38.24 (the husband’s estimate) and £38.94 million (the wife’s estimate). At the hearing, the wife, who was now 50, was seeking £16 million on either a sharing or a needs basis, plus the discharge of her litigation loans of about £740,000; this represented about 40 per cent of the total assets. The husband, now 55, argued that the wife should be limited to her needs, and that that these were in the region of £5.1 million. The difference between the two needs figures included a gap of £3.5 million between the wife’s view of her housing need (£7 million) and the husband’s view of her housing need (£3.5 million reducing to £2.3 million later) and a significant gap between the wife’s view of her income needs (£500,000 pa until the age of 60 and £250,000 pa thereafter) and the husband’s view of her income needs (£200,000 pa for the first five years and £125,000 pa for the next five years and £100,000 pa for the remainder of her life).
A key issue was whether or not a company, Z, was to be treated as a marital asset or a non-marital asset and a separate question as to whether or not the latent value in Z at the beginning of the marriage (or marriage plus any relevant premarital cohabitation) represented a contribution solely attributable to the husband and unmatched by the wife.
The husband had invested £500,000 in Z in 2002 when it was created and had later loaned Z £1.3 million, which had subsequently been converted into equity. A balance sheet produced by the husband’s accountant for 31 June 2007 showed net assets of about £17.64 million, which included about £5.2 million for Z, giving £12.4 million of assets excluding Z. The husband had been Z’s CEO from 2008 to 2012 and had remained on the board until t in 2017/18, producing £36.68 million gross for the husband, with £6.32 of this retained. The husband had sold some of his shares in 2015 for about £7 million, and had already used those funds to support the couple’s lifestyle. It was common ground that the husband had brought into the marriage £12 million in capital, which had been spent on the family’s living expenses.
Held – (1) Cohabitation prior to marriage was relevant because it could indicate that, prior to the formal commencement of marriage, the parties had entered into the sort of partnership involving the mutual support, working together, rights and obligations which might be indistinguishable from those which arose when parties began to live together only after marriage. What the court should be looking for was a relationship of the sort which carried with it sufficient markers which justified being treated as a marriage. It was not necessarily useful to equate a premarital relationship with marriage simply on the basis that there had been no change in the nature of the relationship as between before and after the marriage. A marriage entered into as a matter of convenience, or which otherwise was not followed with the usual panoply of mutual commitments signifying marriage, would not entitle a premarital period which was similarly empty of such commitments to be counted as marital. What the court must be looking to identify was a time at which the relationship acquired sufficient mutuality of commitment to equate to marriage. In very many cases, possibly most cases, this would be very obviously marked by the parties cohabiting, possibly in conjunction with the purchase of a property. However in others, such as this, it might not be so easy to identify. The mere fact that parties had begun to spend time in each other’s homes did not of itself equate to marriage. In situations such as this, the court must look to an accumulation of markers of marriage which eventually would take the relationship over the threshold into a quasi-marital relationship which might then either be added to the marriage to establish a longer marriage or which became a weightier factor as one of the circumstances of the case. In this case the premarital relationship had crossed the Rubicon into quasi marital territory by the beginning of 2009. It was clear that the premarital relationship had become, notwithstanding some ups and downs, a committed relationship which was moving towards marriage, in which children were contemplated and hoped for, with a pattern of life which continued largely without change after marriage in 2013. The hiccups that the relationship had experienced, clearly evidenced by email exchanges, text messages and the calling off of the wedding in September 2012, did not represent a serious fracture (see [68], [107]1, below).
(2) In relation to Z it was not possible to divine a sharp dividing line between matrimonial and non-matrimonial. Part of the value of Z was solely attributable to the husband’s efforts prior to 2007 (or 2009) and part arose from the husband’s efforts during the relationship. Z was therefore a mingled non-marital/marital asset. To seek to ring fence Z entirely would be to discriminate against the wife in respect of her contributions during the course of the relationship and subsequent marriage. It followed that the wife was entitled to share in the growth of Z over the period of the marriage and the pre-marital relationship from around 2009. It was not possible to undertake a reliable valuation of the latent potential of the business or to apply any sort of indexation to it for passive growth. In such circumstances, an alternative approach was mandated; taking a broad brush approach, 40 per cent of Z’s value, ie £15 million, should be treated as a non-marital asset and 60 per cent, ie £22.5 million, as a marital asset. This took into account the latent value or springboard value and the element of passive growth (see [96], [105], [106], [107]7(f), [107]7(i), below).
(3) The husband’s deployment of all of his pre-2007 capital to meet the family’s expenses between 2007 and 2015 amounted to a very significant contribution to the welfare of the family, which was unmatched by the wife. Although these very significant sums, having been spent, could not be ringfenced, it would be unfair to ignore the unmatched financial contribution of the husband in bringing in excess of £10 million of capital into the marriage and deploying it for the family’s benefit. That contribution warranted an adjustment to the sharing of the matrimonial assets in the husband’s favour. In broad terms a 60/40 split of the matrimonial assets would reflect the husband’s very significant additional contribution. That would put the wife’s share of the Z matrimonial assets at £9 million and the husband’s at £13.5 million. The remaining assets, amounting to some £775,000, would be split in the same proportions. The total sum payable on the basis of the wife’s share of the marital assets, adjusted to reflect the husband’s additional financial contribution, was £9.31 million (see [107]7(g), below).
(4) Suitable accommodation could be found for the wife for about £4.5 million. It was not appropriate for the wife to be required to downsize at some point later in her life. A sum of £300,000 pa would generate the standard of living that the wife had experienced since about 2007. It was reasonable for her to continue to live at that general standard of living for a period equivalent to the duration of the marriage, so for the next nine years her income needs were £300,000 pa. The termination of periodical payments in this case would undoubtedly create objective and subjective undue hardship. The reality was that the wife’s ability to secure any income was negligible, particularly by reference to her needs judged against the standard of living she had enjoyed before the breakdown of the marriage and it was unreasonable to expect her now to return to a life of uncertainty. Hardship, and undue hardship were relative...
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