XW v XH (no 1)
| Jurisdiction | England & Wales |
| Judge | BAKER J |
| Judgment Date | 21 December 2017 |
| Court | Family Court |
Financial remedies – Italian deed of marriage – Concept of unilateral assets kept separate during marriage – Whether relevant to cases involving children – Latent potential in asset brought into marriage – Special contribution – Whether trust was a s 25(2)(a) resource – Extent of departure from sharing principle.
The couple married in Italy in 2008; although they did not enter into a bespoke nuptial agreement, they signed an Italian deed of marriage, in which they opted for the separation of goods regime under Italian law. The husband was but the wife was not a native Italian speaker. Both before and after the marriage, the couple lived in England, although they also jointly owned a property in Asia. The husband was the chief executive officer of a successful company. Their only child had a rare life-threatening condition and also significant disabilities. The wife carried out or arranged the majority of the child’s care, although the husband also played an important role. The marriage broke down in 2015.
During the marriage, and in particular between 2011 and 2015, the husband’s company became hugely successful, because of the enormous popularity of one particular product, used by millions of people across the world. When the business was sold in 2016, the husband’s shareholding realised about $540 million. The value of the assets then purchased with the proceeds of sale of the shares in turn grew to about £500 million by 2017, but taking potential tax and other deductions into account, the actual value was closer to £490 million.
The wife came from a wealthy family. During the marriage her mother provided her with substantial financial support, and she was a beneficiary under a family trust with assets worth £23 million. The wife’s personal assets, apart from any interest in family trusts, were worth about £10.5 million.
In the wife’s financial remedy proceedings, the wife sought a half share in the increase in value of the husband’s shareholdings in the company during the marriage. The single joint expert valued the company at the time of the marriage at £28.6 million; his figure did not include latent potential. Based on this valuation, the wife valued her half share of the increase at £235 million. The husband argued that the wife was not entitled to any part of the proceeds of sale of the shares, on the basis that the separation of assets element of the deed of marriage amounted to a nuptial agreement. In the alternative he argued that the value of the shares should be regarded as a unilateral, non-matrimonial asset, that the latent value in the company should be taken account when calculating the matrimonial acquest, and that he had made a special contribution. The husband was offering the wife £20 million.
Held – (1) A full appreciation of the implications of a nuptial agreement would, in almost every case, involve an understanding on the part of both parties (i) as to the nature and effect of the terms, and (ii) of the circumstances in which its implementation in a jurisdiction other than that in which it was made would, or might, affect the scope of any legal award or remedy which otherwise would be available to one of the parties in the event of divorce. In some cases it would be appropriate for the court to uphold an agreement contained in the election of a matrimonial property regime, but in many cases it would be more likely not be fair to hold the spouse to such an agreement, particularly where the election had been made in a language with which he or she had not been familiar and where the legal implications of the election had not been made fully clear. Plainly, the court would be more likely to uphold an agreement contained in a bespoke document, in the language or languages which both parties understood, and when the legal applications of the agreement, in particular on divorce, were clear. When the wife had agreed to the separazione dei beni matrimonial property regime, she had not fully understood or appreciated the implications of the agreement, as to whether it would apply in the event of the breakdown of the marriage and, in particular, in divorce proceedings in a jurisdiction which provided for the discretionary equitable distribution of matrimonial assets. It would be manifestly unfair to hold the wife to the agreement, particularly given the wholly exceptional increase in the value of the matrimonial assets over the seven years of the marriage, and no weight should be attached to it. The reference to the Italian Civil Code in the deed of marriage did not amount to an agreement in writing that the couple’s property relations would be governed by Italian law (see [141], [142], [144], [150], [153], [237], below).
(2) It would be wrong to exclude the increase in the value of the husband’s unilateral assets entirely from the sharing principle. There was no authority for the proposition that the limited scope for one party to acquire and retain separate property which could then be excluded entirely from the sharing principle, extended to cases where there were children of the marriage. Indeed, the rationale for allowing the departure from the yardstick of equality on this basis, articulated by Baroness Hale in Miller v Miller; McFarlane v McFarlane [2006] 1 FLR 1186, namely that it should be seen as a reduction in the share to reflect the (short) period of time over which the domestic contribution had continued or would continue, manifestly did not apply in cases with children, where the domestic contribution would continue for long after the marriage had come to an end. To exclude unilateral assets from the sharing principle altogether in cases like this one, involving a marriage of just under seven years’ duration where there was a young child of the marriage, a fortiori a child with special needs, would fundamentally undermine the principle at the heart of the treatment of claims for financial remedies following divorce in this jurisdiction and would undervalue the domestic contribution of the homemaker to the welfare and happiness of the family as a whole. However, applying Miller, the fact that this couple had chosen to run their lives by keeping their financial affairs separate was a factor which the court should take into account when deciding the extent to which the assets should be shared (see [173]–[177], [238], below).
(3) In the sense that the growth in value of the husband’s business assets had occurred during the marriage, they could be said to be matrimonial, but assets that had never been pooled could properly be described as non-matrimonial. The nature and source of the assets as business assets, created through the husband’s business activity was relevant to deciding how the assets should be shared and taken into account in reaching a fair decision (see [239], below).
(4) There was a significant, though unquantifiable, latent potential in the company at the date of the marriage, which had not been reflected in the expert valuation. The ultimate success of the company had been due in part to developments and business decisions taken during the marriage, but was also attributable to developments and decisions taken before the marriage. The expert valuer had thought that latent value was not a significant factor in determining the value of the company at the date of the marriage, because the subsequent growth in the business had not occurred until several years after the marriage. In the court’s judgment, however, the latent potential was there at all material times – it had just remained latent for rather longer until the opportunities for growth arose. Neither the approach adopted in Robertson v Robertson[2016] EWHC 613 (Fam) (treating 50 per cent of the value of the business at the date of sale as having been created prior to the marriage) nor the approach in WM v HM [2017] EWFC 25 (excluding the proportion of value in the business that was created before the marriage on a linear apportionment basis) was appropriate in this case. Applying Jones v Jones[2011] EWCA Civ 41, the court must try to look at the reality of what had actually happened, rather than proceed on an artificial assumption of a straight-line growth from the date of foundation of the business up to the eventual sale. The evidence did not establish a clear dividing line between matrimonial and non-matrimonial property and it was neither proportionate nor feasible to seek to determine such a line. Instead, the court would undertake a broad evidential assessment before deciding how the wealth should be divided, taking the latent potential in the company into account (see [240], [241], below).
(5) The husband’s contribution to the growth in the value of the business assets during the marriage came within the concept of special contribution. The increase in value of the husband’s shares was on a scale sufficient by itself to bring this case within the concept of special contribution, but in addition the husband’s contribution to the business during the marriage had been of a quality which could properly be described as special. Applying Work v Gray[2017] EWCA Civ 270, now that the Court of Appeal had removed the word ‘genius’ from the analysis, it seemed plain that the contribution made by the husband in this case could be seen to be of a character to justify departing from the sharing principle and it was very obviously inconsistent with the objective of achieving fairness for it to be ignored (see [242], below).
(6) In coming to a final figure, the court must check its preliminary views against the yardstick of equality, being particularly careful not to undervalue the domestic contribution of the homemaker. The wife’s enormous contribution to the welfare and happiness of the family, as the home-maker and the principal day-to-day carer of a child with special needs, both during and after the marriage, had been and would be incalculable. She had freed the husband to a very considerable extent to enable...
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IX v IY
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