Analysis
A company was incorporated by the husband and a friend in 1978 as equal shareholders. The husband and wife started living together in 1986, and married in 1989. At this point, the husband acquired 99% of the shares and the wife 1%. They separated in 2015.
On a wife’s application for a financial remedy order, the judge found that the capital assets were £182m in properties and pension funds, and 100% of the shares in a private company, which he valued at £221m before tax and costs of sale. He found that 80% of the company’s value was marital property, by applying a straight-line apportionment from the dates of its incorporation to the date of the hearing, rather than by reference to a single joint expert’s valuation at the date of the start of the parties’ relationship. Applying the sharing principle, the judge awarded the wife half of the marital assets as thus calculated, namely £72.8m, comprising £13.7m in property, a £40m cash lump sum in two instalments of £20m, and 17.5% of the shares in the company.
The wife appealed on grounds that the judge erred by applying a straight-line apportionment from the date of the company’s incorporation when determining what proportion of the company’s value was marital wealth instead of using the valuation at the date the cohabitation commenced, based on the company’s passive growth; by disregarding the fact that the husband owned only half of the company when their cohabitation began, and therefore overstating the non-matrimonial assets; and by failing to provide a mechanism for realisation of the shares comprised in the wife’s award, by way of an ‘exit date’.
The husband cross-appealed. First, he argued that the judge erred by treating the company’s value as equivalent to cash, and consequently awarded the wife too great a proportion of the ‘copper-bottomed assets’, such as cash and property, and him too much of the ‘illiquid and risk-laden’ company. To this end he sought to adduce new evidence as to the risk factors facing the company. He argued that the greater the weight placed on the value of the company when determining the amount and structure of the wife’s award, the greater the need for caution when determining that value. Secondly he complained that it was wrong to allow him only two years to pay the first £20m of the lump sum to the wife, as there was no evidence to show that the company could pay dividends of that amount within the time allowed.
Held
- 1) Applying Versteegh v Versteegh, when ascribing values to assets for the purposes of determining how to divide the marital wealth, the court should take account of the fact that different assets have different levels of volatility and therefore risk, and also liquidity, when applying the sharing principle, and that there was particular need for caution when considering valuations of shares in private companies. More weight may therefore be given to other assets such as the matrimonial home. The valuation of a company for the purposes of determining a fair outcome under the Matrimonial Causes Act 1973 is a broader exercise to that undertaken under s994 of the Companies Act 2006. However, that does not mean that a court should necessarily choose a value towards the bottom of a given range of values; the more important question was the use made of the valuation.
- 2) The exercise in determining what part of the parties’ wealth is to be defined as non-marital, when that wealth include shares in a private company founded by one spouse prior to the date of marriage or cohabitation, is partly evaluative and partly discretionary. There is no single route to determining what assets are marital, and the court has an obligation to select a method which it considers gives a just weight to the contribution made by the non-matrimonial property.
- 3) Although a judge is not bound to adopt a result which falls within the parameters of either side’s case, if the case develops in a way which one party considers would result in an unfair hearing, that should be raised with the judge.
- 4) Dismissing the wife’s appeal, the judge was entitled to adopt a straight-line valuation in ascribing a value to the business at the start of the cohabitation. Although this is not the only approach possible, it has the advantage of eliminating abstruse retrospective accountancy valuations, saving expense, and may more realistically reflect the as-yet unrealised potential of the company at that date. Further, the court was not persuaded that the judge had failed to taken into account the fact that it was co-owned by a third party at the time the cohabitation commenced.
- 5) Refusing permission for the husband to adduce fresh evidence, as it did not fall within Ladd v Marshall and sought to re-open the hearing below.
- 6) Allowing the husband’s cross-appeal in part, the judge’s factual determination of the company’s value was not wrong. However, the judge had failed to consider whether his proposed award achieved a fair division of both copper-bottomed and illiquid and risk-laden assets. The judge had further erred by ordering the payment of the first instalment of £20m by June 2019 without evidence of liquidity. The husband was therefore ordered to pay four annual instalments of £5m instead of the first instalment of £20m.
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