Analysis
H and W married in December 1993 when W was 32 and H was 62. They have three children aged between 17 and 12. H’s first wife died and he had four children, (the elder children) from that marriage – all now adults aged over 35. His second marriage ended in divorce, but he had no continuing financial ties to his second wife. W had not been married before. Her limited assets, £152,000, the net sale proceeds of her flat, had been invested in an investment portfolio supplemented by contributions from H (including a transfer of shares worth £2.477m). H was the chairman of a company (F plc) and used the high financial rewards from F plc to invest and create further wealth, so that the family enjoyed a high standard of living. In 1996, H settled the ‘irrevocable’ HF Family settlement (the 1996 trust) for the benefit of members of his two families. The former matrimonial home, Peyton Place, was purchased in joint names in 1994. The money came from H. In 2003, it was settled by H and W in the ‘irrevocable’ Peyton Place settlement. The trust fund was defined as ‘the property and all property from time to time representing the same’. The beneficiaries included H and W, their children and their children’s children.
In October 1998, SCI Amandier was incorporated in France. 90% of the shares were held by W and the remainder were held by H. The property, L’Amandier, was purchased for about £900,000. Renovations and refurbishments were undertaken, although H and W were unable to agree about precisely how much was spent. However, they did agree that a budget of F1.5m was assigned for further works with those money coming from W’s portfolio. In 2004, H transferred an additional plot of land to the SCI and thereafter endowed his youngest three children with his shares.
On 4 July 2003, a shareholders’ agreement was drawn up between H, W and the 1996 trust family trustees (the shareholders’ agreement) by which the shares were re-classified. The shareholders’ agreement otherwise prevented the sale or transfer of the shares outside the existing shareholders or other trusts settled in similar terms to the 1996 trust; prevented W’s removal as director; prohibited the making of gifts or payment (save for earned remuneration) to H’s elder children; and provided for the payment of all salaries, bonuses, dividends and distribution (save that salary increased annually by either 5% or the percentage increase in profit over the previous year whichever was the highest) to be paid to or for the benefit of H and W into their joint account.
In April 2008, a house in Chelsea was bought in W’s name for more than £2m and in July, 48% of the property was settled in trust for the children of the marriage
The marriage broke down irretrievably and W brought ancillary proceedings that were combative in the extreme and in no way ameliorated by the conduct of their respective legal entourages (see paras [1-2], [38] and [45]). The issues in dispute were:
- the valuation of H’s pre-marital wealth and the extent to which it should be isolated from the marital property subject to division;
- the treatment of H’s dispositions to his elder children;
- the valuation of the life interests in the matrimonial home, Peyton Place;
- the valuation of the existing shareholdings in F plc; and
- the valuation of W’s maintenance needs.
Any or all of those issues had the potential to become irrelevant depending upon how the court viewed the status of the 2003 shareholders’ agreement and the weight to be afforded to it. Neither party sought to uphold the agreement; rather, each sought to vary it to their advantage. W sought to vary the Peyton Place settlement and shareholders’ agreement so as to rescind H’s life interest in the family home and Franklin Plc shares, leaving him effectively as an employee with a restricted salary of no more than £200,000 per year. H sought to transfer the life interests he and W had in Peyton Place to separate properties and to remove W as a director of and shareholder in Franklin Plc.
Held
- 1. The 2003 share agreement was rescinded and the A and C shares previously assigned to W returned to H’s ownership (paras [41] and [79]). The agreement was a post-nuptial settlement without express provisions governing the situation after any separation of the parties. The definition of ‘financial arrangements’ in s34(2) of the Matrimonial Causes Act 1973 as ‘provisions governing the rights and liabilities towards one another when living separately’ should be construed to cover only those agreements made with the expressed or clearly implied purpose of governing the parties’ financial affairs including in the event of separation and not those that could do so only if certain terms of the agreement were re-constituted – as W agreed in evidence would be necessary in this case. A term ought not to be implied into such a settlement unless it was in all the circumstances equitable and reasonable. It could not be so classified if it was inconsistent with the express meaning of the agreement and failed to accord with the probable intention of the parties. The settlement obviously and expressly catered for the parties’ access to a joint bank account. Taking into account the transactions relating to the matrimonial home taking place at the same time which provided for each spouse to have a life interest and right of residence in the property it could not be reasonably construed to cover the separation of the parties. In those circumstances and the absence of express provision to the contrary it was illogical and unreasonable to imply a term that it was to cater for separation (paras [24-28]). There was good reason not to hold H and W to their agreement whether it was post-nuptial or maintenance in the light of circumstances prevailing at the time of their divorce and particularly with regards to the interests of the trust beneficiaries. It was also clear that W’s removal from the company affairs would not undermine the security of the trust.
- 2. With regard to the disputed matters:
- H had brought substantial pre-marriage assets to the marriage and these could be ignored in calculating ancillary relief (para [42]). His valuation of F plc at that time was accepted. It would not have been affected by any personal tax liability and investigations going on at that time as alleged by W, and her claims that she had played a significant role in reinvigorating the company were rejected.
- Looking at H’s dispositions to his elder children, W had not discharged the burden of proving any alienation of matrimonial funds with the intention of defeating or reducing her claim, nor of wanton and reckless behaviour to found any ‘add-back’ argument quasi or otherwise. Indeed the dispositions were indicative of the husband’s intention to deal fairly with all of his children during life and after death (para [48]).
- The expert valuation of Peyton Place at £4.5m, with H and W’s life interests being valued at £1.2m and £4.065m respectively, was accepted, and W’s claim that a licensee of a converted tack room could claim a proprietary estoppel interest and thereby reduce the value of Peyton Place, was rejected. W was also criticised for attempting to admit her own expert report into evidence on the first day of the hearing without notice to H and, after it was ruled inadmissible, subsequently sending her expert report to the joint expert.
- Both experts (the joint expert and W’s sole expert) valued F plc at £17.5m. The figure ignored the shareholders’ agreement. Insofar as the company’s value in 1993 was concerned, only one expert (the joint expert) had been asked to deal with this and he valued the company at £5m which was accepted. The appropriate uplift was 100% which gave a notional pre-marital value of £10m.
- W’s budget for her maintenance needs was entirely unrealistic and without historical basis or reasonable future projection, while H’s budget was excessive and provided no useful comparison. On the basis of average past household expenses that permitted a generous interpretation of her needs W’s maintenance needs were assessed at £300,000 per year. This equated to a Duxbury sum of £4.97m, taking into account the fact that W’s expenses would decrease as the children became financially independent.
- 3. It was therefore ordered:
- a. The 1996 trust be varied to provide for the net proceeds of sale of Peyton Place to be divided as to one-third to H and two-thirds to W, and re-invested in separate properties to reflect that the children of the marriage would primarily make their home with W. No other variation was made and specifically not to remove any of the present trustees (para [77]).
- b. H to pay W a lump sum of £750,000 and to transfer any remaining interest in or control over the properties in Chelsea and France to W.
- c. A sum of £35,000 each per year was approved for child maintenance which it was understood would be paid primarily out of the 1996 trust until the children came of age or otherwise while in tertiary education for their first degree (para [80]).
- In the division of the assets, on the basis of available matrimonial property, excluding the pre-marital value of F plc as increased by passive growth, the award to the wife was approximately 45% of the total matrimonial assets.
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