The value of a family business or business interest is treated as an asset and therefore part of the matrimonial pot to be distributed when it comes to negotiating a financial settlement on divorce or...
(Court of Appeal; Thorpe and Etherton LJJ and Bodey J; 23 July 2009)
The husband was a singer; the wife was a ballerina. They were both Russian, and had met and married in Russia, moving to England to further the husband's career. The wife gave up her own career for the marriage. When the couple's children were 3-years old, the marriage broke down. An agreement was reached in the ancillary relief proceedings, embodied in a consent order under which wife retained the family home (representing over 80% of the available capital), the husband being permitted to arrange a mortgage of £90,000 against the property, on the basis that he would service and repay the mortgage via the payments he was to make to the wife. In addition, the husband was to pay the wife £113,00 for herself and the children, rising to £117,000 plus indexation. Because both parties were habitually resident in, but not domiciled in the UK, and a substantial portion of the husband's earnings were earned abroad, the husband's payments to the wife were made from one off-shore account to another off-shore account; these arrangements were set out in an agreement endorsed on counsel's briefs, rather than in an order for periodical payments. Eight years after the making of the consent order, the wife sought an increase in the sums paid to her. The husband's career had prospered, and his earnings had increased from about £552,000 pa to £1.86 million pa, although he now had second wife and another child to support. The wife could have sought determination of her claim for periodical payments, which had been adjourned generally with liberty to restore, or she could have sought variation of the maintenance agreement under Matrimonial Causes Act 1973, s 35. Instead, her application was presented as an application under s 31. The judge awarded the wife £120,000 pa, with £12,500 for each of the children plus school fees and extras; this would be coming out of taxed income, with a total cost to husband of about £285,000 pa. The wife appealed this order, arguing that the award was too low, particularly in view of the relationship-related disadvantage generated by her abandonment of her career and her move to England, where her lack of qualification and her poor English had prevented her from developing an independent career.
This was a low award, which fell just outside the acceptable range. The judge had been entitled to take into account the tax consequences, the husband's obligations to his second family and the length of the marriage, but the time elapsed since the failure of the marriage and, given the finding that the husband was likely to continue with his success for a number of years, the uncertainties of the husband's career as a performing artist, did not affect quantification of the award. The wife's award was increased to £140,000 pa, and the child orders were increased to £15,000 each pa. This would leave the wife with about £37,00 pa over and above her assessed needs. There had been no need in this case to argue compensation. The reality was that the wife had given up her career only shortly before its natural close; there was no evidence that her continued residence in England was not voluntary or that she had made any sacrifice. Whatever the wife had given to husband and children was to be assessed a contribution. Of course, compensation for relationship-related disadvantage might be a very important ingredient in many cases, particularly in the assessment of the original division of capital and foreseeable income, but this was a paradigm variation of an original division of capital and anticipated future income. The single factor of significance since the original agreement was the husband's greatly increased income. The court was in complete agreement with Charles J's comments in Cornick v Cornick (No 3) that just as an income fall justified an application for a downward variation, so an income rise justified an upward variation, and that in neither case was the outcome bounded by the family's standard of living immediately before the breakdown. The court should exercise its discretion in such cases, by applying the words of the statute, without using the concept of 'reasonable needs' as a determinative or limiting factor. A lengthy over-sophisticated approach of the type presented in this case was an unnecessary diversion, which burdened rather than assisted the court.