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...
ANCILLARY RELIEF: Smith v Smith  EWCA Civ 454
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May 22, 2007, 04:22 AM
Article ID :87609
(Court of Appeal; Thorpe LJ and Coleridge J; 15 May 2007)
Following a 10-year marriage the district judge awarded the wife 50% of the assets, plus periodical payments of £2,300 per month for joint lives. The couple had no children together, although the wife's 14-year-old child was a child of the family. The husband was to retain the company, which he had founded before the marriage, valued at £425,000 on the basis of a price earnings formula applied by a joint valuer. However, the judge transferred to the wife the business premises from which the husband traded. The husband's appeal to the circuit judge was dismissed and the husband appealed to the Court of Appeal. The husband argued that: the wife had been given all the liquid assets; the company had been wrongly valued; various debts and CGT had not been taken into account properly; and the business could not survive the order made.
Allowing the husband's appeal, the husband had identified specific areas for the circuit judge's consideration but the judge had failed to address them. The district judge had been wrong to adopt a 50/50 split as his starting point in circumstances in which the assets had all come from the husband and the marriage had lasted only 10 years. The unconditional transfer to the wife of the trading premises, leaving the trading part of the business with the husband, was almost unheard of and likely to be wrong, save in the most exceptional situation. To leave the parties in a position of financial entanglement by way of a relationship of landlord and tenant was a recipe for ongoing dispute. Having included the company at full value and allocated it to the husband, it had also been wrong to award the wife periodical payments of the equivalent of half the husband's income generated by the company; this amounted to double counting where, in particular, the business premises were expected to generate further income for the wife in addition. No proper account had been taken of the debts, of CGT or other tax liabilities. The case called for a clean break order; an order that envisaged a split of the business was contraindicated except for the limited purposes of providing security for the wife to lead to the payment of further capital.