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Sharing v needs: X v X (Application for a Financial Remedies Order) [2016] EWHC 1995 (Fam)
Date:24 JAN 2017
Third slide
Roopa Ahluwalia, Senior Associate, Mediator and Collaborative Lawyer, Birketts LLP

X v X (Application for a Financial Remedies Order) [2016] EWHC 1995 (Fam), decided in mid-2016, has a particularly complex set of facts. It illustrates the way in which high value cases can be approached and also the way in which competing arguments over the approach the court should take might be resolved. The issue the court had to decide was whether a ‘needs’ approach or a ‘sharing’ approach should prevail when reaching a fair outcome. In doing this the court also had to address two issues as to how the assets were quantified. The first was whether the husband, one of a number of beneficiaries under a discretionary trust, could be treated as having the trust assets as a ‘resource’ available to him for the purposes of quantifying his assets and for funding any settlement. The second was whether the court should discount shares held by the husband (and the trust) in a company because of his unique importance to that company.
The husband argued that the court should adopt a needs approach (in other words the wife should receive such amount as enabled her to meet her needs). His second line of argument was that if the court favoured the sharing approach (that she receives a percentage not linked to her needs) over the needs approach, then it should take into account the following factors to reduce her percentage:
  • his pre-marriage wealth;

  • his ‘spark of genius’ that enabled him to generate exceptional wealth;

  • his endeavours after separation with the company concerned;

  • his exceptional contribution to the welfare of the family in caring for the couple’s four children and the home whilst his wife battled alcoholism.

The wife accepted that the facts justified a reduction in her award from 50% but argued against the needs approach. The husband was aged 46 and the wife 45 at the time of trial. They married in 1999. Their children were aged from 15 to 12.

The husband had left university and went straight to work with an investment bank until 1999 when he set up a company, at about the time they married. His income had by then increased from a starting salary of £25,000 pa to $1.4m a year. In 1996 the husband was 'allocated' a sum of $1m from his father, which he received in 2002.

The wife left school at 16 with no formal qualifications. She worked in the fashion industry but gave up her job in 1997 as she was spending large amounts of her time visiting the husband who was then based in Hong Kong.

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In February 2000 the husband, along with two colleagues at his investment bank, left the bank to exploit one of his business ideas. In the same year he purchased the parties’ first home for £1.95m with savings accumulated from his earnings and a mortgage of £820,000. At around the same time his father created a trust in the British Virgin Isles (known as Trust A) which subsequently owned most of the shares in the husband’s company. In 2006 the husband bought their final home for £7.7m and he bought a chalet in Courchevel for €2.85m.

The wife accepted that from 2007 she had issues with alcohol. The husband claimed they started in 2003.

In 2008 the husband’s father created a second trust (Trust B). Trust A sold all its shares in the husband’s company to Trust B in return for a loan note of £26.1m which over time was reduced through business ventures/stock market activity to £612,000.

There were a number of legal arguments over the share price and the value of the husband’s contributions. In addition the wife argued that the husband had 50% of Trust B available to him whilst the husband's position was that it was not. The wife’s liabilities exceeded her assets. She had a soft loan of £700,000 to a family member, a litigation loan of £575,000 and unpaid costs of £700,000.

At the hearing the wife valued the family funds at £41.498m. The husband put it at £15m. They had different formulas for calculating the value of the shares and the husband fully discounted the Trusts. They also argued over the appropriate date for the valuation of the company share price, as it had fluctuated wildly between the date of the hearing and judgment. The judge decided it should be the value as at the date of the hearing.

On the question of whether the trusts constituted assets available to the husband, the court heard evidence from his father that his intention had been to benefit his extended family and not merely the family of the husband when creating the trusts. After careful examination of the trust deeds the court accepted the husband’s father’s position. However, whilst accepting a court cannot fetter the discretion of trustees by forcing them to decide in favour of any particular beneficiary, it decided that it must assess the likelihood of assets either to be received or available as a resource to a party of the marriage. The trustee gave evidence. The court decided that it was most likely that the trust funds were a resource which would be made available to the husband if he needed them.

The court also heard evidence from experts regarding the discount to be applied to the company shares and allowed a discount, though not at the level the husband argued. The court found that the husband’s long term incentive plan (LTIP) shares were only available to the husband due to his employment and positon at the company built up during the marriage (and so were an asset to be taken into account) but balanced against this the fact that they were earnt at a time when the marriage had broken down. The court reduced their value by 50% accordingly. The court assessed the marital pot as being £36.945m.

On the facts, the judge found that this was not a case where a special contribution had been made by the husband, so as to reduce the wife’s claims. However, the court accepted that there had been significant unmatched financial endeavour by the husband after they separated which could not be ignored. He adopted a sharing approach, subject to that decision, and ordered that the wife receive 37.5% or £13.854m.

Whilst the facts and financial transactions within this case are complex the case dealt with important principles. It confirmed that a court could not fetter a trustee’s discretion but it could look at the trust as a resource of one party if it concluded that the trust would in all likelihood provide financial assistance to the beneficiary. This case also confirmed that values for the asset base to be crystallised for division, would be the date of the hearing. The case clearly highlights the difficulties of trying to run a needs case in big money divorces.

You can follow Roopa Ahluwalia on Twitter: @RoopaAhluwalia
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