In the case of Charman v Charman the Court of Appeal held that
the sharing principle applies to all the available assets on
divorce, but to the extent that assets are non-matrimonial, there
may be good reason to depart from equality. In the recent case of J
v J, Charles J has attempted to shed light on what constitutes a
'good reason' and to what extent it will justify a
departure from 50:50 division of the assets.
Mr J and Mrs J married in 1996 when Mr J was 44 and Mrs J was
almost 30. It was a second marriage for both of them: Mr J had two
adult children from his first marriage and Mrs J had a daughter,
aged 2. They separated in January 2006.
The assets in the case totalled approximately £27m. The
majority of this wealth derived from the sale of Mr J's
company, from which he received approximately £24m. Mr J had
set up the company, which dealt in the management and supply of
gas, in 1986. He worked in the company for 10 years prior to the
marriage and sold it in May 2007, 16 months after the parties'
separation.
In attempted settlement of the divorce proceedings Mr J offered Mrs
J 50% of the net increase in the value of the company between the
date of the marriage and the date of separation, approximately
£3.7m. Mrs J sought a lump sum of £10m, which
constituted 40% of the total assets.
The main argument focused on the extent to which Mr J could rely on
the existence of the company prior to the marriage and the increase
in its value between the parties' separation and the
company's sale to justify a departure from equality in his
favour.
Post-separation assets
Charles J found that the husband had been the driving force
behind the company. It was his 'brain child' and its
success was attributable to his early working life, the knowledge
and experience he had gained during this period and the
continuation of his hard work over the years before, during and
after the marriage. Mrs J had made no direct contribution to the
building up of the company or the value of the available assets.
Her contribution was purely domestic.
The Judge distinguished between post-separation earnings (which are
attributable to the earning capacity acquired and developed during
the marriage) and post separation increases in the capital value of
assets. The latter may be referable to passive economic growth
(which does not justify a departure from equality) or to the
effort, skill or work of a party to the marriage.
Charles J reiterated the well established principle that assets are
to be valued at the date of the hearing, and not at the date of
separation. If the available assets decrease in value during this
period, the award will, in all but exceptional cases, be based on
what is available at the time of the hearing. The Judge emphasised
that this approach has become all the more important in the current
economic climate.
The corollary to this is that if the assets increase in value
between the date of separation and the hearing, the award should be
assessed by reference to the post separation growth in the capital
value of the assets. However, such an increase in value might
justify a departure from equality, particularly where this is
necessary to achieve a fair result.
As always, timing is important. Just as the relevance of a
pre-marital asset will diminish the longer the marriage, an asset
built up during the marriage may become distanced from the marriage
the greater the period between separation and the final court
hearing.
Pre-acquired/gifted assets
The existence of pre-acquired or gifted assets may justify a
substantial departure from equality. Charles J held that this could
extend to a 100%:0% division of such assets in the appropriate
case. (Departure from equality will only be relevant after both
parties' needs have been met and after any award in respect of
compensation for relationship generated disadvantage has been
made.)
So far so good. Charles J emphasised that the assessment of the
appropriate award in each case is fact - sensitive and should be
effected on a principled and not an arbitrary basis. In his view,
60% of the value of Mr J's company should be attributed to his
pre-marital endeavours. The remaining 40% was therefore
attributable to the marriage and should be shared equally. Mrs J
received 20% of the value of the company (plus 50% of the assets
referable to the marriage), a total award of £5.78m.
The case is useful in that the Judge emphasised that the choices
made by spouses before separation about the way they conduct their
married life is relevant on divorce and can have an effect on asset
distribution.
Many cases that we deal with involve significant pre-acquired or
inherited wealth, and although this particular case is fact
specific, it represents a welcome attempt by the High Court to
clarify circumstances in which a spouse will be able to justify a
substantial departure from equal division of assets on divorce.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.