Sharing Principle – Court of Appeal Gives Guidance

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The application of the ‘sharing principle’ to big money divorces is more than a matter of simple mathematics, and what family judges aim to achieve is a broadly fair outcome for both sides. That was certainly so in one case in which the Court of Appeal refused to increase an ex-wife’s £73 million award.

The former couple had two children who had grown to adulthood during their 26-year marriage and, by the time of their divorce, their overall wealth was valued at £182 million. By far their largest asset was a lighting manufacturing company. There was no dispute that the sharing principle should be applied to the case.

In assessing the wife’s entitlement, a family judge took account of the fact that the company had been founded by the husband eight years before the marriage. Taking a ‘straight-line’ approach to valuing the business at the date of the marriage, he found that the total marital wealth, net of taxes and costs of realisation, was £146 million. The wife’s award came to roughly half that total, £72.8 million.

In challenging the judge’s decision, the wife argued that her award was about £17 million lower than it should have been. Amongst other things, she pointed out that the husband owned half of the company on the date of the marriage, only later acquiring all of it. On that basis, it was said that the judge had underestimated the proportion of the company’s value that had been built up during the marriage.

In rejecting her appeal, however, the Court found that her overall award resonated with fairness. The outcome reflected the judge’s overarching view of the weight to be attributed to the husband’s contributions to the company throughout its existence. It also represented a fair assessment of the true value of what the husband had brought into the marriage via the company.

Also ruling on the husband’s cross-appeal, the Court found that the judge had erred in requiring him to pay the wife a £20 million lump sum within a year. In treating the value of the company as equivalent to cash, the judge had failed to consider whether the outcome achieved a fair division of copper-bottomed, non-risk assets. In order to achieve a broadly fair outcome, the Court ruled that the husband should have to pay the lump sum in four £5 million instalments over four years.

Source: Private Client Library Content