Divorced Couple Share Assets and Debt

A husband has been ordered to pay his ex-wife more than £4 million in a divorce settlement that treats the wife’s substantial debts as being shared between them. The settlement awards the wife the former matrimonial home, subject to the balance of the mortgage being paid from her cash settlement.

The case involved a couple who married in 1983 and have two children, both now in their twenties. The husband is a successful businessman and is financially secure. The wife has substantial debts resulting from the closure of her legal practice and she has been suspended indefinitely by the Solicitors Disciplinary Tribunal. She is subject to an Individual Voluntary Arrangement (IVA) to satisfy her creditors and has also suffered ill health. Although she has minimal personal assets, she does have a modest pension and hopes to gain from litigation still in progress. She is otherwise dependent on maintenance payments from her former husband.

The husband owns 92 per cent of a refreshments company and has been drawing some £24,000 per month in salary, dividends and other payments. He currently lives in rented accommodation abroad but is at some time expected to return to live permanently in the UK. He also has a modest pension. The total value of the couple’s combined net assets is put at some £7.7 million.

The wife asked for the transfer of the entire value of the matrimonial home free of mortgage, assignment of the husband’s interest in a joint life endowment policy, £1.3 million in cash, shares in the husband’s company to the value of £3 million and regular maintenance payments amounting to £100,000 per year. The amounts were disputed by the husband, as was the manner of their payment, since Capital Gains Tax would most likely be a major factor if and when the shares in the company were transferred. The husband was in any case adamant that he did not want his ex-wife to become a shareholder in the business.

Although sympathetic to some aspects of the husband’s claim, the judge made it clear that she preferred the wife’s evidence, saying, “The wife impressed me as a credible and accurate witness, not least by virtue of the fact that she was able to call upon contemporaneous documentation to support the majority of her claims.”

In looking at the history of the wife’s indebtedness, the judge took the view that the causes were in some part owing to misfortune. The wife had previously employed 60 people in a firm that specialised in property transactions but which suffered as a consequence of the general downturn in the property market that began in 2007. If anything, the wife could be accused of ‘over-extending’ herself and was unable to meet business overheads. The judge stated that she was satisfied that the wife did her best to realign the business and to reduce overheads and could not be accused of negligence, recklessness or bad faith. In consequence, the debt should be considered a family, not an individual,  misfortune.

Much consideration was given to the wife’s contribution to the marriage and to the success of the husband’s business. The court heard how the business had been established shortly after the couple’s wedding. It manufactures refreshments using recipes derived from products made and sold by the husband’s grandfather some decades earlier. The court heard how the wife had helped and encouraged her husband to realise his dream to recreate the products and build a business based upon them. The judge made it clear that the wife’s provision of financial, legal and moral support was sufficient contribution to the early success of the business for it to be considered a matrimonial asset.

Furthermore, when the couple first separated in 2008, the wife continued to advise and support the company up to and beyond the irretrievable breakdown of the marriage, which was considered to have occurred by 2010. Despite the fact that the company had grown substantially since the breakdown of the marriage, the judge held that this growth could be put down to achieving its ‘latent potential accrued during the course of the marriage’.

The judge concluded that not only was the business to be considered a family asset but also that the wife’s debts were likewise to be considered a family misfortune to be borne out of the family assets. However, she fell short of granting the wife shares in the husband’s company because of the antipathy of the husband to the request and the likely disruption this could cause to the business. Accordingly she ordered cash payments to be made in stages between now and 2015 or upon sale of the husband’s shares, whichever is sooner, relying on the pair to co-operate in order to minimise the tax burden.

“Although at first sight this was a complicated case, the resulting judgment gave an award to the wife that reflected a position of parity of net assets, although with a greater degree of security for the wife,” says Alan Kiddle.