This judgment was delivered in private. The judge has given leave for this
version
of the judgment to be published on
condition
that (irrespective of what is
contained
in the judgment) in any published
version
of the judgment the anonymity of the
children
and members of their family must be strictly preserved. All persons, including representatives of the media, must ensure that this
condition
is strictly
complied
with. Failure to do so will be a
contempt
of
court.
Mrs Justice Roberts :
Introduction
- This is an application by a wife for financial remedy orders. She is represented in these proceedings by Mr Richard
Castle
instructed by Mishcon de Reya LLP. The husband is represented by Mr Patrick
Chamberlayne
QC. His solicitors are Stewarts Law LLP. Decree nisi was pronounced as long ago as October 2016 but has not yet been made absolute. For the purposes of this judgment, it will be
convenient
to refer to the parties as "the husband" and "the wife". I intend no disrespect to either in doing so.
- The single issue in the
case
is the extent to which there should be a departure from equality of division of the assets on the basis of the husband's post-separation endeavours and his
creation
of what he asserts to be non-matrimonial property. In this
context
there was initially disagreement between the parties as to the
correct
application of the legal principles articulated by the
Court
of Appeal in the judgments delivered by Lord Justice Moylan in Hart
v
Hart [2017] EWCA
Civ
1306, [2018] Fam 93 and Waggott
v
Waggott [2018] EWCA
Civ
727, [2018] 2 FLR 406.
Background
- The background
can
be simply stated. The parties are now in their mid-forties. Both are educated professionals although the wife has, since 2010 devoted her time and energies to
caring
for their two young
children
who are now 9 and 6 years old. The parties met in 2003 and started to live together some three years into their relationship. They married in May 2008 and separated in June 2016 when the husband, at the request of the wife, moved out of their matrimonial home. Because of the manner in which the husband presents his
case
in terms of a forensic account of the post-separation assets, the precise date of separation has been an issue, albeit one which has not been pursued during the hearing. The wife's petition seeking dissolution of the marriage was issued in May 2016 following a letter from her matrimonial solicitors to the husband in April that year advertising her intention to issue divorce proceedings. Her Form A followed in November that year. This was thus a marriage of some 8 years albeit a
committed
relationship of more than 10 years.
- For the last sixteen years the husband has worked in increasingly senior positions within an investment bank. He is now one of the Bank's senior heads of department and leads a team in London trading a significant portfolio of equity assets which includes some
volatile
and high risk stocks. Over the years he has enjoyed increasingly substantial annual remuneration packages which have included a significant element of deferred equity participation or RSUs (Restricted Stock Units). As a result, the family has built up reserves of
capital
whilst enjoying a good standard of living in
central
London. Leaving aside issues of presentation to which I shall
come,
the agreed asset schedule in this
case
(as it was presented when the
case
was opened) shows the assets available for distribution at the end of this marriage to be just under £25.36 million (on the husband's
case)
and £27 million (on the wife's
case).
For these purposes, the husband has excluded the
very
recent 2018 awards, none of which have yet been earned or
vested.
- For the first four years of their marriage, the parties lived in rented accommodation. In January 2012 they purchased their first, and only, matrimonial home in
central
London. Following the purchase they
carried
out a substantial programme of renovation. The property has an agreed
value
of £5.1 million and is subject to a mortgage of just under £2 million. At the time of purchase the parties took some tax advice about structuring the ownership so as to enable them to take advantage of the husband's status as an American
citizen
and his entitlement to the US lifetime gift allowance. The property was purchased in their joint names but, as a result of a declaration of trust executed at the same time, the beneficial interest in the property is now held by the wife. During the marriage the husband diverted a substantial tranche of
capital
into the wife's name. In accordance with the tax advice they received, she has since discharged the mortgage from those resources save for two recent payments which the husband has made to reduce the debt secured on the property by some £100,000. There is an issue as to the tax
consequences
of those payments to which I shall
come
shortly.
- Notwithstanding the breakdown of the marriage and the demands of his
current
role in the Bank, the husband has
continued
in his role as a 'hands on' father to their two
children.
The parties have
come
to an arrangement whereby, with the assistance of the
children's
long-term nanny, the two
children
divide their time between their parents' two homes spending about five nights each fortnight with their father. Since leaving the former matrimonial home, he has been living in rented accommodation.
- It is agreed that the future housing needs of both parties are similar. The annual rent on his
current
home in
central
London is £214,500 per annum. Whilst both parties would have wished to retain the London family home at the
conclusion
of these proceedings, the husband has now accepted that the wife should keep it on the basis that she will discharge the mortgage debt from the award which she receives at the
conclusion
of these proceedings.
- Prior to the parties' decision that the wife should not return to full-time work at the end of her maternity leave following the birth of their elder
child,
she was working as a director at an investment bank. Her evidence is that, in 2006 when the parties started living together, she earnt US$1.3 million, a figure in excess of the husband's income at the time. In terms of her future earning
capacity,
she accepts that at some stage she will probably wish to
consider
a return to some form of paid employment but this is unlikely to be on a full-time basis. The husband
contends
that, whilst she will never need to work again even on the basis of the division of
capital
which he is proposing, she
could
resume her previous professional
career
if she wished to do so.
- The husband's income in 2016/2017 was £7.77 million gross, £4.287 million net. His receipts this year (including the RSUs
vesting
from previous awards) will be £3.124 million. The wife does not seek to extend her sharing
claims
beyond 2017 but there is an issue as to whether she should be entitled to a 50% share of the income earned during the year of separation and the 12 months thereafter.
The parties' open positions
- The wife made an open offer on 24 May 2018. In addition to the transfer of the former matrimonial home, she seeks a series of lump sums equal to 50% of the husband's future receipts from the RSUs awarded for the performance years 2014 to 2017. In the event of a settlement which avoided the need for a final hearing, she agreed to limit her
claim
to those RSUs awarded in 2015 and 2016. In other words, her entitlement to share would end in the year during which the parties separated. All other assets (including pensions) would be equalised by means of an in specie division and a balancing lump sum payment. In terms of
child
support, she seeks (i) periodical payments for each of the
children
in the sum of £25,000 per annum together with the
costs
of employing their nanny until 2023 (
c.
£51,000 per annum) and (ii) school fees with extras and education
costs
to the end of a first degree.
- The husband accepts that the marriage was one of equal
contribution.
His first open offer was predicated on the basis of the ring-fencing of his post-separation assets of some £6.5 million. His revised offer dated 20 July 2018
contained
a simplified solution. He now proposes a 60:40 division of the assets in his favour which, with a balancing lump sum payment of £1.78 million, leaves in the wife's hands assets with a
value
of
c.£10.2
million. This proposal represents a
very
small departure from a full exclusion of his post-separation assets which the parties agree would result in a 66:34 split in his favour. Support for the
children
is agreed at £25,000 per annum per
child
but the husband seeks from the wife an equal
contribution
to the ongoing
costs
of their private education.
- As the
case
was opened, the parties were some £3.37 million apart in terms of outcome.
The husband's arguments in support of a departure from equality
- The husband relies on several factors to justify his position that he should retain an enhanced share of the assets. Some are general points of dissatisfaction about the manner in which the litigation has progressed over the last two years. (In general terms, he asserts that the wife and her solicitors have taken active steps to delay settlement with the intention of trying to justify a greater share of the post-separation accrual.) The balance
consists
of a detailed forensic accounting exercise in relation to
certain
funds/investments and the gains they have attracted since June 2016.
- Since he left the former matrimonial home, the husband has supported the family, on his
case,
by maintaining the financial status quo ante from his salary which has been paid into a joint account to which the wife has had full access. He has also diverted a further £300,000 from his May 2016 supplemental
compensation
allowance, a total of more than £700,000 in just over two years. He has, however, set up new accounts into which he has deposited the performance-related elements of the income he has received since separation.
- The wife accepts that she has had access to his salary through the joint account but maintains that she has from time to time had to use funds in other accounts in her name to meet additional family expenses.
Post separation accrual
- In this
context
the husband points to steps which he took shortly after the end of the marriage to
carve
out a
clear
segregation of his post-separation remuneration. As is
commonplace
in these
cases,
his income is made up of a number of elements. He receives a basic fixed annual salary of £485,000 gross (£257,000 net) which is paid monthly. In addition, he receives a supplemental
compensation
allowance awarded retrospectively at the end of each year and paid in tranches throughout the next financial year. He regards this as an integral part of his salary (US$3.22 million for the past three years). On the basis of the evidence I heard, I accept it as such. In 2017, he received £1.26 million net by way of a supplemental
compensation
allowance and he envisages that he will receive a similar sum this year. He is entitled each year to a discretionary bonus which does not form part of his fixed
compensation.
In 2015 he was awarded US$1.8 million whereas in 2016 (the year of separation) his bonus was reduced to US$600,000. His bonus is paid exclusively in RSUs but, on his
case,
their
vesting
and his ability to liquidate
value
in them remains performance-related over a specified number of years.
- He has
continued
to receive RSU payments as they
vest
each year at the end of each "earn out" period. As each tranche of RSUs
vests,
they are automatically sold by the Bank and the proceeds are paid net of tax to the husband.
- His principal argument is that a significant element of the remuneration he has earned post-separation is represented by the
current
value
of the RSUs. These awards are susceptible to a
claw
back by the Bank over a fixed period in the event that
certain
ongoing performance targets are not met. The fixed term of the
claw
back provisions are between three and a half and five and a half years. Thus, taking account of the 12 month period which it takes for the individual annual awards to
vest,
the husband's
case
is that he must
continue
to perform for between four and a half and six and half years to realise full
value
in this part of his
compensation
package. In particular, he maintains that these awards are
vulnerable
to a 'performance-based
cancellation'
provision in the Scheme Rules which governs not only individual losses but also losses incurred by any senior business leader as a
consequence
of failing to hit group performance targets on a quarterly basis. In essence, he needs to make profit for the Bank over the whole
vesting
period. It is not enough, on his
case,
to keep his job and turn up for work.
- Thus he argues that the potential future
value
in the RSUs is not "banked", nor are they assets in respect of which
value
has
crystallized.
He must
continue
to perform in order to realise that
value,
a
contribution
which he
contends
is wholly external to the subsistence of this marriage. Of the stock awarded from 2013 to 2017 which has now
vested,
he has
calculated
that £4.234 million is matrimonial and £1.435 million (
c.
25%) is non-matrimonial. He deploys the same arguments in respect of his RSUs which have been awarded but have yet to
vest.
Of unvested awards worth £2.19 million, on his
case
£1.312 million (
c.60%)
is non-matrimonial.
- In summary, he puts his total unmatched
contribution
at
c.
£8.27 million being:
- US$3.413m (£2.53m) from his supplemental
compensation
allowance (all of which he has saved since the parties' separation);
- £1.46 m of unvested stock;
- £2.5m of general investment gains secured through his active management of the funds since the date of separation;
- US$60,000 (£45,000) of investment growth from the loan he took out in anticipation of discharging the mortgage on the former matrimonial home; and
- £54,000 of additional pension
contributions
which he has been making at the rate of £2,000 pcm.
By the time of
closing
submissions, not all of these elements were being pursued: see para 70.
- In terms of his more general
complaints,
he alleges that the wife sold some shares in mid-2017 at a significant loss to the family's overall wealth. These were her shares to sell although he had transferred them into her name. He alleges that the transaction has
cost
the family
c.US$1
million. He
contends
that her failure to agree a means of repaying the mortgage on the family home when fx exchange rates had fallen has resulted in a further loss of £114,000 (being the additional
cost
of discharging the sterling mortgage from assets held in US dollars).
- He alleges that the wife's
current
wish to retain the family home in Kensington at the
conclusion
of these proceedings has deprived him of a tax advantage worth some US$5.49 million (i.e. the
value
of the 'one off' US Gift Tax Allowance). He has now exhausted that entitlement and
claims
that the intended beneficiaries of the one-off tax break (the
children)
will not receive the full benefit of the gift for their further education or to assist them with acquiring homes of their own. Further, the
cost
to him of gifting a similar sum to third parties, whether during his lifetime or on his death, will, he
contends,
result in an additional tax bill of US$2 million.
- Finally, he asks me to take into account in any final distribution of the assets the foreign exchange loss he will sustain if the wife retains the family home since its
value
in US dollars (the
currency
in which he is paid) is now some £1.2 million less than it was in 2012 when the property was purchased.
- Thus, on the one hand the overall approach adopted by the husband to the overall fairness of his arguments for a departure from equality is one of strict
computation
on the basis of
crystallized
figures attributable to each element of loss or gain outlined above. However, his
case
extends beyond mere post-separation accrual per se and into the realms of a financial / litigation misconduct
case.
In the
context
of this judgment I propose to ignore that aspect of his
case
in terms of specific findings. Mr
Castle
submits that the allegations are little more than "evidential froth". Mr
Chamberlayne
(wisely, in my
view)
does not pursue these points.
- For her part, the wife's argument is that, notwithstanding the demise of the marriage, she has
continued
to make her own individual
contribution
to the welfare of the family through the
care
she has provided to the
children
in the post-separation period. In this
context,
she points to the fact that the end of the marriage has impacted upon the
children
to the extent that they have been attending weekly therapy sessions which, for the time being,
continue.
She argues that it is not permissible to discriminate between their
contributions
as the husband seeks to do. Further, she maintains that there is no legal or evidential basis for his
complaints
that she has
caused
the husband, or the family, any financial loss. On the
contrary,
she
contends
that her role in managing those of the family's investments which remain under her
control
has
continued
as before.
- Furthermore, the wife
contends
that the
clear
segregation of pre- and post-separation income which the husband
claims
to have undertaken is not borne out by his disclosure which involves an element of retrospective accounting. In particular, she
claims
that he has not maintained the family from post-separation income. This particular submission is made on the basis that there is an excess of some £1.08 million between what he has spent on the family since June 2016 (just under £760,000) and funds which he transferred to his personal account and which represented matrimonial savings (£1.84 million).
- Mr
Castle
submits on behalf of his
client
that, if the
court
were to embark upon the mathematical precision required by the husband's approach to this litigation, the
court
would have to undertake a detailed forensic examination of movements on all the parties' accounts at the time of separation in order to determine how funds have been applied and the point or points at which any latent growth occurred. Because of the deferred nature of the supplemental
compensation
allowance and the RSUs, there is inevitably an overlap between assets existing pre- and post-separation.
- It is accepted that both parties have had recourse to their share of the matrimonial assets to fund other expenses associated with the breakdown of the marriage such as the significant burden of legal
costs.
- There is no issue but that there has now been full disclosure in relation to all the assets which are available for distribution. In relation to the assets at the time of separation in respect of which the wife should be entitled to an equal share, Mr
Castle
submits that these will include:
(i) all RSU awards made by the Bank prior to May 2016;
(ii) the supplemental
compensation
allowance (SCA) awarded at the end of 2015 but payable in 2016; and
(iii) 50% of the awards in respect of both RSUs and SCA made subsequently for the 2016 service year.
These would necessarily include all RSU receipts in 2016 and 2017 (some US$4.9 million) as well as those received this year. On this basis, the payments on her
case
can
be seen as both rewarding endeavour during the subsistence of the marriage and forming part of the immediate financial
continuum
in the period post-separation. She accepts that she should have no
claim
to any RSUs
vesting
after April 2016 (i.e. those awarded in February 2017 and thereafter).
- Where the parties are apart is the proper
construction
of the RSU scheme rules and the extent to which there are performance requirements over and above remaining in post with the Bank or departing as a 'good leaver'.
Pre-Owned Assets
- There is a further dispute between the parties as to the extent and
value
of the assets which each owned before the marriage. On the wife's
case,
she had assets of some £1.255 million when they married (£682,000 when they began to live together two years earlier). The husband asserts (without formal evidence) that he had approximately US$2 million (or just over £1 million on prevailing fx rates). The wife told me that he was studying at business school at the time and had no savings. Both parties accept that whatever assets each had were subsequently mingled over the
course
of their married lives and the point may
carry
little weight. Nonetheless the wife relies on her additional
contribution
of some £250,000 as an additional reason which militates against an unequal division of assets at the end of the marriage.
Post-Separation investment accruals
- By way of a response to the husband's
case
that the post-separation gain in his underlying investments is the result of his personal investment decisions, the wife's
case
is that not only is there no evidence which supports an exceptional gain over and above a normal FTSE tracker, there is
clear
evidence that the post-separation bank accounts have not been managed by the husband but by the investment agents to whom the funds have been entrusted.
The Law
- In terms of the law which I must apply in reaching my
conclusions
as to a fair division of the available resources, my starting point is section 25 of the Matrimonial
Causes
Act 1973. Its terms are well known and need no repetition here. I bear well in mind that my first
consideration
must be the interests of the two
children.
In this instance, not only have their parents reached agreement as to the manner in which they will divide their time between the parties' two homes, I am satisfied that there are sufficient resources in this
case
to ensure their future wellbeing in all practical and financial terms regardless of the manner in which the post-separation assets are divided. Both parties are devoted to their
children
and I have no
concerns
in the
context
of the financial landscape in relation to their future wellbeing.
- My objective in exercising the discretionary powers given to me by the 1973 Act is to achieve an outcome which is fair to both parties having taken into account all the relevant
circumstances
of the
case.
The issue at the heart of this
case
is the application of the "sharing" principle or, perhaps more aptly described here, the "equal sharing" principle. Following Miller, it is now
clear
that the equal sharing principle will almost invariably apply to matrimonial property save only in
circumstances
where it is displaced by any other s 25 factors, including need. In this
case,
the question which has been posed by Mr
Chamberlayne
is where and how the line should be drawn between assets which
can
properly be described as "matrimonial" and those which are "non-matrimonial". The assets which lie at the
centre
of the
current
dispute all flow from income earned (and invested) by the husband since May 2016. On the basis of the decision in Waggott, Mr
Chamberlayne's
primary submission is that post-separation earnings must now be treated as falling outside any definition of "matrimonial property". He does not seek to say that such earnings, or the assets into which they
can
be traced, are not susceptible to the discretionary jurisdiction exercised through the section 25 "portal". However, if they are to be 'invaded' and shared in whatever proportions are deemed appropriate, there has to be a sound and principled reason for that step. In
circumstances
where, as here, he
contends
that the wife's needs will be amply met even if post-separation earnings are excluded from the ambit of her sharing
claims,
there is no justification for enlarging her entitlement above and beyond the point of separation. Waggott, he says, has removed the need to resort to arbitrary or pragmatically
convenient
approaches such as a 12 month approach to the sharing of bonuses, or a reducing "run off" approach, or even a pragmatic "rounding up" approach. Each of these solutions, deployed by different judges in previous
cases,
are unnecessary in the light of the
clear
statement of principle explained by Moylan LJ in Waggott.
- Whilst recording his support for pragmatism where the goal was an agreed resolution of litigation, the learned judge in Waggott posed a simple question: do those earlier
cases
of Rossi, H
v
H and
CR
v
CR
HREF='#note1'>[1] support the proposition that an earning
capacity
is
capable
of being a matrimonial asset as a result of which the applicant spouse has an entitlement to share in its product (here, the post-separation earnings since the point of separation) ?
- His Lordship's answer to that question insofar as it relates to sharing in relation to the products of an earning
capacity
comes
in paragraph 122: "the
clear
answer is that it is not."
- In my judgment that definitive answer quite
clearly
applies to an earning
capacity
in terms of its present and future potential to generate income, the product of which may well be savings, investments or any tangible accretion to future
capital
wealth. That much is
clear
from para 128 of his Lordship's judgment where, after a lengthy analysis of the authorities, he said this:
"In my
view
Miller and the subsequent decisions referred to above, in particular Jones and Scatliffe, do not support the extension of the sharing principle to an earning
capacity.
The sharing principle applies to matrimonial assets, being "the property of the parties generated during the marriage otherwise than by external donation" (
Charman
v
Charman
(No 4), para 66). An earning
capacity
is not property and, in the
context
advanced by Mr Turner, it results in the generation of property after the marriage."
- In my
view
that last sentence is key. If an earning
capacity
is to be shared, as opposed to the tangible product of its exercise, and leaving aside any evidential difficulties in establishing whether or not such a
capacity
could
be said to have been generated during the marriage otherwise than by the operation of factors external to the marriage, where and how does the
court
draw the line in terms of implementing a
clean
break as is required by s 25A of the 1973 Act ? In this
context,
the observations of Mostyn J in B
v
S (Financial Remedy: Marital Property Regime) [2012] 2 FLR 502 fall into sharp relief:
"… to allow
consideration
of the
concept
of sharing to intrude in the assessment of a periodical payments award seems to me to be based upon a doubtful principle, and is replete with problems of quantification to any sure standard… if the
concept
of sharing is going to uplift above the assessment of need a periodical payments award which will be paid from post-separation earnings, how does a judge set about doing it ? Is it a third ? Or 40% ? Or 20% ? There are not even any signposts along the road to a fair award."
- These observations were made in the slightly different
context
of a final award which included ongoing income provision for the wife in the form of
continuing
periodical payments. Nevertheless, as Moylan LJ observed in Waggott at paras 123 to 124,
"123. Any extension of the sharing principle to post-separation earnings would fundamentally undermine the
court's
ability to effect a
clean
break. In principle, as accepted by Mr Turner, the entitlement to share would
continue
until the payer
ceased
working (subject to this being a reasonable decision), potentially a period of many years. If the
court
was to seek to effect a
clean
break this would, inevitably, require a
court
to
capitalise
its
value
which would
conflict
with what Wilson LJ said in Jones
v
Jones.
124. Looking at its impact more broadly, it would apply to every
case
in which one party had earnings which were greater than the other's, regardless of need. This
could
well be a
very
significant number of
cases.
Further, if that submission was
correct,
I
cannot
see how this would sit with Lady Hale's observation in Miller that, even
confined
to "(i)n general", "it
can
be assumed that the marital partnership does not stay alive for the purpose of sharing future resources unless this is justified by need or
compensation"
(para 144) or her observation as to the effect of "(t)oo strict an adherence to equal sharing" (para 142)."
- The question then arises, are the post-separation earnings in this
case
"future resources" generated by an earning
capacity
in which the wife has no entitlement to share as a matter of principle once the marital partnership has
come
to an end ? There is no serious
challenge
in this
case
to the proximate date of the end of that partnership. Whether it was at the end of April 2016 when the wife's solicitors
confirmed
in
correspondence
her
conclusion
that the marriage had irretrievably broken down, or whether it was June when the husband physically moved out of the family home having made short term arrangements to rent an alternative property, this was in no sense a "limping" marriage. Its demise was advertised, acknowledged and implemented within a matter of weeks. Whatever regime was then put in place by the parties in relation to their mutual and ongoing
contributions
to their
children's
welfare and the financial support of the family, it was not an ongoing marital partnership. For this reason, and absent arguments about needs and
compensation,
I do not accept the wife's proposition that her ongoing
contributions
to the general welfare of the family matched those of the husband's and/or gave rise to any entitlement to an equal share in the husband's post-separation earnings. However, and it is an important
caveat,
that does not necessarily mean that those
contributions
were, or are, irrelevant as part and parcel of the over-arching
circumstances
of the
case
in terms of an assessment of needs or fairness of outcome. Apart from any other
considerations,
s 25(2)(f) identifies them as one of the factors which the
court
is required to
consider.
- That much is
clear
from paras 131 and 132 of Moylan LJ's judgment in Waggott :
"131. In my
view
it is
clear
from Miller and
Charman
alone that, as a matter of principle, the
court
applies the need principle when determining whether the sharing award is sufficient to meet that party's future needs. To repeat what I have said above (para 108), there must be a means of determining whether, and if so how, the sharing award does or does not meet the applicant's needs. There is no suggestion that the question of needs for these purposes is to be determined by reference to a different need principle, or more broadly, by means of a different approach. Indeed any other approach would be inconsistent with the observations made by both Lord Nicholls and Lady Hale, that there is no rule about where the
court
starts the exercise, and inconsistent with
Charman
(para 73) in which the sufficiency of the award by reference to the sharing principle is directly assessed by the award "suggested by the needs principle".
132. This does not mean that the manner in which the need principle is applied to the sharing award is inflexible, no more than the application of the need principle is itself inflexible. ….. Further, as Wilson LJ observed in Jones (para 27), an earning
capacity
can
be "relevant to a fair distribution of the assets pursuant to the sharing principle". It
can
be taken into account when the
court
is deciding whether the
capital
should be amortised in full, in part or not at all and when deciding what assumed rate of return to apply. However, to repeat what Wilson LJ said in Jones:
"Even if, however, an earning
capacity
may also sometimes be relevant to a fair distribution of the assets pursuant to the sharing principle, it does not follow that the earning
capacity
should itself be treated as one of those assets, still less that an attempt should be made to
capitalise
it."
- I shall set out my final
conclusions
in relation to the
computational
aspects of this
case
shortly. Before doing so, I return to the earlier judgment of Moylan LJ in Hart. In that
case
his Lordship explained the principles to be applied in a determination of where and how the line was to be drawn in the identification of matrimonial and non-matrimonial property.
- In this
context,
the
court
has to make such factual decisions as the evidence enables it to make: para 91. In this
context
the normal rules of evidence apply. In relation to both pre-marital and post-marital property, the
court
may decide that the non-marital
contribution
is not sufficiently material or bears insufficient weight to justify a finding that any property is non-matrimonial: para 92.
- Pausing there, it seems to me that there is no
clear
evidential basis in this
case
to make any adjustment or allowance for the fact that either the husband or the wife had assets in their own names prior to their decision to live together and marry. Whilst I am satisfied that the wife has been able to document the existence and
value
of her investments prior to the marriage, it is accepted that from the outset these assets were mingled with other family assets generated by the husband who has gifted to her substantial investments over the
course
of the marriage. I am not satisfied that there is a sufficiently
clear
evidential basis for a finding that he had assets worth US$2 million at the start of this relationship but I am prepared to accept that, whatever he did have, was applied towards the benefit of the family. Whilst neither party seeks a departure from equality of division on this basis alone, I
can
deal with that aspect of the
case
now in relatively short order.
- What, then, of the
value
now represented by the
cash,
investments and the RSU awards which are the product of the husband's post-separation earnings ?
- If the evidence establishes a
clear
dividing line between matrimonial and non-matrimonial property, the
court
is then in a position to apply that differentiation at the next, discretionary stage: see para 93 of Moylan LJ's judgment in Hart. However, if there is a "
complicated
continuum",
it will often be neither proportionate nor feasible to draw a
clear
line between what is matrimonial property and what is not. This will often be the
case
where there is some form of blending or amalgamation of assets, or 'investment
churn',
which results in a blurring of the lines of demarcation between the two. Here, as Hart makes
clear,
the
court
should undertake a broad assessment based on the available evidence and leave the specific determination of how to divide the parties' wealth to the next stage of the exercise. It is a matter for the judge in each individual
case
to decide where on the spectrum any particular
case
lies: see para 94.
- The third and final stage occurs when the
court
undertakes an holistic assessment of fairness by deploying all and any relevant factors identified in s 25 of the 1973 Act. This is a mandatory part of the process in reaching a fair outcome as between the parties regardless of whether or not the
component
elements of the global wealth available to a
couple
has been identified as matrimonial or non-matrimonial property. This final and overarching stage of the assessment of what is fair will not disturb any previous decisions as to what is matrimonial property and what is not. It does, however, operate as an essential
cross-check
whereby the
court
can
test that the award it proposes to make is fair in the light of those s 25 factors: para 95.
- In the
context
of this third stage, it may well be that the
court
decides that there is an element of non-matrimonial property within the global asset base but is unable to draw a
clear
bright line so as to identify its limits. In this event, a full 50% sharing entitlement may not be appropriate and the
court
must do its best to determine what lesser percentage may be fair in the
circumstances
of the particular
case
with which the
court
is dealing. At this stage, according to the guidance given in Hart, there is no particular mathematical or other specific methodology for determining or testing "fairness". The
court
must adopt a broad assessment of all the factors which influence "overall fairness" in terms of the outcome for both parties: para 96.
- Into which
category
does this
case
fall ? In this
context,
I agree with the submission made by Mr
Castle
that even a finding in relation to a
clear
dividing line between matrimonial and non-matrimonial property will not absolve the
court
from moving onto the next discretionary stage. That is perfectly
clear
from para 93 of the judgment in Hart.
- By the time we reached final submissions, there was little issue between the parties in terms of the substantive law post-Hart and Waggott. Mr
Chamberlayne
accepts that a straightforward mathematical
calculation
in relation to what is matrimonial and what is not
can
never provide the
complete
answer to any
case.
However he submits that, whilst the
court
plainly has a discretion to make an alternative award which is different from that produced by a formulaic
calculation
based on the maths, that award has to be based on a principled rationale. He submits that Miller tells us that there are only two outside sharing:
compensation
and need.
An issue of
construction:
the operation and
consequences
of the RSU scheme rules
- An issue which
continues
to separate the parties in terms of their approach to what is matrimonial property and what is not flows from the proper
construction
of the RSU scheme rules put in place by the Bank which govern employees' entitlement to this particular benefit. It is accepted that the annual awards of RSUs are akin to a form of discretionary bonus and paid in lieu of the substantial
cash
bonuses which were 'outlawed' following the global financial
crash
in 2008.
- The husband
contends
that part of the re-evaluation process which was undertaken globally within the banking sector following the events of 2008 involved structuring into
compensation
packages a de-escalation of risk. On his
case,
the scheme rules – as they apply to him – require a significant element of personal performance measured against specific targets set by the Bank in each of its different sectors. That performance on his part is
continually
measured throughout the period between the date of the award and the
conversion
of the RSUs into
cash.
As I have said, he has
calculated
the 'earn out' period in respect of each tranche of awards to be 56 months.
- He must first earn the award by reaching performance targets set for a 12 month period in any one financial year. He must then
continue
to meet financial targets over the
course
of the next 20 months in order to ensure that particular tranche of awards formally
vests.
Finally, he must
continue
to perform for a further two full years until the final
vesting
and
conversion
of those awards into
cash.
- For these purposes I was given a schedule which
contained
a detailed breakdown of all RSUs received and still to
vest
over a run-in period which began with the award made in February 2013 and
continued
to February 2017. (The wife accepts there is no question of her entitlement extending beyond that date.) Over that period, and applying his 56 month formula as explained above, the husband has been able to
calculate
with precision what percentage of his annual awards in each of those five years
can
be properly
characterised
as 'matrimonial' in terms of having been earned during a period when the marriage subsisted. He has
carried
out the same exercise in relation to those RSUs which have yet to
vest.
Where awards have already
vested
he has used the exact share price and has factored in tax paid. In respect of the
value
to be attributed to awards which have yet to
vest,
he has used the
current
share price and fx rates. The
calculations
have been undertaken on the basis that the effort and performance which is required on his part to 'earn' full
value
in the RSU awards after May 2016 (the month following separation) make the product of his efforts non-matrimonial in
character.
This is the basis on which they have been excluded from Mr
Chamberlayne's
computation
of the wife's sharing
claim.
- I
can
understand why this methodology has been adopted by the husband. The mathematical integrity of the process no doubt appeals to his instincts as a banker. It has an underlying rationale and a transparency in terms of
calculation
which inevitably appeal to his sense of what is fair in terms of his wife's entitlement at the end of this marriage. I am satisfied that this exercise has been
carried
out with meticulous
care
and there is no
challenge
to the accuracy of the figures which are now reflected in the detailed schedule which is before the
court.
On the basis of the husband's adopted methodology, the figures are
clear.
- The
challenge
to this approach which
comes
from Mr
Castle
has two limbs. First, he submits that, whatever date one adopts as the date of separation, a marriage and its denouement have to be seen as having some element of
continuum
which makes it impossible to achieve a fair result in relation to a particular
category
of assets by relying solely on the application of a mathematical formula. Were this a
correct
interpretation of English law, he submits that we would be moving rapidly towards the imposition on divorce of a matrimonial property regime without a
corresponding
approach at the start of marriage to matrimonial property rights. Secondly, he disputes the extent to which the husband's entitlement to the RSUs is performance-based. He points to the fact that none of the RSU awards made to the husband over his 15 or 16 year
career
with the Bank have been forfeited in the past.
The Bank's scheme rules
- The Bank's scheme rules provide that the RSUs shall be "earned and payable" in five equal instalments over a five year period provided that an employee remains in post throughout. That entitlement is subject to the detailed rules about what is to happen if an employee leaves during the
vesting
period and prior to any of the annual payment dates. The reason for the termination of employment is key to the effect on "unearned" RSUs which "shall become earned and payable or be
cance[l]led".
If an employee dies whilst employment, any unearned units are deemed "immediately earned and payable". Different provisions govern an employee's disability and redundancy. If employment is terminated for
cause
(i.e. dismissal), all "unearned" RSUs are
cancelled.
- There is a separate
clause
in the Rules for "Performance-Based
Cancellation".
This provides as follows:
"In order appropriately to balance risk and reward, unpaid Restricted Stock Units …. may be
cance[l]led
if a loss occurs outside of the ordinary
course
of business. For a line of business, sub-line of business or division, a "loss" means a pre-tax loss for a fiscal year (as determined under U.S. generally accepted accounting principles in effect as of the
close
of such fiscal year). For an individual, a "loss" means that the aggregate profit and loss attributable to your activities is negative. A loss "in the ordinary
course
of business" means a loss resulting from a planned winding down of a business or legacy position, or a loss that is de minimis (e.g., a loss from a short-dated trading position that is within desk strategy and risk limits and which, aggregated with losses across all positions, is less than $1 million). A loss outside the ordinary
course
includes (without limitation) losses such as those resulting from
complex
or high-risk trading strategies, risk or
compliance
violations,
deliberate or grossly negligent failures to perform your job duties, or any loss that materially impairs [the Bank's] solvency, liquidity, or
capital
distribution plans."
- The Rules make it
clear
that such losses
can
have an impact on entitlement to unpaid RSUs both in terms of individual performance and, in the Global Banking and Market sector, to a "senior business leader within the applicable group". In either event, accountability for such losses falls to be determined by the Bank taking into account factors such as (i) the magnitude of the loss "including positive or negative
variance
from plan"; (ii) the degree of involvement including any "leadership role" held at the time of any loss; (iii) individual performance; and (iv) any other factors deemed appropriate. The Bank makes its final determination and will either take no action or
cancel
some or all of the RSU award. Its determinations are final and binding.
- The husband's evidence was that his forecast targets were (and are) set on a rolling quarterly basis. These are the targets which inform the "plan" or benchmark for measuring his performance both as an individual and as a "senior business leader" within his Group. He told me that managing high risk trading and equity positions was the
core
of his function as Head of a significant product area within the global markets division. He regards his awards as remaining at risk throughout the five year period which he sees as essentially an "earn out" window.
- I accept the husband's
case
that there is a genuine and significant element of performance which underpins the future
value
of his RSUs. I am not persuaded that all he has to do is to remain in post and avoid dismissal for
cause
in order to secure full
value
from these awards. He operates in an environment of managed
commercial
risk. He is
clearly
good at his job and is rewarded well for his efforts by the Bank. I do not accept that the absence of any historic forfeiture of his RSU awards is a sound basis for diluting the potential impact of non-performance or loss on his future entitlement to receive full
value
from them.
- Mr
Castle
submits that the strict application of the husband's mathematical formula applied, as it is, from a linear point in time has the
clear
potential to produce an unfair result for the wife. By way of example, he points to receipts totalling US$1.2 million which were paid to him in mid-August 2016 (some three and a half months after separation). These sums represented annual staged payments from the 2013, 2014 and 2015 RSU awards. These receipts, he says, are sufficiently proximate to the end of the marriage to retain their "matrimonial"
character.
He argues that they should be regarded as part of the
continuum
of the marriage because they were earned in part whilst the parties were living together under the same roof.
- I accept that there will inevitably be
cases
where it will be appropriate to avoid a defined
cut-off,
or point in time, after which all and any financial receipts become non-matrimonial in
character.
The potential for artificial or
contrived
calculations
is all too obvious. In this
case
the presentation which is made on behalf of the husband employs an assumption that there is a
correlation
between the subsistence of the marriage with the point of separation and the
value
accrued in any given tranche of RSUs. The wife has not sought to
challenge
the fact that the marital partnership had ended by the time she served her divorce petition in May 2016. The matrimonial element of her entitlement to share in the
value
received by the husband in August 2016 has been factored into the husband's
case.
This is the basis on which he has made his
calculations
that, of the US$10.7 million received from RSUs awarded from 2013 to 2017 (which includes the US$1.2 million which fell in during August 2016), some US$6.48 million qualifies as matrimonial property whilst the balance of US$4.24 million does not. Thus, to the extent that
value
was earned during the subsistence of the marriage, this is already reflected in the schedule by way of a pro rata attribution of
value
to the matrimonial element 7of the relevant pre-separation awards.
Supplemental
compensation
allowance
- The husband has always regarded the SCA as an accretion to his fixed annual salary. I have accepted this aspect of his
case.
The allowance is awarded at the start of the
calendar
year and is paid in instalments during the
course
of the same year. In 2017 he received US$1.71 million net (£1.26 million) and he expects to receive a similar sum for 2018 unless the Bank reduces this sum for any reason. It is
clear
from the analysis which
counsel
have agreed that he has received regular payments of US$426,650 in tranches through 2016, 2017 and 2018. On behalf of the wife Mr
Castle
contends
that there are no specific performance targets attached to this element of the husband's
compensation.
The explanatory notes on the 2016
compensation
statement refer to the SCA as "the Allowance for the 2016 performance year". He submits that the SCA payable in 2016 should be treated as a matrimonial asset because (i) it was awarded in large part specifically to reward endeavour during the marriage, and (ii) it is part of the immediate financial
continuum
which itself arises out of the endeavour during the marriage.
- Mr
Chamberlayne
deducts all SCA payments from the "matrimonial" balance sheet save for the payment made in May 2016 which he accepts should be treated as part of the wife's entitlement to share. The
value
excluded (and earned since May 2016) is £2.53 million (or US$3.413 million). All SCA payments have been segregated into separate accounts since May 2016 and
can
be identified.
- It seems to me that to accede to Mr
Castle's
request to treat these sums, or a portion of them, as matrimonial property simply because they
continued
to fall in as "part of the immediate financial
continuum
arising out of the endeavour during the marriage" is to ignore the process which received a judicial mandate in Hart. In terms of segregating the matrimonial and non-matrimonial property, the
court
is required to make such factual decisions as the evidence enables it to make. If the evidence establishes a
clear
dividing line between matrimonial and non-matrimonial property, "the
court
will obviously apply that differentiation at the next, discretionary stage": see paras 91 and 93 at pp 112-113.
- In this
case
two facts are established on the evidence: (i) the marital partnership had
come
to an end by May 2016; and (ii) the
value
of the SCA payments received after its demise (themselves the product of the husband's earning
capacity
and part of his ongoing employment income) was US$3.413 million.
- Inevitably I must examine
carefully
whether the exclusion of those receipts and the
value
of the RSUs from the overall
computation
of the assets which fall to be shared equally leaves in the wife's hands a fair award which not only meets her future needs but which takes into account all the
circumstances
of this particular
case.
However, where the evidence is sufficiently
clear,
I do not accept that, in terms of the date of receipt of funds, proximity to the effective end of the marriage has any determinative effect per se on a decision as to whether property received post-separation is matrimonial or non-matrimonial.
My
conclusions
in relation to
computation
- The asset base is largely agreed and
can
be distilled into the following abbreviated table:-
FMH (net of sale costs) |
4,947,000 |
|
less mortgage |
(1,877,854) |
|
H's bank accounts* |
2, 585,688 |
includes 50% jt account |
W's bank accounts |
206,186 |
includes 50% jt account |
H's investments* |
14,465,170 |
includes vested RSUs |
W's investments |
3,419,733 |
|
Loan to nanny |
35,000 |
treated as W's asset |
Less liabilities |
|
|
H's stamp duty on purchase** |
(525,750) |
|
Tax on realised gains |
(282,969) |
H and W liability |
Unpaid legal costs |
(118,476) |
H and W liability |
Total liquid assets |
22,853,728 |
|
Deferred compensation |
3,099,868 |
|
Pensions |
342,074 |
treated as cash; net of tax |
TOTAL ASSETS |
26,295,670 |
|
*The figures given in respect of
cash
bank balances and the
value
of the husband's investments include assets/property which he
contends
to be non-matrimonial.
** I have included the stamp duty which the husband will pay on the acquisition of a property similar in
value
to the former matrimonial home. If he does not purchase a home for himself within a period of 2 years, he has offered the wife an indemnity whereby he will account to her for 50% of that sum.
† I have omitted from the liabilities the figure of £198,000 which is agreed to be the sterling equivalent of the US tax which would be payable were such liability to be triggered by his reduction of the mortgage debt. It is agreed that this liability should be treated as a
contingent
deduction which, if payable, will either be shared or paid by the husband.
- On this basis, the extraction route for which Mr
Chamberlayne
contends
is as follows:
Total assets available for division 26,295,670
Deduct non-matrimonial elements:
awards made in 2018 |
(757,852) |
agreed non-matrimonial |
SCA post-separation (p/s) |
(2,530,000) |
|
RSUs received |
(1,679,983) |
pro rata post separation |
RSUs still to vest |
(1,561,257) |
pro rata post separation |
Adjust for: |
|
|
Tax (non-matrimonial element) |
24,941 |
agreed balancing credit |
TOTAL DEDUCTIONS |
6,504,151 |
|
- On the basis of this analysis the
value
of the matrimonial property available for division on the basis of a full sharing entitlement is £19,791,519, or just under £20 million. On the basis of a 50:50 division, the wife would be entitled to £9,895,760 or just under £10 million. The husband's open offer of a 60:40 division is based upon a global asset base of £25,537,818 (i.e. the global asset base of £26,295,670 less the agreed figure for the 2018
compensation
award in the sum of £757,852). His offer would therefore leave in the wife's hands a total of £10,215,127 or just over £10.2 million in round terms.
- Having accepted that the husband's presentation in schedule form of the
categorisation
of matrimonial and non-matrimonial assets is a broadly accurate and sufficiently precise representation of where the limits of the matrimonial asset base
can
be drawn, I thus reach the stage where those figures have to be
cross-checked
against the much wider
canvas
of the section 25 factors, including all the
circumstances
of this particular
case.
This is the third and final stage of the Hart exercise.
Does the husband's proposal represent a fair outcome in all the
circumstances
of this
case
?
Needs
- With assets of £10.2 million, including the former matrimonial home, the wife's housing needs are
clearly
met. She wishes to retain that property for a number of reasons, not least because it is the
children's
home. The husband has agreed that she should keep it. She has undertaken to discharge the mortgage debt within a maximum period of 12 months. The request for a deferment period is based upon her wish to seek tax advice on whether the mortgage debt
can
be repaid from her matrimonial award without adverse tax
consequences
or whether she should replace that liability with a mortgage in her sole name. The effect of the husband's offer is that he will fund both the repayment of the existing mortgage and a balancing lump sum payment of
c.£1.78
million to leave in her hands global wealth of
c.£10.2
million.
- She would be left with the following assets for investment purposes:
Bank accounts |
205,726 |
excluding jt a/ c |
Investments |
3,419,733 |
|
Nanny loan |
35,000 |
|
Less liabilities |
(245,577) |
|
Pension |
71,283 |
|
Balancing lump sum |
1,781,962 |
|
TOTAL |
5,268,127 |
|
- Mr
Chamberlayne
accepts that the budget which the wife has put forward in respect of her future income needs (£157,000 net per annum) is a perfectly reasonable presentation despite the fact that the husband's figure in relation to the family's expenses whilst they lived together was slightly less. I accept that there were expenses which he had overlooked including the not insignificant
cost
of some holiday accommodation for the family in Australia and the United States. He himself has just budgeted over £60,000 to take the
children
on a summer holiday.
- Mr
Chamberlayne
further submits on behalf of his
client
that her wealth
could
then be arranged, as she
chose,
to leave her with a house worth
c.£5
million and a potential Duxbury fund of just over £5 million producing an assumed net annual sum for her income needs of
c.£200,000
per annum for the rest of her life. That provides for some 'headroom' over and above her stated income needs. Were she later in life to release a further £1.5 million of equity by trading down to a smaller home, her potential Duxbury fund increases to £6.5 million or an equivalent income of £250,000 per annum without any step-down on retirement.
- The final point which he makes on behalf of the husband is that she has a future earning
capacity.
He does not invite me to quantify that
capacity
at this stage, far less to factor it into a
capitalised
maintenance requirement. He makes the sound point that it may not be a sensible decision for her to structure her finances in the expectation that, from the age of 45 years, she will live on a reducing
capital
fund and he invites me to accept that the husband's proposal will mean she need never work again if she
chooses
that option.
- I accept that this wife is likely to find employment in the future if that is what she wishes for herself. She is
clearly
a highly intelligent and
capable
woman who has worked in her sector of banking at a senior level in the past. However, she has been out of work for the best part of ten years. She has used this time to make a significant investment in rearing the
children
whose interests
come
first and foremost not only in terms of this
court's
approach but also in terms of what these parents want for their
children.
Both
children
appear to need a lot of help and support at the moment as they
come
to terms with their parents' separation. That will undoubtedly
change
in the future but they are still relatively young
children.
This
couple
is lucky enough to have the support of an excellent nanny but I accept that it is likely to be a few years before the wife feels able to
consider
a return to full-time employment, if that is the
course
she wishes to take. She will by then be approaching, if not in, her fifties. I find that she is
very
unlikely to earn at the level of her previous salary and I suspect,
contrary
to what the husband told me, that it would not be a simple route back into the world of banking in any event.
- Whichever way one looks at the situation, she is unlikely to be in a position to make a significant or material
contribution
to her own income needs for the foreseeable future, despite her many attributes. That is simply a
consequence
of the decision which this
couple
took to have their
children
and to raise them at home with a full-time mother on hand.
- Thus, on any
view,
the proposal which the husband makes will meet not only the wife's stated housing needs (including her wish to retain the family home on a mortgage free basis) but also her future income needs on a
capitalised
whole life basis. It ignores the
value
of any future earnings which she may generate from a return to some form of paid employment in the future.
- It will be a matter for the wife to determine how to arrange her financial affairs in the future whatever the outcome of this
case.
I am proceeding on the basis that her income needs will be met without the need to release equity by moving into a smaller and less
valuable
property. That may well be what she decides to do once the
children
are independent. I bear in mind that the Kensington property is a substantial and
valuable
property in a prime sector of the
central
London housing market. That said, the parties agree that the former matrimonial home (or an equivalent property) meets their respective housing needs both now and in the future. Each wished to retain the family home. The husband now accepts that he will purchase a new home for himself and the
children
and that it will have an equivalent
value.
He will have no need to trade down in future unless that is what he
chooses
to do. No matter which way one approaches this
case,
his financial position and his ability to produce additional wealth going forward is immeasurably better than the wife's. He has already demonstrated an ability to support the entire family (and, going forward, himself and the
children)
from his salary alone. The forensic exercise which has been undertaken throughout the
course
of this hearing has only served to demonstrate the extent to which he has the potential to retrench in financial terms as his RSUs
vest
and are
converted
into
cash
on a rolling basis. I accept that there is an element of risk, albeit it that I find the magnitude of that risk is not such that I should discount by any significant factor the sums which are likely to fall in for his benefit in the future. He is, as I have said,
clearly
very
good indeed at what he does. The Bank
certainly
regards him as a
valuable
asset and a key employee. He has performed extremely well through some
challenging
years in his sector and there is no past history of the Bank
clawing
back his awards. For these reasons, I
can
see no principled or fair justification for factoring into this wife's future resources an element of equity release. I am satisfied that a
capital
investment fund of just over £5.26 million will be more than sufficient to meet her income needs going forward.
- In terms of the extraction of
value
for his
client,
Mr
Castle
invited me to deal with the RSUs on the basis that I
could
make
contingent
lump sum orders requiring the wife to reimburse the husband in the event of a future loss. I do not
consider
that is the way forward in this
case.
She will share equally in the RSUs so far as they
can
properly be regarded as matrimonial property, a fact which the husband has accepted and reflected in his
composite
schedule.
- Standing back, as I do, I ask myself again whether the extraction route proposed by the husband is a fair outcome for this wife. In my judgment, it meets her needs going forward for the reasons I have given.
- In this
context,
I bear well in mind that, whilst fairness has a broad horizon, the
court
cannot
simply settle upon a figure for the wife which allows some measure of financial uplift to account for future
contingencies
unless there is some rational or numerical justification for that approach: see para 57 per Mostyn J in DR
v
GR (Financial Remedy:
Variation
of Overseas Trust) [2013] EWHC 1196 (Fam). That proposition has to be seen against the practical realities of life: the Duxbury figure is only ever a guideline and the analysis is a broad one. Income needs will inevitably fluctuate significantly in the future and the
court
has to be satisfied that any award is fair to both parties in the
context
of the income which it would be fair to allocate for a wife's ongoing needs over the
course,
as here, of over 40 years. That was an approach adopted by Moylan J (as he then was) in AR
v
AR [2011] EWHC 2717 (Fam).
- As his Lordship was subsequently to remark in delivering the judgment of the
Court
of Appeal in Hart some seven years later,
"109. …I
consider
that much of the tension in the judgment between the ultimate award and the judge's other
calculations
arises from the fact that he felt
compelled
to seek to apply a formulaic approach.
……..
110. However, the main reason I have
concluded
that the judge's award
cannot
be successfully
challenged,
is that the judge independently
conducted
an overview of the
case
to ensure that his proposed award was fair. He expressly performed the alternative approach endorsed in the Jones
case
and which, as set out in Jones, he had to perform at some stage of the process he was seeking to undertake so as to test his other tentative
conclusions
or as a "
cross-check"
….This approach required him to assess what weight to give to the husband's pre-marital wealth when assessing the extent to which the parties'
current
wealth reflected marital endeavour and the extent to which it did not. The judge plainly
concluded
that his proposed award gave proper weight to that factor. Equally, he plainly must have
concluded
that a higher award, as postulated by his other
calculations,
would not give proper weight to that factor and, accordingly, would not be fair."
- In my judgment those observations must apply equally when the non-marital
contributions
which the
court
is evaluating
concern
post- rather than pre-marital endeavour.
- I appreciate that at the age of 45 the husband himself may make decisions in future as to which direction he takes in terms of what remains of his own working life. He, too, will be in a position to stop working in paid employment if that is what he
chooses
to do.
My
conclusions
- I acknowledge that the husband is wedded to an outcome which is formulaically sound. To an extent such an approach accords with the guidance in Hart, subject always to the third and final stage of reviewing overall fairness. I accept that he took steps in the aftermath of the separation to segregate funds so as to be able to demonstrate what was received pre- and post-separation.
- Mr
Castle
points to the fact that the husband did not set up separate designated accounts until August and September 2017, some fifteen months after the parties separated and almost a year after the wife issued her Form A. The husband's evidence was that he took this step as a result of the frustration he felt at the lack of progress towards a negotiated settlement. He has not shied away from his earlier allegation that there was an element of tactical delay on her part with a
view
to increasing the
value
of the underlying asset base. That allegation is not pressed as part of any
case
relating to litigation
conduct
and, as I have said, I am not invited to make findings in relation to the reasons for any undue delay in progressing these financial
claims.
In my judgment it was reasonable for the husband to have maintained the status quo ante for that period of time in the expectation that matters might have been resolved more swiftly. When it became
clear
that there was likely to be a substantial element of post-separation accrual reflected within a final
computation
of the assets, he took steps to evidence those receipts in separate accounts.
- As the
Court
of Appeal made
clear
in Hart, the
court's
obligation is to undertake a broad assessment based on the available evidence. A
complete
forensic trace of spending and receipts during that fifteen month period would, in my judgment, be neither proportionate nor feasible in the
circumstances
of this
case.
- In terms of the second stage of the approach endorsed in Hart, the steps taken by the husband have provided an evidential platform for the assessment which the
court
is obliged to
carry
out in determining what is, and is not, matrimonial property. There are two aspects to that exercise. First, he has been able to present to the
court
a detailed schedule showing precisely what receipts fell in and when. I have already accepted his methodology as appropriate for these purposes. There has been no
challenge
from the wife to the underlying arithmetical
calculations
which underpin that presentation and, as far as I am aware, the husband has disclosed all the primary material which she needed to
cross-check
his
calculations.
- In terms of the exclusion from the matrimonial asset base of the SCA awards, it is
common
ground that they are part and parcel of the income element of the husband's remuneration package from the Bank. I accept that they are a substitute for the
very
much higher salary and bonus awards which the husband might have expected to receive but for the repercussions of the 2008 financial
crisis
in the international banking sector.
- I am not persuaded that the wife's presentation of the
cash
withdrawals / movements of funds between the
various
accounts is sufficient to lead me to a
conclusion
that he has used matrimonial funds held in the main investment account for his own purposes which are not related to family expenditure in its widest sense. Mr
Castle
suggested that the husband has attempted to distort the position in relation to post-separation assets by depleting the "matrimonial" accounts which would otherwise be shared. It is
clear
from the evidence that, during the two years of separation, the husband has underwritten the family's living expenses in the sum of
c.£758,000.
That sum represents over two years of his net salary together with the sum of £300,000 which he
contributed
from his May 2016
compensation
entitlement. On this basis it seems to me impossible to sustain a
case
that the family has not been supported at its previous standard of living from what are essentially ongoing earnings. Over and above the family's ongoing living expenses, the husband has had to fund his own living
costs
(including the rent on his
current
accommodation, some £340,000). As the litigation has
continued,
he has incurred legal
costs
of more than £650,000 together with the additional disbursements of
valuers
and accountants. Those
costs
have taken the litigation
costs
on his side to the best part of £1 million.
- I agree with Mr
Chamberlayne
that, within the global asset base of just under £26.3 million, there is a significant element of post-separation (and thus non-matrimonial) property in this
case.
The wife agrees that the 2018 awards (
c.
£750,000) fall outside her sharing entitlement.
- In my judgment, the husband's figure for non-matrimonial property (
c.£6.5
million[2]) is a broadly accurate assessment of the
value
of his post-separation endeavour. As I have said, there is no serious
challenge
from the wife to the
calculation
of his post-separation earnings. The wife's entitlement to
claim
any part of the
value
of these assets must thus be based upon a legitimate needs-based
claim.
No one in this
case
is suggesting that there is a solid Miller
compensation
claim
in this
case
over and above a full assessment of her future needs.
- As I have found (paragraph 80), the husband's
current
proposal meets the wife's needs in relation to both housing and income.
- His proposed outcome will leave in her hands a sum of just over £10.2 million. That represents just under 40% (38.8%) of the globally available wealth in this
case,
including the non-matrimonial assets represented by the husband's post-separation endeavour. That percentage increases to 39.99% if the
value
of the 2018 awards is excluded from the overall
computation,
as it is agreed they should be. If one fixes the
value
of the true matrimonial estate at Mr
Chamberlayne's
figure of £19,766,578, a figure which I have accepted as broadly representative of the marital acquest in this
case,
then an award of
c.£10.2
million would represent just under 52% (51.68%) of the marital acquest.
- Standing back, as I do, to survey the overall fairness of that outcome, I find it on balance to be an entirely appropriate outcome in the
circumstances
of this
case.
Based as it is on a straight line income
capitalisation
of slightly more than her stated income needs, it will give the wife the financial flexibility to invest her
capital
so as to meet her personal spending requirements as they
change
from time to time. She may in future find that she is in a position to make some
contribution
towards her own needs and that may well influence both her appetite for investment risk and the rate at which her investment fund is drawn down. In the
circumstances
of this
case,
that, in my judgment, is a fair way to proceed in terms of
capitalisation
rather than to adopt a stepped approach with fixed stage reductions in her annual spending requirements.
- It meets in full the wife's future housing and income needs (without discount) on the basis of a full life entitlement. In my judgment that is an entitlement she has earned as a result of the
contributions
she has made, and will make, to the welfare of this family over the years of this marriage and beyond. It reflects the financial impact of both the marriage and the decision to raise a family upon her own ability to re-establish an independent
career
whilst acknowledging the potential of some form of future earning
capacity
on her part. It provides her with a degree of financial autonomy in terms of future financial planning and unforeseen
contingency
because I have not factored into the income generation aspect of my award any specific element of equity release when she may no longer require such a substantial home. I do not regard any further adjustment necessary on the basis of either the wife's pre-owned assets or the fact that she has had to draw on the joint matrimonial accounts to meet expenditure in the post-separation period.
- It is fair to the husband because the non-matrimonial property has not been invaded given the sufficiency of the matrimonial assets to meet needs. The fact that the wife will depart with a slightly enhanced share of the matrimonial assets is but a reflection of the needs which this marriage, and her
contribution
to it, have generated. I am not satisfied that she has made out any
case
for a greater share of the matrimonial assets, far less a
case
for the invasion of non-matrimonial resources.
- Thus, on the basis that the wife will retain legal ownership of the former matrimonial home, I will order the husband to make two lump sum payments to the wife. The first, in the sum of £1,877,854, will be applied towards the discharge of the existing mortgage. The second, in the sum of £1,781,962, will representing the balancing payment which is designed to achieve the
clean
break which I intend should be implemented as a
consequence
of those payments. I
can
see no reason why the wife should need 12 months to take appropriate tax advice in relation to the mortgage redemption and I propose to direct that the mortgage must be discharged within two months of receipt of the first lump sum. The husband has agreed to make both sums available within 14 days.
- In the event that he decides not to purchase a home for himself within the next two years, he must reimburse the wife for her share of the sum of £525,000 which I have allowed for his stamp duty. Should he spend more on a property with a
corresponding
uplift in the tax he pays on purchase, that liability over and above the sum of £525,000 will be his alone. The wife will not be required to make any further financial
contribution.
- I have already dealt with the
contingent
tax liability of £198,000 which may arise in relation to his reduction of the mortgage debt. I am satisfied that the parties and their advisors will
cooperate
so as to minimise, if not avoid entirely, that liability. Should it
crystallize,
it will be shared. Whilst the wife sought to argue that she should not have to make a
contribution
in the event that some form of financial misconduct occurred on the husband's part as a result of his unilateral decision to reduce the mortgage debt, it seems to me that this would simply reopen a potentially expensive and probably sterile debate.
Children's
maintenance and education
costs
Child
maintenance is agreed at £25,000 per annum per
child
on an index linked basis. This will be payable until each
child
completes
secondary education. Given the ages of these
children,
I am not going to make provision now for any fixed sums or percentages in terms of how they will be supported through their tertiary education over and above what I hope will be an agreed recital as to the husband's willingness to
continue
to support them should they
continue
in education beyond their 18th birthdays. If the parties would prefer to include provision in a final order for some form of "roofing" allowance payable to the wife, they will of
course
be free to take that
course.
- It appears to be agreed that the
costs
of the nanny which are referable to 'housekeeping' functions should be for the account of the parties individually. To the extent that those
costs
are exclusively referable to the
care
which she provides for the
children,
including their journeys to and from school, those
costs
should be shared.
- The husband will meet the
costs
of the
children's
ongoing school fees to include the usual extras on the school bills. Any extra items (such as additional tuition) or non-recurring expenditure will be agreed before he is fixed with a liability to pay. Although Mr
Chamberlayne
sought to argue that the wife should make an equal
contribution
to the
cost
of their education, I take the
view
that he has the means to pay and that is likely to remain the position over the
coming
years. The wife's
capital
award has been structured on the basis of her future income requirements and these do not include a
contribution
to the
children's
school fees over the next few years. This element of my order will be reviewable in future should the husband's financial
circumstances
change
but I take the
view
that he should pay for the foreseeable future. I do not accept that the sum of £50,000 which the wife will be receiving on an annual basis in terms of
child
support will enable her to make a material
contribution
to the school fees. This sum has been
calculated
on the basis of the
cost
of meeting the
children's
ongoing needs on a day to day basis. There is no uplift or allowance for school fees.
Costs
- Given that I have already made an allowance for
costs
(paid and unpaid) in my
calculation
of the asset base, there will be no further adjustment in respect of
costs.
This is an agreed position despite
complaints
which the husband makes about the time it has taken to achieve an outcome in this
case.
I see no basis here for an adjustment in respect of litigation
conduct
on either side of the
case.
Order accordingly