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You are here: BAILII >> Databases >> England and Wales Family Court Decisions (other Judges) >> P v Q (Financial Remedies) [2022] EWFC B9 (10 February 2022) URL: http://www.bailii.org/ew/cases/EWFC/OJ/2022/B9.html Cite as: [2022] EWFC B9 |
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IMPORTANT NOTICE This judgment was delivered in private.
The judge has given leave for this
version
of the judgment to be
published.
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.
IN THE CENTRAL FAMILY COURT
Case Number ZZ20D02734
Central Family Court
10th February 2022
Before:
His Honour Judge Edward Hess
- - - - - - - - - - - - - - - - - - - - -
B E T W E E N:
P
Applicant
- and -
Q
Respondent
- - - - - - - - - - - - - - - - - - - - -
The wife was represented by Mr Ken Collins (Counsel, acting on a Direct Access basis).
The husband was represented by Mr Simon Sugar (Counsel, instructed by OGR Stock Denton, Solicitors).
HHJ Edward Hess:
1. This case concerns the financial
remedies
proceedings
arising out of the divorce between
P
(to whom I shall refer as “the wife”) and
Q
(to whom I shall refer as “the husband”).
2. The case proceeded
to a final hearing over four days on 7th, 8th, 9th and 10th February
2022.
3. Both parties
appeared before me by Counsel: Mr Ken Collins for the wife (acting on a Direct Access basis, though the wife instructed Burgess Mee Family Law, Solicitors, for a
portion
of the
proceedings)
and Mr Simon Sugar for the husband (instructed by OGR Stock Denton, Solicitors). I am grateful to both Counsel for the helpful and clear way they have respectively conducted their cases - both
parties
have been represented before me at a first class level; but it has, of course, come at a cost. The wife has incurred a total of £169,604 in legal costs and the husband a total of £87,775.
4. The court was presented
with two electronic bundles running to a combined total of more than 600
pages
and a number of other documents have been exchanged during the final hearing. I have considered all the documents
presented
to me, in
particular
I have considered:-
(i) A collection of applications and court orders.
(ii) Material from the wife including her Form E dated 22nd December 2020, her answers to questionnaire
dated 15th February 2021, her replies to a schedule of deficiencies dated 9th April 2021 and her narrative statement dated 22nd December 2021.
(iii) Material from the husband including his Form E dated 23rd December 2020, his answers to questionnaire
dated 2nd February 2021, his replies to a schedule of deficiencies dated 8th April 2021 and his narrative statement dated 23rd December 2021.
(iv) A statement from the husband’s mother, R, dated 22nd July 2021.
(v)
style='font:7.0pt "Times New Roman"'> A letter in German from the wife’s father, S, dated October 2004, for which an English translation has been agreed by both
parties.
(vi)
style='font:7.0pt "Times New Roman"'> Exchanges of material on
possible
jobs for the wife, housing need and mortgage capacity.
(vii)
style='font:7.0pt "Times New Roman"'> Material from
various
SJEs on tax issues: from Germany, Mr Lohr and Ms Laura Halpaus of AHW and, from England, Mr Mark Levitt and Mr Aarti
Patel
of Blick Rothenberg.
(viii)
style='font:7.0pt "Times New Roman"'>
Properly
completed ES1 and ES2 documents.
(ix) Selected correspondence and disclosure material.
5. I have also heard oral evidence from the wife, the husband and from the husband’s mother, all subjected to appropriate cross-examination.
6. I have also had the benefit of full submissions from each counsel in their respective opening notes and their closing oral submissions.
7. The history of the marriage is as follows:-
(i) The wife is aged 48. She is German by origin, though is bilingual in German and English.
(ii) The husband is aged 45. He is English by origin, though is also bilingual in German and English.
(iii) They met as students and started a relationship of cohabitation in December 2005 and married in August 2006.
(iv) The marriage produced
two children:-
(a) T is aged 11; and
(b) U is aged 10.
(v)
style='font:7.0pt "Times New Roman"'> The
parties
purchased
a family home in London together in joint names with a joint mortgage in 2010 and lived together there with the children. My overall impression is that in the children’s early years the wife was their
primary
carer and the husband was the
primary
breadwinner, working in the energy business, though it is clear that the wife also is an impressive business
performer.
(vi)
style='font:7.0pt "Times New Roman"'> In 2016 the family made two
very
important decisions:-
(a) First, the entire family moved to Germany. The family home in London was rented out and the parties
jointly rented accommodation in Germany, which became their new family home. As a result of that move the children have adapted to life in Germany and attend school there and there is a German court order dated October 2021 in
place
which secures their childhood
primary
home as being in Germany (I assume they are also bilingual in German and English).
(b) Secondly, the parties
jointly set up and developed an energy business of their own, known as ‘X GmbH’. This was a company based in Germany. This was
very
successful and a large numbers of customers were recruited and in September 2019 the business was sold to a larger energy company, Y Ltd, their business effectively becoming the German arm of Y Ltd. Both the wife and the husband acquired
valuable
shares in Y Ltd as
part
of the buyout deal and both were employed by Y Ltd, the husband as CEO of the German business (based in Germany) and the wife as Chief
Product
Officer (which caused her to have to spend time in both Germany and England).
(vii)
style='font:7.0pt "Times New Roman"'> Unfortunately, at almost exactly the same time as the business takeover in 2019, the marriage broke down and the
parties
separated. The breakdown has clearly left its scars, but issues of cause and blame are not relevant to my task and I do not
propose
to comment on them.
(viii)
style='font:7.0pt "Times New Roman"'> Initially the
parties
were able to agree an arrangement whereby the children remained in the family home in Germany and the
parties
came and went respectively by agreement so there was always one
parent
present.
The attractiveness of this arrangement to the husband did not survive its reality for
very
long, however, and the arrival of Covid in March 2020 made it much more difficult for the wife to travel between England and Germany and the arrangement fell into desuetude.
(ix) A further complication has been that the wife has (since October 2021) ceased to be employed by Y Ltd and is currently not in paid
work, but has instead enrolled on an MSc Course at the LSE in London whilst seeking other employment. Although the wife is suspicious that the husband deliberately caused her to lose her employment with Y Ltd, he
vehemently
denies this fact and the issue has not been
pursued
by the wife before me. Nonetheless, it is relevant for me to note that the wife is currently without
paid
employment.
(x) Accordingly, the situation has developed, more or less by default, such that the husband lives in the rented family home in Germany and the wife lives in the family home in London. The effect of this is that the husband has become the primary
carer of the children, an outcome which is clearly
painful
to the wife. Nonetheless, this has not deterred the wife from wishing to base herself (home-wise and job-wise) in England and she wishes to continue residing in the family home in London and to have a job
primarily
based in London, but to
visit
the children in Germany as often as she is able. The husband wishes to
purchase
a
property
in Germany as and when he can afford to do so.
(xi) Under German child support law there is a formula for calculating what level of child support the wife should pay
the husband (as a
proportion
of her income) and I am not being asked to make any orders in relation to that.
Plainly,
the husband has some costs associated with being the children’s
primary
carer, including the employment of an au
pair.
(xii) Divorce proceedings
were commenced on 6th March 2020. Decree Nisi was ordered on 6th October 2020. Decree Absolute awaits the outcome of the
financial
order
proceedings
and is not, in itself, controversial.
8. The financial
remedies
proceedings
chronology is as follows:-
(i) The wife issued Form A on 1st October 2020.
(ii) Forms E were exchanged in December 2020.
(iii) A First Appointment was heard by Recorder Campbell QC
on 6th January 2021.
(iv) Questionnaires
were answered in February 2021 with further responses in April 2021.
(v)
style='font:7.0pt "Times New Roman"'> A
private
FDR hearing took
place
on 22nd June 2021 before Mr Alexander Chandler; but sadly no settlement was reached.
(vi)
style='font:7.0pt "Times New Roman"'> A
post-pFDR
directions hearing took
place
before DDJ Smith on 28th June 2021.
(vii)
style='font:7.0pt "Times New Roman"'> Narrative statements were exchanged in December 2021.
(viii)
style='font:7.0pt "Times New Roman"'> A final hearing has taken
place
before me on 7th, 8th, 9th and 10th February
2022.
9. In dealing with the claim I must, of course, consider the factors set out in Section 25 and Section 25A Matrimonial Causes Act 1973 together with any relevant case law.
10. Section 25Matrimonial Causes Act 1973 reads as follows:-
(1) It shall be the duty of the court in deciding whether to exercise its powers
under section 23, 24, 24A or 24B above and, if so, in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.
(2) As regards the exercise of the powers
of the court under section 23(1)( a), ( b) or ( c), 24, 24A or 24B above in relation to a
party
to the marriage, the court shall in
particular
have regard to the following matters :-
(a) the income, earning capacity, property
and other
financial
resources which each of the
parties
to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a
party
to the marriage to take steps to acquire;
(b) the financial
needs, obligations and responsibilities which each of the
parties
to the marriage has or is likely to have in the foreseeable future;
(c) the standard of living enjoyed by the family before the breakdown of the marriage;
(d) the age of each party
to the marriage and the duration of the marriage;
(e) any physical
or mental disability of either of the
parties
to the marriage;
(f) the contributions which each of the parties
has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) the conduct of each of the parties,
if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
(h) in the case of proceedings
for divorce or nullity of marriage, the
value
to each of the
parties
to the marriage of any benefit which, by reason of the dissolution or annulment of the marriage, that
party
will lose the chance of acquiring.
11. Section 25A Matrimonial Causes Act 1973 reads as follows:-
(1) Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers
under section 23(1)( a), ( b) or ( c), 24 or 24A or 24B above in favour of a
party
to the marriage, it shall be the duty of the court to consider whether it would be appropriate so to exercise those
powers
that the
financial
obligations of each
party
towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable.
(2) Where the court decides in such a case to make a periodical
payments
or secured
periodical
payments
order in favour of a
party
to the marriage, the court shall in
particular
consider whether it would be appropriate to require those
payments
to be made or secured only for such term as would in the opinion of the court be sufficient to enable the
party
in whose favour the order is made to adjust without undue hardship to the termination of his or her
financial
dependence on the other
party.
12. Accordingly, I bear in mind that I must give first consideration to the welfare while a minor of any child of the family who has not attained the age of eighteen. In this case both children of the family are under 18. It is therefore necessary for me to consider how their respective needs and interests will affect this case.
13. In relation to the “ property
and other
financial
resources which each of the
parties
to the marriage has or is likely to have in the foreseeable future” many of the figures are not controversial and I do not need to deal with them in detail, but I have a number of important disputed issues to determine, which I do as follows.
14. I need first to deal with the current net value
of the shares respectively held in Y Ltd. The following
picture
has emerged:-
(i) The husband currently holds 143,190 shares in Y Ltd.
(ii) The wife currently holds 137,610 shares in Y Ltd.
(iii) It has been agreed for the purposes
of this hearing that the shares are each currently worth £19.59.
(iv) The husband’s current shareholding is therefore worth a gross total of 143,190 x £19.59 = £2,805,092.
(v)
style='font:7.0pt "Times New Roman"'> The wife’s current shareholding is therefore worth a gross total of 137,610 x £19.59 = £2,695,780.
(vi)
style='font:7.0pt "Times New Roman"'> Although there has been some argument about this, I think it was common ground by the end of the argument, and if it was not then it is the
view
I take, that to ascertain a true current net
value
of the shares I need to deduct the tax liability which would arise if all the shares were disposed of now. This exercise has involved some complications arising as a result of the different tax regimes under which the
parties
are operating and it has created some differences of opinion, but I set out my determinations below.
(vii)
style='font:7.0pt "Times New Roman"'> For this exercise I have decided to use a conversion rate of €1 = £0.84 or £1 = €1.19, this being the conversion rate at the moment that I am writing this judgment.
(viii)
style='font:7.0pt "Times New Roman"'> Having looked through the expert evidence on the tax which would be incurred on a disposal now of all the shares I
propose
to adopt the estimated figures included on
page
432 of the main bundle (which is the last word on the subject from Mr
Patel
in his email of 31st January
2022):-
(a) The husband’s tax liability to the German tax authorities would be €904,817, which I convert to £760,046, using the exchange rate above.
(b) The wife’s tax liability to a combination of the German and UK tax authorities would be €50,642 plus
€44,684
plus
£516,663, which I convert to £596,737, using the exchange rate above.
(ix) Accordingly, I propose
to insert into my schedule for the husband’s current shareholding a net total of £2,805,092 minus £760,046 = £2,045,046.
(x) Accordingly, I propose
to insert into my schedule for the wife’s current shareholding a net total of £2,695,780 minus £596,737 = £2,099,043.
15. The wife has sought to persuade
me that I should disregard the £30,000 which she still has which came as a tax free lump sum on the cessation of her employment with Y Ltd. I note its source, and I note that she
plans
to use it as income in the months immediately ahead, but the money exists and I do not think it would be correct to exclude it from the schedule.
16. It has been common ground that the wife owns shareholdings in two companies and that these are worth a total of £57,939 and I include this figure on the schedule. The wife has had a belief, and has asserted, that the husband also had some other shares - three companies were mentioned as possibilities
- but the wife has not really
pursued
these assertions and has
produced
little or no evidence to support them and, having heard the husband’s response, I have not been
persuaded
that such shares exist and accordingly I shall enter a zero figure on the schedule for him.
17. The asset schedule as originally formulated sought to include quite
a number of chattels at a
purported
valuation
figure. I expressed the
view,
and I think both sides accepted it, that the way to deal with these was (the motor cars aside) to divide them in specie on a broadly equal basis. I
propose
to deal with the case on the basis that this
provides
the way forward and I have invited the
parties
to seek to reach an agreement on these matters while I am writing my judgment.
18. It has been common ground that the husband owns and drives a Tesla motor car (and I accept his figure of £20,450 as being its current sale value)
and that he has
placed
deposits for a new Arial motor car (a sort of mini road licensed racing car) of £34,000 and for a new Tesla of £1,720. The wife has no motor car at all. The husband accepts that I should include the deposits in the asset schedule, but says it would be unfair to include the Tesla motor car. I disagree. It is a
valuable
asset and the wife has no equivalent and I shall accordingly include it in the asset schedule.
19. I now turn to an issue which has created a good deal of argument and ill feeling between the parties:
the extent to which assets affected by the respective transactions between each
party
and members of their own family should be included on the asset schedule. The following
picture
has emerged:-
(i) As originally formulated, the wife’s case asserted that the husband had given his sister £25,000 to which she was not entitled and that this money should be added back into the asset schedule. Having heard the husband’s explanation about this in oral evidence the wife withdrew this assertion and I am satisfied this was the correct thing to do.
(ii) The wife also asserted, however, that the husband had done something similar in relation to his father. Again, I heard the husband’s explanation in oral evidence. The wife did not accept it, but I found it to be persuasive
and the wife has not established to my satisfaction that the husband’s father is holding money for him and I reject the wife’s claim in this regard.
(iii) A third claim by the wife, this one relating to the husband’s mother, requires rather more detailed consideration. The facts (as I find them to be, on a balance of probabilities)
are these. The husband’s mother, R, is an educated lady (a graduate of Cambridge University) of some wealth, having (as she told me) sold her business for £2,000,000 in 2007. She is also a
pleasant
lady with a generous heart who has been happy to use her wealth to help those whom she loves, including her three children. In 2010 she generously advanced £150,000 to each of her three children to assist them with their respective housing costs. No documentation was drawn up contemporaneously or later to record the terms of the advance, and I have not been told of any tax
planning
advice having been given at any time which would give it context. No demand was ever made for repayment of these sums. Nor was there ever any discussion about the circumstances in which repayment would or might be expected, although I was told that one of the daughters had in fact returned some of the money (£30,000 to £40,000) to her mother on a
voluntary
basis. In her written statement of 22nd December 2021 the husband’s mother wrote:-
“The agreement with all three of my children was that these were loans within the family, to facilitate their housing improvements, and on the understanding that this is my money that I choose to use to fulfil the needs of individual family members as they arise. The bottom line is that when I am no longer able to look after myself (I am now 76) they would repay the money in a reciprocal, supportive, manner.”
In her oral evidence before me she expanded on this to say that she could not envisage any circumstances in which she would pursue
the loan debts due from her children to a court by way of litigation and, if they remained unpaid, she would simply rearrange her will to reflect that any child who had not made any repayment had had the benefit of the unredeemed loan.
(iv) In the context of the negotiations between the husband and the wife about money it had, at least as early as April 2020, become an issue as what was the status of the £150,000 advanced by R (his mother). On 9th April 2020 the husband (without the benefit of legal advice) wrote an email to the wife saying:-
“I fail to see how you are being taken advantage of by me offering to split all of our joint assets 50/50 with you, after paying^my
mother’s down
payment
on my inheritance - which she brought forward explicitly so that we could raise a family in a house we owned rather than renting”.
(v)
style='font:7.0pt "Times New Roman"'> In June 2020 the husband, without any demand from his mother, and without reference to the wife, simply
paid
to his mother the sum of £150,000, asserting it to be the repayment of the loan. He argues that this money has now gone and should not appear on the asset schedule. The wife argues that this
payment
was a cynical manipulative device to remove £150,000 from the asset schedule so that it did not have to be divided 50:50 with the wife on sharing
principles.
(vi)
style='font:7.0pt "Times New Roman"'> In October 2004, before the
parties
had even met, the wife received €30,000 from her father, S, to enable her to fund a course of MBA study at the European School of Management in
Paris.
I have seen a document, which I accept is contemporaneous, and which records the arrangement. It was an “ interest free loan” for which “ a date for repayment has not been set” and the arrangement includes the term that “ as long as the father does not demand any extraordinary urgent repayment, the daughter will repay the loan back at her own discretion”. The years
passed
and the wife made no repayment and no demand was ever made by her father. The existence of this
potential
liability is not mentioned in the wife’s Form E of December 2020, nor in her narrative statement of December 2021; and appears for the first time as an issue in the case as recently as the letter dated 12th January
2022.
The wife told me she had completely forgotten about this liability until going over old
papers
and talking to her father in the last few weeks. I have not seen any demand for
payment
by the wife’s father nor has he appeared at court or written demanding that the liability be recognised. The wife told me that she didn’t expect her father to
pursue
the debt, but felt that he could and that she had raised this issue in
view
of the
points
taken by the husband in relation to his transaction with his mother.
(vii)
style='font:7.0pt "Times New Roman"'> These transactions - the advance of money to the husband and the wife by their respective
parents
- seem to me to be really
quite
similar in their circumstances and both raise some
questions
of law which are not uncommon in
financial
remedies
cases.
(viii)
style='font:7.0pt "Times New Roman"'> The first
question
is whether these advances should be regarded (in strict legal terms) as gifts or loans. As a matter of general
principle,
for an advance of money to be a gift there must be evidence of an intention to give - the animus donandi. In neither instance in this case has either
party
produced
persuasive
evidence of such intention in the respective advancing
parent
and I am inclined to accept what the husband’s mother told me and what is contained in the 2004 document. On the face of it, both these transactions are loans which could, in theory, be enforced.
(ix) In the family court, however, that is not the end of the matter because the inclusion or exclusion of a technically enforceable debt in an asset schedule can depend on its softness/hardness. This is perhaps
an elusive topic to nail down, but it falls for determination in the
present
case as in many others.
(x) I have looked at a number of authorities which deal wholly or partly
with this
point
and I include the following in that category: M
v
B [1998] 1 FLR 53; W
v
W [2012] EWHC 2469; Hamilton
v
Hamilton [2013] EWCA Civ 13; B
v
B [2012] 2 FLR 22; Baines
v
Hedger [2008] EWHC 1587; and NR
v
AB [2016] EWHC 277. I have also looked at an article by Alexander Chandler (as it happens the
pFDR
tribunal in this case) on the subject: Family Loans an intervener claims - taking the bank of mum and dad to court [2015] Fam Law 1505. I derive the following summary of
principles
from this reading:-
(a) Once a judge has decided that a contractually binding obligation by a party
to the marriage towards a third
party
exists, the court may
properly
wish to go on to consider whether the obligation is in the category of a hard obligation or loan, in which case it should appear on the judges’ computation table, or it is in the category of a soft obligation or loan, in which case the judge may decide as an exercise of discretion to leave it out of the computation table.
(b) There is not in the authorities any hard or fast test as to when an obligation or loan will fall into one category or another, and the cases reveal a wide variety
of circumstances which cause a
particular
obligation or loan to fall on one side or other of the line.
(c) A common feature of these cases is that the analysis targets whether or not it is likely in reality that the obligation will be enforced.
(d) Features which have fallen for consideration to take the case on one side of the line or another include the following and I make it clear that this is not intended to be an exhaustive list.
(e) Factors which on their own or in combination point
the judge towards the conclusion that an obligation is in the category of a hard obligation include (1) the fact that it is an obligation to a finance company; (2) that the terms of the obligation have the feel of a normal commercial arrangement; (3) that the obligation arises out of a written agreement; (4) that there is a written demand for
payment,
a threat of litigation or actual litigation or actual or consequent intervention in the
financial
remedies
proceedings;
(5) that there has not been a delay in enforcing the obligation; and (6) that the amount of money is such that it would be less likely for a creditor to be likely to waive the obligation either wholly or
partly.
(f) Factors which may on their own or in combination point
the judge towards the conclusion that an obligation is in the category of soft include: (1) it is an obligation to a friend or family member with whom the debtor remains on good terms and who is unlikely to want the debtor to suffer hardship; (2) the obligation arose informally and the terms of the obligation do not have the feel of a normal commercial arrangement; (3) there has been no written demand for
payment
despite the due date having
passed;
(4) there has been a delay in enforcing the obligation; or (5) the amount of money is such that it would be more likely for the creditor to be likely to waive the obligation either wholly or
partly,
albeit that the amount of money involved is not necessarily decisive, and there are examples in the authorities of large amounts of money being treated as being soft obligations.
(g) It may be that there are some factors in a particular
case which fall on one side of the line and other factors which fall on the other side of the line, and it is for the judge to determine, looking at all of these factors, and maybe other matters, what the appropriate determinations to make in a
particular
case in the
promotion
of a fair outcome.
(xi) Applying these principles
to the
present
case I have reached the following conclusions:-
(a) The debt owed by the wife to her father is very
much at the soft end of the scale. It seems most unlikely that, these
proceedings
apart, the debt would ever have surfaced. It still seems most unlikely that the wife will be required to make any repayment and the fact that she had forgotten about it until January
2022
supports these conclusions, notwithstanding that there was a contemporaneous loan document.
(b) The debt owed by the husband to his mother, for me, falls very
much into the same category -
very
much at the soft end of the scale. As the husband’s mother told me herself, she was unlikely ever to demand repayment of the loan and would certainly not have contemplated going to court for its enforcement. I am satisfied that both the husband and his mother were
quite
content, until the intervention of the argument on the divorce, to leave things be without any repayment. They both were content to regard it as an advance on the husband’s inheritance.
(c) Having heard and read the evidence I am satisfied on a balance of probabilities
that the husband’s
primary
motivation in making the
payment
of £150,000 to his mother in June 2020 was because he was concerned that the wife would share half of it if he did not do this. I do not accept that he had any significant sense of an obligation to make the
payment
at this
point,
either legally or morally.
(d) I do not think it would be right for me to raise the husband’s debt to his mother to hard debt status simply because he has repaid it. To do that would be to reward and encourage manipulative behaviour and would, to my mind, be unfair.
(e) My decision is that both of these debts were very
soft and, for me to do fairness between the
parties,
the consequence of that is that I should not include the wife’s debt to her father on the asset schedule, but should re-credit the £150,000 to the husband’s side of the schedule.
20. The wife has sought to persuade
me that the tax credits that she has received from the German tax authorities (now
put
at £36,596 - on the first day of the hearing it was
put
at £68,063) as a result of her studying at the LSE may be recouped and should therefore be regarded as a debt in the asset schedule. I have seen evidence that the tax credits were obtained, but I have seen no evidence at all that they will or even might be recouped by the German tax authorities. The wife has not established the existence of such a debt to my satisfaction and I therefore do not
propose
to include this on my schedule.
21. Having made these determinations I am now able to set out my assessment of the assets and debts for distribution in this case.
22. The situation can be summarised as follows:-
REALISABLE ASSETS/DEBTS
Joint
871,992 | |
TOTAL |
871,992 |
Wife
Redundancy monies from Y Ltd |
30,000 |
Bank accounts in sole name |
150,828 |
Net |
2,099,043 |
Other shares |
57,939 |
German Life ![]() |
2,260 |
Deposit on German rental ![]() |
6,651 |
Amex debt |
-882 |
LSE tax relief recoupment |
0 |
Debt to her father |
0 |
Outstanding Legal Costs [2] |
-8,782 |
TOTAL |
2,337,057 |
Husband
Bank accounts in sole name |
158,136 |
Net |
2,045,046 |
Other shares |
0 |
Tesla motor car |
20,450 |
Ariel Motor car deposit |
34,000 |
Tesla deposit |
1,720 |
Monies transferred to his mother |
150,000 |
Amex debt |
-1,092 |
Outstanding Legal Costs [3] |
-5,537 |
TOTAL |
2,402,723 |
PENSION
ASSETS
Wife
Smart |
5,999 |
TOTAL |
5,999 |
Husband
Legal & General |
369,373 |
TOTAL |
369,373 |
23. In relation to “ the income, earning capacity.. .which each of the parties
to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a
party
to the marriage to take steps to acquire” and “ whether it would be appropriate to require
periodical
payments
to be made or secured only for such term as would in the opinion of the court be sufficient to enable the
party
in whose favour the order is made to adjust without undue hardship to the termination of his or her
financial
dependence on the other
party”
the following
picture
emerged:-
(i) The husband is working as the CEO for Y GmbH and is earning €130,000 per
annum gross or €74,000
per
annum net = £62,160
per
annum net or £5,180
per
month net and expects to continue in this role for the foreseeable future.
(ii) The husband also receives ‘Kindergeld’, the German equivalent of child benefit, of €5,256 per
annum = £4,415
per
annum or £368
per
month.
(iii) As and when the wife is earning an income she will be obliged to pay
child support to the husband which will be calculated in accordance with a statutory formula which operates in Germany.
(iv) The wife was working at a similar level of seniority in Y Ltd to that of the husband at a similar salary, but this employment was terminated with effect from 31st October 2021, although the notice of termination was sent in April 2021 and, the wife’s consequent unfair dismissal claim was compromise by an agreement made in July 2021.
(v)
style='font:7.0pt "Times New Roman"'> The wife, sensing a
period
of necessary refocusing, took the decision to enroll for an MSc at the LSE and she is currently engaged, and wishes to complete, that course. She has simultaneously (she told me in her oral evidence) been making job applications and, although no job offers have yet been secured, she got “
pretty
close to one” and is reasonably confident of securing one at c £90,000 to £110,000
per
annum gross and believes that there are more jobs suiting her skills in England than in Germany so that her job, and thus her home, would
primarily
be in London in England. She would ideally like to focus on her MSc course in the immediate future and look to start work in
paid
employment in about June/July
2022.
One of the things she would want to establish in negotiations with a new employer is the ability to ‘ work from home’ for sufficient
periods
to allow her to be in Germany with her children to join in their care for a reasonable
proportion
of her time and she would need some sort of accommodation in Germany for that
purpose.
(vi)
style='font:7.0pt "Times New Roman"'> I found myself impressed with the wife’s tenacity, commitment to hard work, optimism for the future and clarity of
purpose
and I am satisfied that her
plan
for the future is a well thought through and reasonable one in her circumstances and was explained honestly to me and I am content to accept it.
(vii)
style='font:7.0pt "Times New Roman"'> It follows that this is not a case in which issues of spousal maintenance arise, other than in the context of a fairly short
period
while the wife reestablishes herself. My inclination is to take this issue into account in alighting upon an overall fair distribution of capital rather than making any spousal
periodical
payments
order as such.
24. In relation to the “ financial
needs, obligations and responsibilities which each of the
parties
to the marriage has or is likely to have in the foreseeable future” I have the following observations:-
(i) Both parties
have the usual needs in terms of housing and day to day income and
pension
provision.
There is enough capital in this case, and a high enough level of earnings and earning capacity, for me not to have to analyse needs issues in great detail.
(ii) I will, of course, note and factor into my analysis the fact that the husband has some additional needs arising from his primary
carer status of the children, but to an extent these will be ameliorated by the
payment
of child support
per
the German statutory formula as well as Kindergeld.
(iii) I will, of course, note and factor into my analysis the fact that the wife has some additional needs arising from her decision to live in England, but regularly visit
the children in Germany, albeit that this arises out of her own decision and choice to base herself in England.
25. I note in passing
that I have in my mind the standard of living that the
parties
jointly enjoyed during the marriage, the ages of the
parties,
the duration of the marriage, the respective contributions of the
parties
and the loss of
potential
pension
benefits arising from the divorce, though none of these
play
a
very
large
part
in the overall analysis. For the reasons discussed above, I have included in my schedule the £150,000 advanced by the husband’s mother in 2010, but since this money was used to
purchase
and improve a jointly owned family home in which the family lived for some years, and was thoroughly mingled into the family’s overall
pot,
I do not regard this contribution as being of great significance in this case.
26. Happily, neither conduct nor disability play
a role in this case.
27. I want to say something at this stage about the sharing principle.
As a starting
point
in the division of capital after a long marriage it is useful to observe that fairness and equality usually ride hand in hand and that (save when an asset can
properly
be regarded as non-matrimonial
property)
the court should be slow to go down the road of identifying and analysing and weighing different contributions made to the marriage.
28. In the words of Lord Nicholls in White v
White [2000] UKHL 54: -
“...a judge would always be well advised to check his tentative views
against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the
parties
and the court to focus on the need to ensure the absence of discrimination”.
and in Miller v
Miller; McFarlane
v
McFarlane [2006] UKHL 24: -
"This
'equal sharing'
principle
derives from the basic concept of equality
permeating
a marriage as understood today. Marriage, it is often said, is a
partnership
of equals.The
parties
commit themselves to sharing their lives. They live and work together. When their
partnership
ends each is entitled to an equal share of the assets of the
partnership,
unless there is a good reason to the contrary. Fairness requires no less. But I emphasise the
qualifying
phrase:
'unless there is good reason to the contrary'. The yardstick of equality is to be applied as an aid, not a rule.&
quot;
29. In the words of Mostyn J in JL v
SL [2015] EWHC 360: -
“Matrimonial property
is the
property
which the
parties
have built up by their joint (but inevitably different) efforts during the span of their
partnership.
It should be divided equally. This
principle
is reflected in statutory systems in other jurisdictions. It resonates with moral and
philosophical
values.
It
promotes
equality and banishes discrimination.”
30. I propose
to bear in mind all of the above
principles
in analysing what orders the court should now make to
promote
a fair outcome in this case.
31. Accordingly, I now turn to the parties’
respective open
positions.
32. The husband’s open offer is that:-
(i) The family home in London should be transferred to the wife.
(ii) The wife shall commit to obtaining the release of the husband’s name from the
joint mortgage on the London property,
failing which the
property
should be sold and 100% of the net
proceeds
paid
to the wife.
(iii) The husband shall take over the benefits and obligations of the German property
rental and
pay
£6,651 to the wife in compensation for the loss of the right to the deposit.
(iv) The wife shall transfer 55,000 of her Y Ltd shares to the husband.
(v)
style='font:7.0pt "Times New Roman"'> There will be a 50%
pension
sharing order against the husband’s Legal & General
pension.
(vi)
style='font:7.0pt "Times New Roman"'> The husband will
pay
£24,000 to the wife a lump sum representing capitalised spousal
periodical
payment,
otherwise a clean break.
(vii)
style='font:7.0pt "Times New Roman"'> There shall be no order as to costs, save that the wife shall commit to
paying
her half share of the SJE supplemental report, which she has not yet
paid.
33. On the basis of my asset schedule above this offer would leave the capital position
as follows:-
|
Wife |
Husband |
Own realisable assets |
2,337,057 |
2,402,723 |
London |
871,992 |
0 |
German Rental deposit to H |
-6,651 |
6,651 |
W to transfer 55,000 shares to H |
-1,077,450 |
1,077,450 |
Lump sum from H to W |
24,000 |
-24,000 |
TOTAL REALISABLE ASSETS |
2,148,948 |
3,462,824 |
% REALISABLE ASSETS |
38.2% |
61.8% |
|
|
|
Own |
5,999 |
369,373 |
![]() |
184,687 |
-184,687 |
TOTAL OVERALL ASSETS |
2,339,634 |
3,647,510 |
% OVERALL ASSETS |
39.1% |
60.9% |
34. It must be noted that it is common ground that the transfer of Y Ltd shares from the wife to the husband would trigger an immediate liability against her for tax. This liability does not show up separately in the above table because the tax liability (albeit latent) is already within the figures, but both counsel have invited me to proceed
on the basis that a transfer between the
parties
would turn the latent liability into an immediate liability at the rate of £4.34
per
share. Thus, a transfer of 55,000 shares would turn a latent liability of £238,700 into an immediate one.
35. The wife’s open offer is that:-
(i) The family home in London should be transferred to the wife.
(ii) The wife shall commit to using her best endeavours to obtaining the release of the husband’s name from the joint mortgage on the London property,
but her failure to achieve this outcome,
provided
she has used her best endeavours, shall not trigger a sale.
(iii) The husband shall take over the benefits and obligations of the German property
rental and
pay
£6,651 to the wife in compensation for the loss of the right to the deposit.
(iv) The wife shall retain all her Y Ltd shares.
(v)
style='font:7.0pt "Times New Roman"'> There will be a 50%
pension
sharing order against the husband’s Legal & General
pension.
(vi)
style='font:7.0pt "Times New Roman"'> The husband will
pay
£48,000 to the wife a lump sum representing capitalised spousal
periodical
payments,
otherwise a clean break.
(vii)
style='font:7.0pt "Times New Roman"'> There shall be no order as to costs, save that the wife shall commit to
paying
her half share of the SJE supplemental report, which she has not yet
paid.
36. On the basis of my asset schedule above this offer would leave the capital position
as follows:-
|
Wife |
Husband |
Own realisable assets |
2,337,057 |
2,402,723 |
London |
871,992 |
0 |
German Rental deposit to H |
-6,651 |
6,651 |
Lump sum from H to W |
48,000 |
-48,000 |
TOTAL REALISABLE ASSETS |
3,250,398 |
2,361,374 |
% REALISABLE ASSETS |
57.9% |
42.1% |
|
|
|
Own |
5,999 |
369,373 |
![]() |
184,687 |
-184,687 |
TOTAL OVERALL ASSETS |
3,441,084 |
2,546,060 |
% OVERALL ASSETS |
57.5% |
42.5% |
37. I note in passing
that since the wife is not
proposing
any transfer of Y Ltd shares from the wife to the husband, the tax liabilities remain latent.
38. It is immediately apparent that the parties’
respective
positions
both depart from equality
quite
significantly in their own direction and it is necessary for me to analyse the merits of the respective reasons advanced as to why this should be the case.
39. On the wife’s side she points
to the facts that she is currently unemployed and that she will have the additional costs of travelling to Germany to be with the children. The husband’s
position
is significantly more secure, she argues. I think there is something in both of these
points,
but given what I have found about the wife’s earning capacity and future earnings I am not sure that this argument could justify a departure from equality at anything like the asserted level.
40. On the husband’s side he points
to the fact that the
proposed
division of assets would leave him with an asset
pool
very
much dominated by shares in Y Ltd (in contrast to the wife’s receipt of the secure bricks and mortar of the London family home) and that this leaves him at substantial exposure to risk of the
potential
vagaries
of the international energy market. As I write this judgment Russian troops are massed on the border of Ukraine and, if that situation got out of hand (as it might), the world supply of natural gas would or could be severely interrupted and the
value
of shares in Y Ltd (which relies on
purchasing
gas at reasonable wholesale
prices)
could be dramatically adversely affected. Mr Sugar’s erudite submissions on this subject have
properly
drawn my attention to Wells
v
Wells [2002] EWCA Civ 476 and, in
particular,
to Moylan LJ’s judgment in Martin
v
Martin [2018] EWCA Civ 2866, which included the following comments:-
“81. Do different assets have different levels of risk? Is Mr Pointer
right when he submits that cash and shares in a
private
company have the same level of risk? I
propose
first to consider the matter from a general
perspective
before specifically addressing the issue of
valuations,
in
particular
of shares in a
private
company, and their role in the determination of
financial
remedy
claims.
82. The first Court of Appeal decision in the field of financial
remedy
which is generally recognised as drawing direct attention to this issue is Wells
v
Wells. As the headnote states, the Court of Appeal decided that:
"The
judge ... had erred in awarding the wife the bulk of those assets which were readily saleable at stable
prices,
leaving the husband with all those assets which were substantially more illiquid and risk laden.&
quot;
In the judgment of the court, given by Thorpe LJ, it was said at [24]:
"Having
read the skeleton arguments and the judgment we were at once struck by the security of the result that the wife had achieved in contrast to the risks confronting the husband's economy&
quot;.
Later in the same paragraph,
Thorpe LJ referred to how sharing could be achieved in a clean break case:
"In
that situation . sharing is achieved by a fair division of both the copper- bottomed assets and the illiquid and risk laden assets.&
quot;
Later in the judgment the question
was asked, at [26]: &
quot;is
the judge's allocation of the risk-free realisable assets fair?&
quot;.
The answer was that it was not.
83. I appreciate, of course, that the context of Thorpe LJ's observations in that case were very
different from this case. The company in that case was in a &
quot;precarious
state&
quot;
and the trial judge had been unable to
place
any
value
on the shares: at [8]]. However, the idea that, &
quot;it
is important to compare like with like&
quot;,
as Lord Nicholls said in White
v
White [2001] 1 AC
p.
612 G, could not be described as unexpected. Further, Thorpe LJ's general guidance has been followed in many subsequent decisions: see, for example, Baron J in
P
v
P
(
Financial
Relief: Illiquid Assets) [2005] 1 FLR 548 and Bodey J in Chai
v
Peng
& Ors (
Financial
Remedies)
[2018] 1 FLR 248. Indeed, Thorpe LJ himself, in Myerson
v
Myerson (No 2) [2009] 2 FLR 147, at [19], referred to Wells as being &
quot;the
case that first draws attention to the reality that fairness can be jeopardised by a judicial order allocating all the shares to the husband and all the cash to the wife&
quot;.
84. More recently in Versteegh
v
Versteegh,
Lewison LJ said, at [185]:
"...
the difference in
quality
between a
value
attributed to a
private
company on the basis of opinion evidence and a sum in hard cash is obvious&
quot;.
85. Accordingly, even if we were not bound by precedent,
I consider (a) that, contrary to Mr
Pointer's
general submission, assets have different levels of risk; and (b) that, as a matter of
principle,
the court must take this into account when applying the sharing
principle.
86. I would add, for the avoidance of doubt, that this is not confined to the issue of risk but extends to the quality
of the asset so that liquidity and illiquidity can equally be relevant factors in their own right. An example of this, although much less significant now with
pension
sharing orders, is
pension
funds. In Maskell
v
Maskell [2003] 1 FLR 1138, Thorpe LJ allowed an appeal because the judge had &
quot;failed
to compare like with like&
quot;
when equating &
quot;present
capital&
quot;
with a
pension
fund, at [6]. In a later case, Martin-Dye
v
Martin-Dye [2006] 2 FLR 901, he made a similar
point,
at [48]: &
quot;there
are obvious distinctions between a technical
value
ascribed to a
pension
in
payment
and a market
value
ascribed to a realisable asset such as a freehold, a
portfolio
of shares or a work of art&
quot;.
92. Given the proximity
of the decision in
Versteegh
v
Versteegh,
and also, as it happens, given that my
views
have not changed from what I said in H
v
H, I can see no reason why we should depart from the conclusions and guidance set out in the former, namely that
valuations
of
private
companies can be fragile and need to be treated with caution. Further, it accords with long-established guidance and, I would add,
financial
reality.
93. How is this to be applied in practice?
As referred to by both King LJ and Lewison LJ, the broad choices are (i) &
quot;fix"
a
value;
(ii) order the asset to be sold; and (iii) divide the asset in specie: at [134] and [195]. However, to repeat, even when the court is able to fix a
value
this does not mean that that
value
has the same weight as the
value
of other assets such as, say, the matrimonial home. The court has to assess the weight which can be
placed
on the
value
even when using a fixed
value
for the
purposes
of determining what award to make. This applies both to the amount and to the structure of the award, issues which are interconnected, so that the overall allocation of the
parties'
assets by application of the sharing
principle
also effects a fair balance of risk and illiquidity between the
parties.
Again, I emphasise, this is not to mandate a
particular
structure but to draw attention to the need to address this issue when the court is deciding how to exercise its discretionary
powers
so as to achieve an outcome that is fair to both
parties.
I would also add that the assessment of the weight which can be
placed
on a
valuation
is not a mathematical exercise but a broad evaluative exercise to be undertaken by the judge.”
41. I very
much bear in mind, and
propose
to follow, all of the
points
made by Moylan LJ above and note that the husband’s wealth is going to be heavily reliant on the share
price
of Y Ltd. I also note that Y Ltd shares are not readily tradeable and can only be sold during a specific ‘liquidity event’, three of which have occurred since 2019, but there is no guarantee that any more will occur in the foreseeable future.
42. It is also appropriate, however, to note the following points
on the specific facts of this case in the context of a broad evaluative exercise:-
(i) The wife’s wealth will also (albeit to a slightly lesser extent than the husband) continue to be heavily reliant on the share price
of Y Ltd and the lack of liquidity in sale
prospects.
(ii) It is the husband’s deliberate choice not to seek a sale and equal division of the net sale proceeds
of the London family home to ameliorate the
problem
he has. I raised this option in the course of deliberations with counsel by
posing
the
question:
If I were against the husband on his departure from equality
point
would he wish to
put
forward a structure of order whereby the London family home was sold and the net
proceeds
divided? The answer came back in the negative.
(iii) I formed the impression that the husband took an optimistic view
of the future of Y Ltd, and as CEO of the UK arm he is in a
position
to make a better estimate than most and enters into the
position
with his eyes open. Whilst the agreed share
price
arose by reference to the share
price
fixed at the time of the last liquidity event, Y Ltd has subsequent to that (according to newspaper reports anyway) enjoyed substantial foreign investment,
presumably
inspired by an optimistic assessment of the future. Of course, that optimism may be misplaced and the husband could turn out to be another Mr Myerson, but on the other hand, as the then Mr Mostyn
QC
argued in Myerson
v
Myerson [2009] EWCA Civ 282 at
paragraph
17 “ what has soared may
plunge
and what has
plunged
may soar again”.
(iv) A transfer of shares from the wife to the husband will trigger an immediate tax liability - the husband’s tax liability will remain latent whilst some of the wife’s tax liability will become immediately payable.
43. All in all I have reached the conclusion that the arguments for a departure of equality should be treated as broadly balancing each other out.
44. Having taken into consideration all of the above matters I take the view
that a fair outcome to this case is as follows:-
(i) The family home in London should be transferred to the wife.
(ii) The wife shall commit to obtaining the release of the husband’s name from
the joint mortgage on the London property,
failing which (within the next two years) the
property
should be sold and 100% of the net
proceeds
paid
to the wife.
(iii) The husband shall use his best endeavours to take over the benefits and obligations of the German property
rental and the wife shall transfer the rights in the deposit of £6,651 to the husband. The husband should in any event indemnify the wife against any liabilities arising from the rental.
(iv) The wife shall forthwith transfer 20,000 of her Y Ltd shares to the husband.
(v)
style='font:7.0pt "Times New Roman"'> There will be a 50%
pension
sharing order against the husband’s Legal & General
pension.
(vi)
style='font:7.0pt "Times New Roman"'> There will be an immediate clean break.
(vii)
style='font:7.0pt "Times New Roman"'> There shall be no order as to costs, save that the wife shall commit to
paying
her half share of the SJE supplemental report, which she has not yet
paid.
(viii)
style='font:7.0pt "Times New Roman"'> The chattels should be divided in specie on a broadly equal basis.
45. On the basis of my asset schedule above this offer would leave the capital position
as follows:-
|
Wife |
Husband |
Own realisable assets |
2,337,057 |
2,402,723 |
London |
871,992 |
0 |
German Rental deposit to H |
-6,651 |
6,651 |
W to transfer 20,000 shares to H |
-391,800 |
391,800 |
TOTAL REALISABLE ASSETS |
2,810,598 |
2,801,174 |
% REALISABLE ASSETS |
50.1% |
49.9% |
|
|
|
Own |
5,999 |
369,373 |
![]() |
184,687 |
-184,687 |
TOTAL OVERALL ASSETS |
3,001,284 |
2,985,860 |
% OVERALL ASSETS |
50.1% |
49.9% |
46. This is my decision and I invite counsel to produce
a draft order which matches these conclusions.
47. This redacted and anonymised version
of the judgment has been agreed by both counsel as suitable for
publication.
HHJ Edward Hess
Central Family Court
10th February 2022
[1] This figure is based on a value
of £1,250,000 less notional sale costs at 3% less the outstanding mortgage of £340,508 = £871,992