XW v XH [2019] EWCA Civ 2262
Facts
- The parties married in 2008 and their
marriage broke down in 2015. They had one child who had “a rare,
life-threatening condition and also significant disabilities” - The husband’s (H’s) shares in a company,
which he, with others had established some years before the marriage, were sold
and the proceeds received by H came to be worth approximately £490m net. - Mr Justice Baker (as he then was) ordered
that the wife (W) should receive capital resources which would give her
approximately £152 million, roughly 29% of the parties’ combined capital
resources of £530 million. This determination was based the following four
factors:- that
the parties had “to a very substantial extent kept their financial affairs
completely separate during the marriage” which was “a matter of considerable
relevance” to the extent to which the assets should be shared;
- that
the shares in the company through which most of the wealth had been created,
were H’s “business assets”; the “natures and source” of this property, having
been “created through the husband’s business activity”, were relevant to a fair
division;
- that
there was “latent potential in the company at the date of the marriage which
was not reflected in the expert’s valuation and, to “a not inconsiderable
extent, the later success was built on these earlier foundations. This meant
that, while there was no “clear dividing line between matrimonial and non-matrimonial
property”, this significant “latent potential” should be taken into account
when dividing the wealth by “a broad evidential assessment”;
- that
H’s contribution to the “growth in value of his business assets during the
marriage comes within the concept of special contribution”.
- that
Issues
- W then appealed the final financial remedy
order made by Baker J, to the Court of Appeal, on the following grounds:- (i)
that any principle that the manner in which the parties managed their financial
affairs might impact on the division of the marital wealth had no application
to this case;
- (ii) that H’s “business assets”
created during the marriage were marital property which should have been shared
equally between the parties;
- (iii) that the judge was wrong to find
that the company had latent potential;
- (iv) that the judge was wrong to find
that H had made a special contribution, in particular because he only
considered H’s financial contribution and did not balance this with W’s
contribution or consider the disparity in the parties’ respective contributions
when determining this issue;
- (v) that the judge failed to quantify
how each of the above factors, in particular latent potential and special
contribution, impacted on his award;
- (vi) that the judge’s decision in
respect of restricted stock units (RSUs) and stock options was flawed and he
should have awarded W a share of these when received by H.
- (i)
Held, upholding W’s appeal
- Importantly, on the question of special
contribution, issue (iv) above, Lord Justice Moylan held that the judge
failed to consider whether there was such a disparity in the parties’
respective contributions to the welfare of the family that it would be
inequitable to disregard. As a consequence Baker J’s finding in this respect
was set aside. - On the first two issues, addressed under the
heading of unilateral assets, Moylan LJ held that:- the
judge was wrong to decide that the fact that the “assets which grew so
substantially during the … marriage were the husband’s business assets” was
relevant to the division of that wealth between the parties;
- insofar
as they were the product of endeavour during the marriage, they were marital
assets which should be shared equally between the parties absent other factors;
and
- Baker
J’s separate determination that the way the parties ran their lives, could not
stand because it was not a distinct factor which stands on its own.
- the
- On the issue (iii), the issue of latent
potential, Moylan LJ held that:- the
judge was entitled to find that part of the proceeds of sale of the shares was
non-marital property to which the sharing principle did not apply;
- he
was also entitled to determine what proportion was not marital property other
than by applying the expert’s valuation increased by indexation. It was open to
him to undertake “a broad evidential assessment” and to conclude that there was
significant value not reflected in the formal valuation.
- however,
this was affected by issue (v) as Moylan J went on to hold that because the
judge did not set out his determination of the extent of the marital property
in this case, the court was unable to separate out that aspect of his decision
for the purposes of deciding whether or not to uphold it.
- the
- In addition, on issue (vi) Moylan LJ held
that he was not persuaded that Baker J was wrong to decide that the RSUs and
options were “dependent on future performance” and should, therefore, be
“disregarded”. - The Court of Appeal then found that a
rehearing was not required and consequently ordered an equal division of the
total marital wealth of £296.7 million. This led to W receiving a lump sum of
£145 million (in place of Baker J’s £115 million) and the jointly owned
property worth £3.7 million. This then gave W 34.5% of the parties’ combined
wealth and left H with 65.5% as opposed to the 28.75% to 71.25% division
effected by Baker J’s award.