WX (“W”) had applied for a financial remedy order against her husband, HX (“H”). The parties’ two adult daughters, NX and LX, had been joined as intervenors as a result of their status as beneficiaries of family trusts which had been the vehicle for holding a substantial element of the wealth which had been generated throughout the course of the marriage.
The parties met in the early 1980s and became engaged within six months of meeting each other. They married in 1985. They had four children, the second of whom sadly died as a result of a brain tumour when she was very young. The other three children were now adults and had (or were forging) successful careers in finance and law. W had previously issued divorce petitions in 1991 and in 2013, but the parties reconciled after each of those petitions and only finally separated in September 2018. Decree nisi was pronounced in December 2020.
W had suffered periods of ill health at points in the marriage. However, she had looked after the family without help from a full-time nanny and Roberts J accepted that she played a full role as a mother and homemaker. H originally worked in finance and became a partner in a bank at the age of 28. He made a very significant contribution to the marriage in terms of wealth creation.
Both W and H came from wealthy families. H came from a wealthy and long-established North American business family. W was the beneficiary of two trusts (one set up by her father, and one set up after her father’s death) which were worth just under £9m net, and which provided W with income as high as c. £350,000 gross pa (£235,000 net). H managed W’s funds on her behalf.
The family’s standard of living was high. Two years after the parties’ marriage they pooled the sale proceeds from their respective homes in London SW3 and SW7 and purchased the family home on M Street in South-West London (now worth £13.75m and mortgage-free). Six years into the marriage, they acquired a substantial home in Oxfordshire, which had a value of £10.65m (mortgage-free). The Oxfordshire property was where the family spent weekends and spent some of their holidays, and where they did their entertaining. H displayed much of his valuable art collection at the Oxfordshire property.
The parties’ wealth and offshore structures
Although there were issues which separated the parties in terms of the computation of their assets, the headline figures were not in dispute and the wealth available for distribution was between £50-£60m. There was a sum of c. US$50m held in an offshore trust (“the S Trust”), in respect of which the parties’ children were now the principal beneficiaries. By the time of the final hearing W accepted that those trust funds were no longer resources to which H should be treated as having access, although it was accepted by both parties that the wealth held within the S Trust had been generated entirely during the course of the marriage.
Recognising his tax status as a non-domiciled UK resident, H was able throughout most of the marriage to make certain tax efficient arrangements in terms of his management of the family’s wealth. For example, the Oxfordshire property was purchased through the vehicle of an offshore trust, the H Trust. H accepted that the H Trust was a variable nuptial settlement.
A tripartite structure of three offshore entities had also been created, which minimised the family’s tax exposure. In 1999, H sold his shares in his family business to one of those entities, N Ltd (a beneficiary of the S Trust), for CAD$25m, in return for which he received a promissory note for just under £10.5m, which sum was interest free and payable on demand either in whole or in part. N Ltd then sold the shares it had acquired to the S Trust, in return for which it received a further promissory note for an equivalent value which reflected in US dollars the full value of the consideration it had paid by way of its earlier promissory note drawn in H’s favour. H effectively converted the capital asset of those shares into an income stream, while the capital value passed tax free into the offshore structure. This structure provided the 'churn' which enabled H to extract value from his family shares when he needed access to funds, guaranteed by the existence of the promissory note.
However, there was subsequently a hostile takeover bid of H’s family company. H resigned from the board of the family company, and the S Trust’s shares in the family business were sold for CAD$90m (c. £52m). H then became the de facto investment manager for the funds in the S Trust, having agreed a formal investment policy with the trustees.
In March 2020, a deed was executed which had the effect of excluding N Ltd as a potential beneficiary of the S Trust, and operated as a formal and irrevocable release of the trustee’s power to add H, W or any legal entity controlled by either as a future beneficiary. This was to ensure that the primary purpose of the S Trust remained the preservation and growth of capital held within the trust for the benefit of the parties’ children. A loophole via which H could have still benefitted from the trust assets was also subsequently closed, hence W’s acceptance that H could no longer benefit from the S Trust.
H had offered to transfer to W his 50% interest in the jointly owned family home in London, which had an agreed (mortgage-free) figure of £13.75m. On his case, this would leave each party with roughly half of their combined wealth.
W sought the family home together with an additional cash sum of £10m, which she proposed would be paid from H’s personal offshore assets. On her case, that would leave each party with a half share of matrimonial assets, worth some £20m, on the basis that W’s non-matrimonial inherited wealth of c. £14m net was ring-fenced.
Specific computation issues
The value to be attributed to the Oxfordshire property held within the H Trust
The issue of computation which arose in respect of the Oxfordshire property, and the legal ownership of it by the offshore trustee, was the value which should be attributed to H’s ability to remain there and to enjoy the property for the rest of his life. H argued that the court should not attribute to him the full value of the property because his interest was more properly reflected in the value to be attributed to the life interest he had in it.
Roberts J concluded that, because, among other reasons, H had always accepted for the purposes of this litigation until very recently before the final hearing that he should be credited with the full value of the underlying equity in the Oxfordshire property, ‘it would be wrong to proceed on the basis that he will not be retaining the benefit of the full value of what has been his family home for the last thirty years’ . She was satisfied that the structures H had set up would ‘afford him the opportunity with the cooperation of his children to enjoy the occupation of that property without the need to contemplate a sale’ . The full value of the Oxfordshire property therefore fell to be counted as an asset of H’s on the matrimonial balance sheet.
B House and the art owned by the S Trust
In 2006, B House (which enhanced security at the Oxfordshire property, and which provided accommodation for employees at the Oxfordshire property to live in) was purchased. It was an asset of the S Trust, which also acquired some valuable art which was displayed at the Oxfordshire property.
Roberts J concluded that these assets of the S Trust would be excluded from the schedule of the parties’ resources. B House provided no direct financial benefit for H, and in relation to the art collection, he could not sell the art, and there was no prospect of him realising value from the collection for his personal benefit other than through a wholesale rearrangement of the family trust structure.
Chattels and art owned by the parties personally
The parties had agreed that H would retain chattels worth c. £3.4m, out of a total value of just under £3.9m. This included the general household contents, of which H would retain contents worth just over £630,000 in the Oxfordshire property, and W would retain contents worth c. £327,000 in London. W submitted that these values should be included on the balance sheet such that allowance could be made in W’s favour for the imbalance. Roberts J ‘heard about four poster beds and two dishwashers which were needed at the Oxfordshire property whereas the contents of her own home in London had been purchased in the main from Peter Jones’ .
Roberts J did not propose to include in the asset schedule any allowance for general household contents. W would have more than ample resources to spend whatever she regarded as reasonable to re-equip her London home, if she wished to do so, and ‘the absence of a full equalisation in respect of everything from beds, tables, white goods and…“teaspoons”’ was not in any way unfair on the facts of this case.
There was an issue between the parties as to whether or not account should be taken of their individual liabilities in respect of tax.
H had offshore assets totalling some £11.56m, and he was owed c. £9.285m by an offshore entity. He would not pay any tax on realising those funds unless they were remitted to England and Wales. W argued that no allowance should be made for tax because (i) the funds would not be remitted so as to create a taxable event, (ii) the funds would be absorbed almost entirely in meeting W’s lump sum claim for £10m over and above H’s interest in the London property, and (iii) value could be delivered to W without incurring any tax liability if the funds were transferred to her offshore and then remitted by her to this jurisdiction. H argued that the only way he could avoid a tax liability if he remitted funds received in repayment of a promissory note would be by moving permanently offshore to a tax haven.
W’s largely inherited non-matrimonial assets were also pregnant with a liability in respect of tax, which would crystallise if she sought to realise capital value in any of her funds.
Ultimately, Roberts J decided to make an allowance of 50% of H’s global tax calculation, which she considered made an appropriate allowance for any contingent tax which H was unable to avoid, bearing in mind that she thought he would take what steps he could to minimise his exposure to UK tax, but that he would nonetheless be living in the UK and running his life here.
However, regarding W’s potential tax liability, Roberts J proceeded on the basis that W’s inherited trust funds were primarily an income resource rather than a liquid capital asset which W was likely to realise as cash. W had been clear that her trust wealth was dynastic in nature and was of principal benefit to her only in terms of the income it generated. W’s trust assets were included ‘below the line’ as non-matrimonial property for the purposes of computing an overall figure for the total assets available to the parties.
In H’s case, much of the value in his offshore bank accounts was a reflection of an inheritance which he received from his step-father. In W’s case, she sought to discount completely any value in her inherited trust interests, and any assets which she owned personally which derived from those inherited funds.
While W’s wealth had always been kept separate and outside the financial arrangements put in place to manage the family’s domestic economy, virtually all of H’s pre-marital wealth, together with the wealth he went on to generate through the marriage, had been applied towards the support of the family and the acquisition of assets from which they had had the benefit.
H’s case in relation to the ‘matrimonialisation’ of W’s separate property
H argued that he had made a very significant contribution to the management of W’s independent resources, and that his contribution resulted in a significant increase in the value of W’s funds over the years.
Roberts J identified that the following principles could be derived from the authorities on matrimonial and non-matrimonial property :
- The fact that property or assets owned by a party derive from a source outside the marriage (such as inheritance or pre-acquired wealth) does not per se lead to its exclusion altogether from the court’s consideration of a fair outcome to both parties.
- The overarching principle which supports fairness to both parties is that of ‘non-discrimination’.
- Each case has to be considered on its own facts and the court’s assessment of fairness in that particular case. The way in which property has been used over the course of the marriage has the potential to affect whether it remains ‘separate’ property.
- Assets or property which are matrimonial in character will be captured by the ‘sharing principle’ and divided equally between the parties.
- The application of the sharing principle, in practice, impacts only on the division of marital property and not on non-marital property.
- The application of the sharing principle will not always lead to an arithmetically equal division of the marital wealth.
In this case, W’s inherited assets had remained wholly separate from the matrimonial assets at all times. The underlying capital held in W’s funds had never been used by W to meet housing or any other family needs. W’s intention was that the assets should remain available for the purposes of providing an income for the future benefit of family members.
Roberts J concluded that W’s non-matrimonial property had throughout been preserved as her own separate property, and that it had not acquired a matrimonial character, either in whole or in part, as a result of H’s activities as an investment manager. There was insufficient evidence that H’s management of the funds produced a financially measurable uplift in value over and above any allowance for passive growth, and although H played a role in ‘liberating’ W’s funds from her family structure, Roberts J could not, on the evidence, conduct a reliable trace which produced significant uplift into the present value of W’s non-matrimonial funds on that basis alone.
H also relied upon his involvement in carving out land retained by W’s family after her father’s death. If planning permission was granted over that land, W stood to benefit to the extent of some £6m as a result of an option agreement. Roberts J said that argument by H ignored the fact that W had this benefit as a result of the fact that she inherited a share of her father’s estate 30 years ago.
Roberts J regarded it as essential that a clean break was achieved between the parties. She noted that the court has frequently stressed that it is a futile exercise to ‘rummage through the attic’ in order to identify which party’s contributions were more valuable than the other’s, and accepted that each party made an equal and significant contribution to the marriage. She rejected the notion that particular aspects of H’s contribution had somehow operated to ‘matrimonialise’ what remained, essentially, W’s separate property. She therefore considered that ‘unless it can be said to be required to address any element of H’s future ‘needs’ claim, I do not regard it as either necessary or appropriate to award him a share of the non-matrimonial property reflected in W’s potential share of the option’ .
Determination of Roberts J
In terms of overall computation of the resources available to the parties, Roberts J calculated the parties’ assets had a total value of c. £54.646m. She identified the matrimonial assets as being worth c. £38.877m, 50% of which was c. £19.438m.
On the basis that W would retain the London property and the matrimonial assets currently held by her, a 50% share would require a lump sum payment from H to W of c. £6.362m. On the basis that Roberts J intended that H would retain the Oxfordshire property as his home, that lump sum payment would leave H with the Oxfordshire property and assets (including the art) worth just over £9m, plus the residual value of his non-matrimonial inheritance. Roberts J accepted that the lump sum could be paid to W offshore, without incurring a tax liability for either party when W remitted the funds (or part of them) to the UK, notwithstanding that she had made an allowance for some tax in relation to the promissory notes.
Roberts J considered whether that outcome was fair for each of the parties. It would provide both with a secure home, and W would be left with liquid cash funds of just under £11m (including her lump sum and her non-matrimonial property outside the trusts), in addition to a secure income stream from her trust funds of c. £340,000-£350,000 gross pa, without touching the underlying capital of c. £9m net. After payment of the lump sum, H would be left with cash and investments of just under £8m, leaving aside his chattels and art but including £1.7m of inherited non-matrimonial property.
W asserted an annual net need of just under £785,000. H’s Form E budget was put at £435,000 pa. Both parties appeared to accept that it cost c. £1m pa to run their lifestyle between London and Oxfordshire. Roberts J regarded it as entirely reasonable to proceed on the basis that each party was likely to need c. £500,000 pa to fund their ongoing income needs. H would have cash and investments of just under £8m if he paid W the lump sum required for a 50% share, and his income needs going forward were c. £7.8m (£500,000 pa for life).
Having determined that H’s needs would be met in full, Roberts J reached ‘a clear conclusion that W should be entitled to the full value of her share of the joint matrimonial assets’, and that H should pay the £6.362m lump sum to W and transfer to W his legal and beneficial interest in the London property (on a clean break basis) . To mitigate tax consequences, the lump sum would have to be paid offshore and its timing would need to be considered.