B v B

Splitting assets on divorce and, in particular, whether assets arising post-separation could be included in the financial assessment were the key points of B v B.

The overall value of the assets was agreed at circa £40m. The parties had also agreed that the assets should be shared equally, and how this should be done. Two points on which agreement could not be reached, however, concerned the parties’ Scottish castle and the husband’s “co-investment” and “carry” interests in three private equity funds (funds A, B and C).

The 16th-century Scottish castle was a key asset, emotionally, for the parties. As the judge stated, the castle was “not the most significant issue in terms of value but it [was]…in terms of the parties’ hopes and wishes for the future”.

The judge noted the difficulty with achieving objective fairness, as there was little to choose between the parties’ arguments. However, he decided in favour of the husband on the basis that the parties had, since separation, worked on the assumption that the husband would keep the castle and the wife the matrimonial home. The husband had accordingly cared for and visited the castle. Also, the wife admitted that she had only relatively recently “changed her mind” about wanting the castle.

Dividing the husband’s interests in the private equity funds dominated proceedings. He was a partner in a private equity investment house, where he had worked since before the marriage. In line with the model for many private equity funds, he (together with fellow investment executives) co-invested with outside investors into each business into which the funds invested. The value of such “co-investments” varied according to the success or failure of the relevant businesses.

In addition, the investment executives, including the husband, were entitled to a “carried interest” (or “carry”) in the funds overall. Provided the monies returned to the outside investors included a positive return over a contractual “hurdle rate”, the executives would retain 20 per cent of the profits made. The substantive dispute in this case was whether the wife was entitled to share in any realisations of “co-investments” made by the husband since the separation or in any “carry” received by the husband in the future.

Marital role

It was noted that the husband had a huge earning capacity and that his “inalienable” ability to amass great wealth had been largely acquired and honed during the marriage. The disparity in earning capacities between the parties could not be ignored. The judge also said that fairness in sharing orders was not merely an arithmetical exercise, but also involved a broad recognition by the court of the value of the claimant’s role in the marital partnership, after considering all the factors.

To be fair, it was necessary to recognise that the post-separation wealth was generated partly through expertise built up during the marriage and partly by the husband’s efforts after the separation. The general rule was that the trial date was relevant for assessing the asset “pot” for sharing, and this rule should not be easily circumvented.

However, it was over-simplistic to exclude an asset merely because it arose after the date of separation, particularly where this was as a result of the continuation of a party’s similar pre-separation activities. Additionally, the judge observed that the later the asset was created or achieved ascertainable value after separation, the less it might be said to be “matrimonial”.

Considering all the arguments, the court awarded the wife – as at the date of the trial – 50 per cent of all the co-investments in all three funds, and half of the carry in fund A and 20 per cent? of the carry in fund B as and when it was received.?

See B v B [2013] EWHC 1232 (Fam)

Heather Viljoen is a solicitor at Michelmores

She writes regular case updates for Private Client Adviser