Secondary litigation and divorce
How do you reach an agreement in a divorce settlement when the breadwinner is involved in separate financial proceedings?
Recent press reports about the impending divorce of 'property tycoon' Andy Ruhan and his wife Tania Richardson-Ruhan, have focused on the scale of the couple's wealth, with Mr Ruhan estimated to be worth in the region of £200m.
However despite the huge sums of money involved, from the perspective of most family law practitioners, the most interesting aspect of this case concerns the impact of Mr Ruhan's exposure to an entirely separate set of court proceedings.
According to media reports, Mrs Richardson-Ruhan commenced divorce proceedings last year. The couple, who have been married for 18 years, derive their wealth from Mr Ruhan's business interests. Having founded and sold banking data centre provider, Global Switch, Mr Ruhan moved into property investment in the early 2000s and built a portfolio of investments throughout the world.
Ruhan is now involved in a legal dispute with his former business associates, who claim they are owed £100m as the result of a promise to sell to them 37 Thistle hotels in the mid-2000s. This case is not being heard until 2016, which causes a number of issues for the resolution of the couple's finances upon their divorce.
The first step in financial remedy proceedings is to calculate the parties' assets, liabilities and income. There is little problematic about this where a couple's wealth extends to a family home, a few bank accounts and a pension or two but, for high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals, the picture can be more complex with assets frequently held in trusts, often based offshore, and numerous investments in companies both private and public in various jurisdictions.
For the Ruhans, the secondary litigation surrounding the Thistle deal creates further complications. How is it possible to accurately assess the couple's worth when Mr Ruhan stands to lose half of their fortune, and run up substantial legal costs?
While this example may be a million miles away from the man on the street, it is not uncommon for divorcing couples to be negotiating a financial settlement in the face of secondary litigation; whether personally, for example a dispute with a builder relating to the family home, or relating to a company owned by one or both of the parties. A similar situation arises where one party has a potential debt to HMRC as the result of a challenge to a tax planning scheme.
The starting point for any division of matrimonial finances is a 50:50 division. This split can then be modified by reference to the various factors the court will need to consider. The trump card in such arguments is the needs of the parties, including the needs of any children, with other factors including the length of the marriage, any illness or disability and any pre-acquired or inherited assets.
In huge money divorces, such as the Ruhans', it may be possible for one party to argue that they have made a 'special contribution' to the matrimonial assets, which justifies a departure from equality.
A loss in secondary litigation involving a substantial proportion of a couple's assets may mean that there is not enough money to meet both parties' needs. This can change a sharing case, where both parties can be comfortably housed and have sufficient income to broadly maintain their standard of living, to a needs case, requiring one or both of the parties to take a hit to their standard of living, and potentially shifting the distribution of matrimonial funds away from a 50:50 split.
While it is doubtful that either Mr Ruhan or Mrs Ruhan-Richardson could seriously claim that their needs will not be met if their fortune is reduced from £200m to £100m, this exposure means that it is simply not possible to determine their case on a sharing basis.
Litigation is unpredictable and it would be reckless in the extreme to agree a settlement while the cloud of secondary litigation lingers over the couple. It clearly cannot be possible for financial remedy proceedings to continue and they must be stayed while the other litigation is concluded.
Needless to say, a stay of proceedings produces extra complications, including whether, in the period while proceedings are stayed, a non-earning or lesser-earning spouse has sufficient income to meet their interim needs. If not, and no agreement can be reached, then the parties may be looking at yet further litigation to resolve this point.
Matthew Taylor is a solicitor at Weightmans