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Articles | Fri 21st Aug, 2015
This is a decision of Nicholas Cusworth QC sitting as a High Court Judge which contains a useful summary of the authorities relating to post-separation asset accruals.
The parties began their cohabitation in 1990, the year before H, a systems analyst by training, and the 2 other shareholders, first set up their enterprise which developed insurance administration systems. In 1995, following an idea from H, Z Ltd developed what he describes as ‘the very first website on which you could buy a motor insurance policy in real time’. Over the years the company became successful, providing a comfortable standard of living for his family. He sets out that in 2007, when the parties separated, the company had a turnover of £1.8m, with profit of £477,000, and he had an overall annual income of £100,000. The company was valued as at 1st February 2007 at £2.75m, with H’s 70% shareholding being worth £1.9m pre-tax, and £1.73m post tax. By the time of the trial this valuation had risen to a maximum valuation of £8.5m
When the parties first met, W was working as a PA in London. By 1997, she was PA to the managing director of an international company, earning a little under £30,000pa. She ceased working after the elder child was born in 1998, and did not in the event return to work until after the parties’ separation in 2007.
The most significant controversy between the parties centred around the progress of Z Ltd, the value of which had increased rapidly on the back of H’s creating of a specific product for the insurance industry, and the impact that that progress has on W’s entitlement.
The judge reviewed at paragraphs 11 to 21 the recent case law relating to the issue of post-separation accruals and particularly post-separation increases in the values of assets which were held by one party but at the time of separation were matrimonial in nature, including the cases of N v F [2011] EWHC 586 (Fam), K v L [2011] EWCA Civ 550, Rossi v Rossi [2006] EWHC 1482 and Cooper-Hohn v Hohn [2014] EWHC 4122 (Fam).
The judgment of Mostyn J in JL v SL (no. 2) [2015] EWHC 360 (Fam) summarized the present approach in a nutshell:
“41. …for those assets which were in place at the point of separation. They remain matrimonial property but the increase in value achieved in the period of separation may be unequally divided. I emphasise may. Obviously passive growth will not be shared other than equally, and there will be cases where on the facts even active growth will be equally shared…
42. On the other hand there will be cases where the post-separation accrual relates to a truly new venture which has no connection to the marital partnership or to the assets of the partnership. In such a case the post-separation accrual should be designated as non-matrimonial property and save in a very rare case should not be shared.”
The difference was summarised by Roberts J in Cooper-Hohn as being the difference between “continuum and new ventures”.
In this case the Court found that H had considered W entitled to an equal share of his interest in the company at the time of separation, but that W’s interest had been eroded over time by H’s endeavours. H’s case was W had no interest by the time of the trial. The Court found that there was a greater degree of continuum in the activity of the business post separation that H was willing to accept. In the absence of any evidence to assist him further the judge was required to apply a “lawless science” to the amount of W’s entitlement. He found that 40% of H’s shareholding should be included in the matrimonial assets for distribution and that the assets should be divided equally. The division of all assets handed W a 25% share of the total.
The authorities enable practitioners to give clear advice in cases where there is clear continuum (such as a jointly held asset) or a new venture (such as a new company). However cases where there is overlap between continuum and new ventures as in this example remain unpredictable and the outcome will be fact-specific.
Call: 1995 Silk: 2022
