Saturday, September 03, 2011

SK v WL: Valuing a post-separation contribution

SK v WL, despite being decided on the 26th February 2010, has just been reported on Bailii. It is an ancillary relief case, involving a husband's attempt to secure substantially more than 50% of the assets, on the basis of his post-separation contribution.

The Facts: The parties married in 1985. At the time of the hearing, the wife was aged 46 and the husband 49. They had two children, then aged 19 and 23. The parties separated in September 2004, following which the wife and the children remained living at the former matrimonial home.

In December 2001 a company ('PCo') was incorporated, of which the husband was the sole shareholder and director. The husband asserted that from the date of the separation he "transformed" the company, which was sold in April 2008, with the husband receiving £18.5 million in cash.

The wife sought an equal division of the current wealth. The husband sought a very substantial departure from an equal division, with the wife receiving approximately 25% of the current wealth, on the basis of the "very significant post-separation accrual" which was the product of his endeavours in the period following the separation. He accepted that, but for this, the wife would be entitled to an equal share of the wealth.

The wife challenged the husband's factual case on this issue, contending that the value achieved on the sale reflected a number of factors, of which the husband's role post-separation was just one. The wife submitted that equal division of the current wealth would be a fair outcome which gave appropriate weight to all the factors in the case, including that in the period between separation and trial the husband had continued to "trade with" the family assets, including the wife's notional share both in the company and, more generally, in the family's wealth.

Held: Mr Justice Moylan rejected the husband's assertion that the "success of the business was down to the husband's endeavours alone performed outside the partnership of marriage". He said (at paragraph 51) that: "The success of the business was down to a variety of factors, one of which (and only one of which) was the husband's endeavours performed after the parties' separation."

Turning to the authorities, Mr Justice Moylan stated (at paragraph 61):
"My task is to determine "the division of property which best achieves the fair overall outcome": Charman v. Charman [2007] 1 FLR 1246 paragraph 67. Charman also establishes that the sharing principle is not confined to "matrimonial property, namely the property of the parties generated during the marriage otherwise than by external donation". It applies to all the parties' property "but, to the extent that their property is non-matrimonial, there is likely to be better reason for departure from equality" (paragraph 66 of Charman). In other words, the existence of property which can properly be described as "non-matrimonial" can, of itself, justify a departure from equality."

He then went on to quote Lord Nicholls in Miller and McFarlane [2006] 2 AC 618:
"where it becomes necessary to distinguish matrimonial property from non-matrimonial property the court may do so with the degree of particularity or generality appropriate in the case. The judge will then give to the contribution made by one party's non-matrimonial property the weight he considers just. He will do so with such generality or particularity as he considers appropriate in the circumstances of the case."

He concluded (at paragraph 64) that in this case he did not need "to define with precision that part of the wealth which can be described as "matrimonial property" and that which can be described as "non-matrimonial"", saying that the company valuations as at the date of the separation that had been obtained "were prepared on a wholly artificial basis in that they ignored the known subsequent history". In any event, he was "satisfied that the amount for which PCo was sold to a significant extent originated in, and derived its existence from, the marriage" (paragraph 65).

He did find (at paragraph 67) that the sale price which was achieved reflected the development of the company after the separation and was in part the product of the husband's work during this period, but also accepted that the husband was trading with the wife's notional share of the family wealth (paragraph 68).

Balancing all of the factors, he took the view (at paragraph 69) that the outcome proposed by the husband was not fair and gave far too much weight to the work undertaken by him since 2004. On the other hand, the wife had given insufficient weight to the contributions made by the husband to the development of the company between September 2004 and the date of its sale (paragraph 70).

In the circumstances, he awarded the wife just over 40% of the overall assets, which he considered (at paragraph 72) was "a fair outcome which gives an appropriate degree of weight to the factors present in this case".

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