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XW v XH [2019] EWCA Civ 2262

Complex big money financial remedies appeal raising issues of non-matrimonial property. Finding at first instance of a ‘special contribution’ overturned by the Court of Appeal. W’s share increased from £152 million to £182 million.

W appealed a final financial remedy order made by Baker J (as he then was) of approximately £152 million in her favour, being roughly 29% of the parties' combined capital resources of £530 million.

The parties had married in 2008 and the marriage broke down in 2015. The parties had one child, AB, who had a rare, life-threatening condition and significant disabilities. The vast majority of his care was carried out and arranged by W, although H played an important role.

H worked as CEO of a company which he had set up with others some years before the marriage. During the marriage the company became hugely successful and it was sold in 2015/2016. The assets arising from the sale of his shares were worth approximately £490 million net.

W's case at first instance was that she should be awarded a sum equal to half the marital property which included (and almost entirely comprised) the increase in the value of H's shares in the company since the marriage.

H's case at first instance was that W was entitled to at best a needs-based award.

Baker J based his determination that there should be a significant departure from equal sharing on four factors, each of which W challenged on appeal to the Court of Appeal:

(a) That the parties had "to a very substantial extent kept their financial affairs completely separate during the marriage" which was "a matter of considerable relevance" to the extent to which the assets should be shared;

(b) Unilateral assets: that the shares in the company were the husband's "business assets"; the "nature and source" of this property, having been "created through the husband's business activity", were relevant to a fair division;

(c) Latent potential value: that there was "latent potential" in the company at the date of the marriage which was not reflected in the expert's valuation and, to "a not inconsiderable extent, the later success was built on these earlier foundations". This meant that, while there was no "clear dividing line between matrimonial and non-matrimonial property", this significant "latent potential" should be taken into account when dividing the wealth by "a broad evidential assessment";

(d) Special contribution: that the husband's contribution to the "growth in the value of his business assets during the marriage comes within the concept of special contribution".

In a very lengthy judgment Moylan LJ, in a judgment with which King and Underhill LJJ agreed, concluded:

(a) Baker J's conclusion about the way the parties ran their lives could not stand because it was not a distinct factor which stands on its own. The manner in which the parties have run their lives, for example pooling an asset or not, is a subsidiary element which depends on there being property which, because of its nature and source, may potentially not be shared equally.

(b) As to the issue of unilateral assets, Baker J was wrong to decide that the fact the assets which grew so substantially during the marriage were H's business assets was relevant to the division of wealth between the parties. Insofar as they were the product of endeavour during the marriage they were marital assets which should be shared equally between the parties absent other factors.

(c) As to latent potential value of the company, Baker J was entitled to find that part of the proceeds of sale of the shares was non-marital property to which the sharing principle did not apply, and he was entitled to determine what proportion was not marital property other than by applying the expert's valuation increased by indexation. It was open to him to undertake a broad evidential assessment and to conclude that there was significant value not reflected in the formal valuation. However, because the judge did not set out his determination of the extent of the marital property in this case, the Court of Appeal was unable to separate out this aspect of his decision for the purposes of deciding whether or not to uphold it.

(d) As to the issue of a special contribution, Baker J had failed to undertake the required assessment, namely to consider whether there was such a disparity in the parties' respective contributions to the welfare of the family that it would be inequitable to disregard. His finding on this must therefore be set aside. Baker J did refer to W's contributions in the course of his judgment, but in his critical assessment he referred only to H's financial contribution. His focus was on this, and not on the extent of any disparity in the parties' respective contributions. There was no balancing of the parties' contributions. Baker J had referred to W's contributions as 'incalculable' but this was in the context of an overall assessment of fairness, not in the specific context of special contribution.

The appeal was therefore allowed and the Court of Appeal went on to substitute its own decision.

As to the marital property question, the Court of Appeal undertook the broad assessment required and applied Baker J's determination that the ultimate success of the company was attributable to 'a not inconsiderable extent' to its pre-marriage 'foundations' and that they remained a 'significant' factor. The Court of Appeal concluded it was fair to treat 60% of the wealth derived from the shares as matrimonial property (£293 million) and 40% as non-matrimonial (£195 million).

As to the special contribution question, having regard to Baker J's determination that W's contribution had been and would be incalculable, the Court of Appeal could not see how a proper application of the legal principles could lead other than to a determination that there was not such a disparity in the parties' respective contributions that it would be inequitable to disregard them when deciding what aware to make. Although H's contributions had clearly been very significant, the necessary disparity was not present in this case.

There were no other relevant factors which might lead to the conclusion that an equal sharing of the marital wealth would not be fair. The Court of Appeal were not persuaded that Baker J was wrong to disregard some restricted stock units and stock options. The value of a jointly owned residential property (£3.7 million) which had been awarded to W should also be divided equally.

An equal division of the total marital wealth of £296.7 million led to W receiving a lump sum of £145 million and the jointly owned property worth £3.7 million, with the effect that W would have approximately 34.5% (£182 million) of the parties' combined wealth.

Summary by Victoria Flowers, barrister, Harcourt Chambers

You can read the full judgment of  XW v XH [2019] EWCA Civ 2262