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CB v KB [2019] EWFC 78

Judgment of Mr Justice Mostyn in financial remedy proceedings, dealing with the valuation of music-related income streams, and providing guidance on the treatment of future earnings, amortisation, and the calculation of child support in “top-up” cases.

Facts:

KB ('the wife') and CB ('the husband') began their relationship in 1998 and were married on 23.12.03. They separated in January 2017. This was a 19-year relationship, during which the parties enjoyed a "high, but not over-indulgent" standard of living. [2]

The husband was the bass-player of a well-known band. The lead singer of the band ('LS') had written almost every song released by the band, and was the "kingpin of, and rain-maker for, the band", unlike the husband and the band's drummer ('BD'). [7]

The parties had six children, aged between 7 and 20. The two eldest children lived with the wife. The middle child lived with the husband. The three younger children divided their time equally between the parties. The wife was regarded as the parent with care for child support purposes. The husband remarried in 2018 and was expecting a child with his second wife, who also had  two daughters from a previous relationship aged 7 and 4. [4] - [5]

The former matrimonial home was sold in 2017 for £5.5 million. Since then, both parties had re-housed. The wife's assets and liabilities were £2,754,351. The husband's net assets were £3,015,113. Combined, these assets amounted to £5,769,464. [9] - [10]

The husband's income derived from the following streams [8]:

Stream 1: Publishing or composition royalties in respect of three songs written by the husband. The valuers were only £5,000 apart in their valuations. Mr Justice Mostyn accordingly took a value (net of all notional taxes) of £55,561 for this income stream.

Stream 2: Equitable remuneration in respect of broadcasts of the band's songs on radio and TV pursuant to section 182D(1) of the Copyright, Designs and Patents Act 1998, which provides that such rights are non-assignable.

Stream 3: Income representing 8.33% of LS's publishing or composition royalties by virtue of an agreement between LS, BS and the husband. This arrangement had a significant element of gratuity to it as there was no obligation on LS to share these royalties. The agreement had recently been amended so that the level of remuneration now depended on whether the husband stayed or left the band.

Stream 4: A one-third share of the recording royalties paid through a company, T Ltd, owned equally by the members of the band.

Stream 5: The husband's share of ticketing and merchandising income generated by touring. Mr Justice Mostyn regarded this income stream as pure future earnings and rejected the wife's argument that it was in some ways a matrimonial asset susceptible of being shared. [8]; [43].

Issues:

The issues were:

1. What is the capitalised value of the husband's music income streams (other than Stream 5)?

2. In light of 1, what orders should be made in the wife's favour, applying the sharing principle?

3. What periodical payments should be made in favour of the wife, and for how long?

4. What provisions for child support should be made in respect of the parties' children?

Decision:

Mr Justice Mostyn's decided these issues as follows [11] - [15]:

1. The value of Streams 1-4, net of all notional taxes, was £4,450,693. Therefore, the total assets came to £10,220,158. [11]

2. The equal sharing principle gave the wife £5,110,079. The husband was therefore ordered to pay the wife a lump sum of £2,355,728 in three instalments (£1,500,000 by 01.04.20, £427,864 by 01.10.22 and £427,846 by 01.10.23). [11] - [12]

3. Pending payment of the first instalment, the interim (maintenance) regime would continue. Pending payment of the second and third instalments, the husband was ordered to make periodical payments to the wife at a rate of £42,786 p.a., reducing rateably on payment of the second instalment. There would be a clean break on payment in full of all instalments. [13] - [14]

4. The husband was ordered to pay child support at the rate of £12,600 p.a. in respect of the four minor children living with the wife until each child completed tertiary education. He was also ordered to pay the children's school fees. [15]

Reasons:

Mr Justice Mostyn heard evidence on the value of income streams 2-4 from four witnesses, who he described as "excellent" and "palpably honest". The witnesses agreed that the appropriate method of valuing Streams 2 and 4 was the traditional multiplicand-times-multiplier method, although they disagreed on the appropriate multiplier in some instances. They agreed that the best means of valuing Stream 3 was the discounted cash flow method. [16] - [17]

Having reviewed the witnesses' evidence, Mr Justice Mostyn reached the following conclusions:

Stream 2

The annual income from Stream 2, net of administrative costs and corporation tax, was £88,493. The appropriate multiplier was 14. It was not justifiable to reduce the multiplier substantially by reference to the formal legal non-assignability of this stream. Mr Justice Mostyn was convinced by the evidence of the accountant instructed by the wife, that whilst this may be the formal legal position, it was not reflected in the real world. The capitalised value of Stream 2, net of notional costs of sale, gave a pre-dividend tax value of £1,207,923. [36]

Stream 3

The annual income from Stream 3 was agreed at £170,000. A multiplier of 17.2 was "fair and reasonable" on the basis that this income derived from LS's publishing or composition income, and was therefore "gilt-edged income" commanding a higher multiplier. This gave a figure of £1,793,146.

Applying a discount to reflect the new terms of the agreement, and the fact that the husband was more likely to leave the band than to remain, Mr Justice Mostyn alighted on a pre-dividend-tax figure of £1,320,952. He applied a further 25% discount on the basis that there was "a significant non-matrimonial element to this income stream". The capitalised pre-dividend tax value of stream 3 was therefore £990,714. [37] - [38]

Net value of streams 1-3

The value of streams 1-3, all of which were receivable by a single company, P Ltd, was £1,395,348, net of dividend tax.  [39]

Stream 4

The evidence of the band's business manager was that the average royalties from Stream 4 amounted to £1,500,000. The correct multiplier was 12.5. The value of stream 4, net of corporation tax, costs of sale and dividend tax was therefore £3,055,345. [40]

Adding the net value of streams 1-3, the total net value of the husband's music income streams was £4,450,693. Mr Justice Mostyn considered that it was not appropriate to apply a further discount to this figure to reflect the fact that it had been calculated with a certain amount of subjectivity, had risky aspects to it, and, in some respects, was incapable of being turned into cash. This would be a double discount. All the relevant risks were already captured by the multipliers used. [41]

Stream 5

The wife's argument that stream 5 was in some way a matrimonial asset susceptible to being shared was rejected. Stream 5 was regarded as pure future earnings. Mr Justice Mostyn reiterated his own guidance on this point in B v S [2012] EWHC 265 (Fam) at §76. However, Stream 5 was relevant to the calculation of child support, and to the time that the husband should be granted in order to pay the lump sums. [43] - [44]

Child Support

The parties' figures for child support appeared to have been plucked out of the air. Mr Justice Mostyn repeated his own guidance in Re TW & TM (Minors) [2015] EWHC 3054 (Fam) at §19 where he stated that where a court is considering issues of child maintenance the formula is not written in marble but supplies only a starting point. He added at [49]:

"I suggest that in every case where the gross annual income of the non-resident parent does not exceed £650,000, the starting point should be the result of the formula ignoring the cap on annual gross income at £156,000. For gross incomes in excess of £650,000, I suggest that the result given by an income of £650,000 should be the starting point with full discretionary freedom to depart from it having regard to the scale of the excess."

Here, the formula gave a figure of £12,567 p.a. per child.  This was rounded to £12,600. There was no good reason materially to depart from this starting point. [51]

Needs and amortisation

Mr Justice Mostyn considered that the orders made in the wife's favour amply met her reasonable needs. After repaying her debts, the wife would be left with an initial Duxbury fund of £2,151,579, giving rise to an initial income of £172,126, falling to £115,324 at age 60 (excl. child support). Notwithstanding the wife's young age, it was reasonable to work on the whole-life provision implicit in the Duxbury formula given that this was a long relationship and there had been six children born. [53] - [55].

Finally, it was "pre-eminently reasonable" for the wife to amortise her capital, i.e. to spend her Duxbury fund. Mr Justice Mostyn added that he "struggle[d] to conceive of any case where in the assessment of a claimant's needs it could be tenably argued that it was reasonable for her not to have to spend her own money in meeting them. After all, that is what money is for." [53]

Case summary by Roxane Reiser, barrister, One Hare Court

Read the full judgment of CB v KB [2019] EWFC 78 on BAILII