AA v BA

The wife is aged 51 (d.o.b. 2^nd May 1967).

The husband is aged 53 (d.o.b. 26^th March 1965).

They met and started a relationship of cohabitation in 1991 and married on 26^th September 1993.

Until recent events the parties mutually occupied ‘the family home’ in Cheltenham, Gloucestershire.

The parties have two children:-

Sadly, the marriage broke down and the husband left the family home in November 2016.

The wife commenced divorce proceedings on 27^th June 2017.

Decree Nisi was ordered on 13^th October 2017.

Decree Absolute awaits the outcome of the financial remedy proceedings and is not, in itself, controversial.

The husband issued his Form A on 11^th October 2017.

Forms E were exchanged in December 2017.

A First Appointment took place before Deputy District Judge Orme on 11^th January 2018.

Answers to questionnaires were exchanged in February 2018.

An FDR took place before DJ Goddard on 15^th May 2018 which did not produce any settlement.

Section 25 statements were exchanged in July/August 2018.

As I have said, evidence in the final hearing was heard on 2^nd and 3^rd October 2018. Submissions followed, and I am handing down this judgment by email on 23^rd October 2018 (subject to any further application, time for appeal purposes should be treated as running from this date).

I propose to invite Counsel to draw up an order arising from this judgment as soon as they can. I will list the matter before me in Swindon Family Court at 10.00 am 30^th November 2018 with a time estimate of 1 hour. This hearing can be vacated if I have approved an order in advance. Otherwise, I would ask for representation from both parties so that I can resolve any drafting issues and seal a final order.

It shall be the duty of the court in deciding whether to exercise its powers under section 23, 24, 24A or 24B above and, if so, in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.

As regards the exercise of the powers of the court under section 23(1)(a), (b) or (c), 24, 24A or 24B above in relation to a party to the marriage, the court shall in particular have regard to the following matters:-

Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers under section 23(1)(a), (b) or (c), 24 or 24A or 24Babove in favour of a party to the marriage, it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable.

Where the court decides in such a case to make a periodical payments or secured periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made or secured only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party.

The husband has worked for all his career as an executive in the construction and development industry and he is plainly highly regarded in that capacity.

Until 2004 the husband worked for X, working his way up into a quite senior post. X is, of course, now infamous for its financial collapse. This was long after the husband ceased working for them; but the collapse is, however, an illustration of how apparently secure and stable corporate structures can be destroyed by the occurrence of undesired and unexpected events.

In 2004 the husband was recruited by Y. He was initially its Managing Director, but very soon (in 2005) became the Group Chief Executive, which he continues to be and for which he receives a substantial salary.

In 2006 the opportunity arose for the husband to purchase an equity stake in Y. The only way this could be afforded was by borrowing against the security of the family home. The wife was persuaded that this was a good idea with some attractive sounding predictions of how this might work out well. She was aware that the investment would be regulated, and in some senses protected, by a shareholders’ agreement, which provided a methodology for the company buying back the shares in the event of the termination of the husband’s employment.

Accordingly, in August 2006, the husband purchased 22,312 shares in Y for £400,000. The money was raised by increasing the mortgage on the family home from c.£140,000 to c.£540,000, some of which has later been repaid. It has not been suggested that these shares were formally held on trust for the husband and wife in equal shares, but the circumstances of the purchase firmly point in the direction of these shares being matrimonial assets, strongly subject to the sharing principle.

In February 2011 a further 891 shares in Y were acquired at a cost of £23,567, funded from savings. These shares are also very much matrimonial assets.

Accordingly, the husband (from that point onwards and continuing) has held 23,203 shares in Y.

This holding of 23,203 shares represents a 5.3% stake in the company. The only other shareholders are T (who holds 274,745 shares representing a 62.6% stake) and L (who holds 141,063 shares representing a 32.1% stake in the company). It can be seen from this that the husband, though no doubt having great influence from his role as Chief Executive, is very much a minority shareholder with little decisive power in comparison with the other shareholders. He cannot in practice access the value of the shares whilst he remains working for the company and it is common ground that it makes sense for him to continue working for the company for the remainder of his career. A likely scenario, especially given the ages of T (67) and L (72) is that the other shareholders will decide to sell the whole business as a going concern at some propitious moment in the years ahead; but this is by no means guaranteed. It may suit them (or their respective estates) to hold on to the shares.

As is so often the case, meaningfully valuing these shares, and making reliable predictions as to when and how they can or will be disposed of, has been problematical. The court has had the benefit of a detailed analysis from Mr Roger Isaacs of Milsted Langdon LLP in a report dated 18^th April 2018 with a clarification dated 15^th August 2018. I have also seen the Financial Statements for the Company for year ending 30^th April 2018 (which were not available at the time of Mr Isaacs’ report).

I have also read the email dated 17^th October 2018 from M, the Group Finance Director. It is right to record that this arrived after the close of evidence, and some objection has been made to its admissibility on this ground; but given the essentially mathematical nature of the communication, and given the way in which I have decided to deal with this issue, I don’t think there is any prejudice to the wife in my having admitted this as evidence.

The figures for Y show a substantial business with a large turnover, but with small margins. These can be tabulated as follows:-

For the reasons described in detail in his report Mr Isaacs has suggested that the company is worth £12,500,000 and this is the figure I should prima facie work with. I agree with Mr Sharp’s case law based assertion that the focus should be on the current value of the shares: see FZ v SZ [2011] 1 FLR 64 and Cooper-Hohnv Hohn[2014] EWHC 4122. But that is not necessarily the end of the story because, in deciding how to structure an order, I need to bear in mind events which could potentially render one solution very unfair to one side or the other. For example, I did note from the evidence of the husband that the reaction of T, the majority shareholder, to this figure was “I am not getting out of there for £12.5 million” and I am conscious that a relatively small upturn in profitability would significantly increase this figure. Equally, a company with a high turnover and small margins runs risks of insolvency on a relatively small downturn in profitability. Thus, events could make this figure of £12,500,000 look suddenly very large or suddenly very small.

The difficulty of the valuation issue is further illustrated by the comments on the valuation of the husband’s 5.3% stake. Mr Isaacs has suggested:-

This is, of course, a substantial range of valuations in itself and the potential volatility of the headline figure gives rise to further potential oscillations. If the husband was to be compelled to take a large part of his capital in this shareholding and the wife instead to receive secure cash assets (which is the wife’s case) then a failure of the company would be disastrous and unfair for him. On the other hand, if the wife is expected to wait for her entitlement to receive her half share of the value of the shares and run the risk of a downturn eradicating this value (which is the husband’s case) then it is difficult to see that it is fair to deprive her of the upside of a good return by unfairly capping the value. One answer would be to expect the parties to share in the burden and risk of this investment, a quasi-Wells v Wells [2002] 2 FLR 97 scenario, albeit that the wife is not actually a shareholder. In this context I note the comments of Mostyn J on this subject in WM v HM [2017] EWFC 25: “Generally speaking, a Wells sharing arrangement should be a matter of last resort, as it is antithetical to the clean break. It is strongly counterintuitive, in circumstances where one is dissolving the marital bond and severing as many financial ties as possible, that one should be thinking about inserting the wife as a shareholder into the husband's company. Its inaptness was well illustrated when Mr Marks QC put it to the wife that a form of Wells sharing would have happened had the marriage continued, to which her pithy response was "but it hasn't continued". However, Wells sharing is not so objectionable if it only applies to a minority element of the claimant's award”.

Perhaps the main reason for having doubts about a quasi-Wells v Wells scenario is that it leaves the wife dependent upon the activities of the husband and, in this case, the wife does not trust the husband not to try to manipulate the value of the shareholding and, with some justification, highlights his behaviour over J (see below) in support of this. The counter-argument to this is that, given his relatively small percentage shareholding, the husband is not really in a position to manipulate the share sale scenario in the way feared by the wife. Also, by structuring a periodical payments award in such a way that the wife can seek a remedy in the event that the husband does manipulate the situation, I can hope to go some way to eliminating the likeliness of this happening, albeit that I am cautious about risking more litigation in the future.

I need also to respect the likelihood that at least some of any increase in the value of the shareholding will be attributable to post-separation endeavour by the husband as opposed to passive growth, although that does not necessarily exclude an equal future division if that is the fair result: see, for example, JL v SL [2015] EWHC 360.

Having heard the oral evidence on this subject I have reached the clear conclusion that the husband has not been wholly honest with the wife or with the court.

In my judgment it has been established on a balance of probabilities that the husband has been involved in a relationship with J since the mid-2000s, that this is ongoing, and that he has deliberately kept this secret from the wife until it emerged only in the context of disclosure issues within these proceedings. A clear and admitted illustration of his dishonesty here is his misrepresentation to the wife to the effect that a payment of £9,750 in November 2016 was for the purchase of an interest in a horse when it was in fact a direct payment to J. When that was discovered the wife pursued the issue with vigour and was able, in the end, to uncover some significant facts. I do not think Mr Sharp was fair to characterise this as a ‘rummage in the attic’. I found the husband’s answers to Mr Sproull’s skilful questions on this subject to be not very convincing and I agree with Mr Sproull that it was an example of “stretching credulity”. The husband was distinctly unsure about his chronology and was desperately unconvincing in asserting that his attention to J and wish to reward her financially arose from her performance as his PA, even long after she ceased to have that role.

That said, Mr Sharp is correct to note that the court is not a court of morals and that infidelity on its own does not in any way justify a different distribution of assets. The test in the court is much higher than that. A number of propositions of law are established on the authorities:-

I have to apply these principles to the facts of the present case, and in doing so I need to carry out a broad survey of the evidence on this subject. It took him a long time to do it, but the husband admitted, in the end, that between 2007 and 2018 he made direct payments totaling £153,160 to J. Many of the payments were substantial, for example payments of £9,000, £9,750 and £15,000 in 2016 alone. In my view, on a balance of probabilities, the majority of these payments could properly be construed as wanton dissipation in the Norris category and I so construe them. Why should the wife be disadvantaged in the distribution of assets by the fact that the husband has chosen to give large amounts of money to a third party, some of which seems likely to have been used by her to buy a house, although few details have been forthcoming about this. There was no explanation forthcoming which convinced me otherwise.

Beyond that, there are numerous examples identified by the wife of the husband having a meal with J, or paying for travel to go to see her in Ireland, or paying for a hotel to facilitate their meeting. In my view these are much more difficult to place in the Norris category and I decline the wife’s invitation so to do. Further, I have not, in the end, been persuaded that (in addition to what he has admitted) the husband has taken substantial amounts of cash from his account and given it to J. There was too much speculation in the wife’s case for such an argument to get home and the husband was, for me, more convincing in this area.

Overall, I have reached the conclusion that it would be right and fair to include a figure of £150,000 in the schedule as a Norris add-back attributed to the husband in recognition of the above.

Given his earnings and mortgage capacity, such a finding does not infringe the Vaughan principle discussed above.

On any view the husband is a high earner. His P60 for y/e 5^th April 2018 showed an earnings figure of £342,807 pag or £187,188 per annum net or £15,599 pcm net. The figures for 2017 are slightly lower, with the difference attributable to the husband’s having exceeded his pension Lifetime Allowance and having accordingly transferred pension contributions into cash receipts – this change is likely to be reversed once a pension sharing order is made. I accept that the husband’s ongoing income is likely to be along the lines suggested by Mr Sharp in his opening note, i.e. c. £15,064 pcm net. In addition he will get the use of a car and some pension contributions.

It appears that the company does not habitually grant bonuses or declare dividends, although this is of course an option open to them which has sometimes been utilised.

This level of earnings is likely to be maintained for quite some time to come. The husband indicated that he would be likely to retire from employment with Y at age 62 and the wife did not, in reality, demur from that proposition and it seems a reasonable proposition in the circumstances (he mentioned that his father had died young and that he did not want to work so long that he had no retirement to enjoy). Whilst accepting this I am noting that the husband’s state pension age is currently 67 and it is by no means impossible that he will, in the event, choose to continue working with significant earnings for a number of years beyond age 62.

The wife’s likely future earnings have been more controversial in these proceedings. On the one hand she is a woman of intelligence and vigour who is a qualified Chartered Accountant and, it is clear from her efforts in this case, plainly good with figures and accounts analysis (as would be expected from somebody with her qualifications).

Even though she has been a homemaker with primary care of the children for the majority of the marriage, Mr Sharp’s proposition that the wife could (absent the need to care for A) quite soon find employment at, say £1,800 pcm net, probably rising to £2,500 pcm net over about two years seems reasonable. Beyond that, any conclusions may be too speculative (note the caution expressed in Flavell v Flavell [1996] EWCA Civ 649, expressly endorsed in Family Justice Council: Guidance on Financial Needs on Divorce (2018 edition)).

The problem with her finding work, on her case, is that she needs to be around all day every day to care for A. She is, in fact, officially registered as A’s carer, receiving carer’s allowance for 35 hours per week care at £65 per week. For me it was a highly poignant part of the case listening to two loving and caring parents grappling with the suffering of their young daughter from the very difficult condition known as Chronic Fatigue Syndrome (CFS). Plainly A’s experience of the condition is a severe one and this has very significantly sapped her ability and energy to live a normal life. With CFS, suffering can be severe, cures are elusive and timetables for recovery are unreliable. The future for poor A, which might otherwise have been a bright one, remains tantalisingly unattainable, though hopefully not for all time or even necessarily for a long time. I was entirely satisfied that both the parents dearly love A and have her interests at heart and it was perhaps an unfortunate part of the wife’s case that she allowed herself to think otherwise of the husband. I was impressed by the husband’s commitment (which he was happy to be recorded in my final order) to keep funding all treatment reasonably required by A. Whether this includes in the future the slightly controversial treatment provided by Dr F is something to be discussed in a sympathetic way within the family and I hope A’s voice will be predominant in that decision.

The wife’s case before me was simply that she needs to be with A so much of the time that she cannot contemplate any paid work (other than as A’s carer) for the foreseeable future. She expressed anxiety that A would become a suicide risk if left on her own for too long. She felt that A was not even strong enough to perform simple actions like washing her own hair.

The husband’s case before me was that the wife was prone to overstating the necessity, or even the desirability, of her constant attention. He told me a number of things that A had been capable of doing whilst staying with him and, perfectly sympathetically, suggested that A should be encouraged not to rely upon the wife so heavily for them. He felt that A is improving, doesn’t need her mother with her all the time and that both the wife and A would benefit from a situation where the wife had an interest away from her for some of the time.

In the end, after careful thought, I was persuaded that the wife was rather overplaying her hand in this respect and that the time has come for her to withdraw a little bit from the full time carer role. My overall view is that it would be reasonable to expect her to take on a part-time role, probably in an accounting capacity. The best estimate that I can suggest is that she should be able to find part-time employment at c. £1,000 per month net as well as caring for A. I shall assess her on that basis. I would hope and expect that as and when A is well again, this would move upwards, but given the inability place a timetable on CFS recovery I think it would be too speculative to go beyond this at this stage and I cannot therefore agree with Mr Sharp’s wider projections.

Plainly the wife needs a home. In his opening note Mr Sharp suggested that the wife would be over-housed by keeping the family home and that, instead, the family home should be sold and that both parties could be housed with a budget of £450,000 (including SDLT). Although Mr Sproull’s closing presentation doesn’t really acknowledge this, the wife in her cross-examination broadly accepted what Mr Sharp had said. For myself, I also agree with Mr Sharp on this. Accordingly my order will be based on this proposition. The wife has little if any mortgage capacity so she will need cash assets to the value of £450,000 and the husband’s offer contains a mechanism for bringing this about to which I find myself attracted. In so far as the husband’s readily available capital falls short of £450,000 then I will need to factor into the figures his need to borrow the outstanding amount and pay it off before he is 62.

Both parties need pension income. My starting point for this would be to divide the pensions in such a way that the current entitlements produce an equal level of income for the parties at the husband’s 62^nd birthday. In the view of the pensions’ expert, George Mathieson, this would be achieved by a pension sharing order of 44.9% of the husband’s Investec SIPP pension.

Mr Mathieson’s report steers clear of a detailed analysis of the husband’s interest in the X Staff Pension Scheme. This was not covered in detail at trial, but my own internet research suggests that this scheme has now been assumed within the Pension Protection Fund (PPF). If this is correct (and it really needs to be checked with the PPF before the final order is made) then the right order is a Pension Compensation Sharing Order against the husband’s rights to compensation from the PPF. It is, I believe, common ground that the order should be for 50% of the husband’s rights in the now PPF-funded compensation scheme.

Mr Mathieson suggests that the division of the Investec SIPP would leave both parties with pension income in 2027 of c. £16,699 per annum gross from this source in “today’s money”. In addition they would each receive whatever half of the PPF rights amounted to (on which I have no information) and (at their respective State Pension Age of 67) state pension (no analysis has been done on this, as far as I can see anyway, but it seems to be assumed that both will receive full state pension, which is likely to be correct). To this might be added a share of the sale proceeds of the Y shares. Although some of the figurework is absent, it seems to me that this provision is such that the wife’s claim for ‘stock-piling’ really cannot be made out and fairness dictates that I should exclude this item from the wife’s expenditure schedules.

Both parties have a current need for income. I have listened to the evidence on this and pored through the various different schedules produced. I have reminded myself of the helpful observations of Mostyn J in SS v NS [2014] EWHC 4183 on this subject:-

“Pulling the threads together it seems to me that the relevant principles in play on an application for spousal maintenance are as follows:

i)

A spousal maintenance award is properly made where the evidence shows that choices made during the marriage have generated hard future needs on the part of the claimant. Here the duration of the marriage and the presence of children are pivotal factors.

ii) An award should only be made by reference to needs, save in a most exceptional case where it can be said that the sharing or compensation principle applies. 

iii) Where the needs in question are not causally connected to the marriage the award should generally be aimed at alleviating significant hardship.

iv) In every case the court must consider a termination of spousal maintenance with a transition to independence as soon as it is just and reasonable. A term should be considered unless the payee would be unable to adjust without undue hardship to the ending of payments. A degree of (not undue) hardship in making the transition to independence is acceptable.

v) If the choice between an extendable term and a joint lives order is finely balanced the statutory steer should militate in favour of the former.

vi) The marital standard of living is relevant to the quantum of spousal maintenance but is not decisive. That standard should be carefully weighed against the desired objective of eventual independence.

vii) The essential task of the judge is not merely to examine the individual items in the claimant's income budget but also to stand back and to look at the global total and to ask if it represents a fair proportion of the respondent's available income that should go to the support of the claimant.  
…

xi) If the choice between an extendable and a non-extendable term is finely balanced the decision should normally be in favour of the

economically weaker party.”

The wife’s case (set out in a schedule produced close to the final hearing) is that she needs £8,403 pcm (i.e. £5,218 plus £2,825). It is an illustration of the fact that these schedules can be produced for tactical reasons rather than as genuine expressions of need that the Form E equivalent was a needs figure of £6,183 pcm (i.e. £4,628 plus £1,555). The husband has suggested that a figure of £4,166 pcm is a reasonable one in all the circumstances. Doing the best I can, and deleting or trimming the wife’s budget in a broad way, and bearing in mind the available resources, the standard of living during the marriage and the limitations of the relevance of this post-marriage and the duration of the marriage, I have reached the conclusion that the wife has reasonable need of a budget of c. £5,000 pcm.

I need to bear in mind the principle set out in D v D [2004] 1 FLR 988 to the effect that where there has been a broadly equal division of capital and a spousal maintenance order based on the ongoing earned income of the paying party it will usually be appropriate to impose a term by reference to the working life of the paying party because to do otherwise would run the risk that the periodical payments order would be left to ‘run rampant’ and upset the scheme of the capital distribution.

There should be an immediate sale of the family home.

The wife should receive the entirety of the net proceeds of sale of the family home.

If the sum of the net proceeds of sale plus £112,314 (this figure having been calculated by reference to her own net assets, ignoring the motor car) are less than £450,000 then the husband will pay an additional lump sum of the difference (e.g., for illustration purposes, if the net proceeds of sale are, as predicted, £295,720, then the lump sum would be £450,000 minus £112,314 minus £295,720 = £41,966).

The wife should retain her own assets, including the motor car.

The husband should retain his Y shares, save that, as and when they are sold, he should pay a further lump sum to the wife which shall be 50% of the net sale proceeds of the shares up to a capped ceiling of £284,085 (the cap figure having been calculated by reference to 50% of a net sale proceeds figure postulated in the email of 17^th October 2018, i.e. £568,170).

There should be a pension sharing orders (with pension sharing charges shared equally) as follows:-

The husband should pay spousal periodical payments with a number of constituent parts:-

There should be a division of contents (few details of what is proposed have been provided).

The family home should be transferred to her and only sold if she is unable to remove the husband from the mortgage within six months. The wife should receive the entirety of the net proceeds in the event of a sale of the family home.

The wife should retain her own assets, including the motor car.

The husband should retain his own assets, including his Y shares.

Each party should retain their own debts.

There should be pension sharing orders (with pension sharing charges shared equally (?)) as follows:-

The husband should pay spousal periodical payments with a number of constituent parts:-

There should be a division of contents (few details of what is proposed have been provided).

There should be an immediate sale of the family home. The wife really accepted in her evidence that this was inevitable.

The wife should receive the entirety of the net proceeds of sale of the family home.

If the sum of the net proceeds of sale plus £112,314 (this figure having been calculated by reference to her own net assets, ignoring the motor car) are less than £450,000 then the husband will pay an additional lump sum of the difference (e.g., for illustration purposes, if the net proceeds of sale are, as predicted, £295,720, then the lump sum would be £450,000 minus £112,314 minus £295,720 = £41,966). This award is intended to meet the wife’s housing need as described above.

The wife should retain her own assets, including the motor car, and her own debts.

The husband should retain his own assets and his own debts.

The husband should retain his Y shares, save that, as and when they are sold, he should pay a further lump sum to the wife which shall be a percentage of the net sale proceeds of the shares. Up to the point that he has received net sale proceeds of the shares of up to a capped ceiling of £568,170 he shall pay a lump sum of 50% of the amount received. In relation to any net sum above £568,170 he shall pay a lump sum of 25% of the amount received in excess of that figure. This is intended to achieve a reasonable compromise between the objectives of rewarding the wife properly for her effective investment in the Y shares (since she is also bearing the risk of the downside) and recognising the significance of the husband’s post-separation endeavour.

There should be a pension sharing order (with pension sharing charges shared equally) as to 44.9% of the husband’s Investec SIPP pension. This is intended to produce equality of income at the husband’s 62^nd birthday per the expert’s report.

There should be a pension compensation sharing order as to 50% of the husband’s X pension (subject to checking that it is indeed within the PPF).

The husband should pay spousal periodical payments with a number of constituent parts:-

There should be a division of contents. I have not been addressed on what form this should take, but (subject to further argument) leave it to the parties and their legal teams either to execute an actual division or a formula for achieving it.