WW v XX

This case concerns the financial remedies proceedings arising out of the divorce between WW (to whom I shall refer as “the wife”) and XX (to whom I shall refer as “the husband”).

The case proceeded to a final hearing over 4 days on 7^th, 8^th, 10^th and 11^th October 2024.

Both parties appeared before me by Counsel. Mr William Tyzack (Counsel instructed by Kingsley Napley LLP, Solicitors) appeared on behalf of the wife. Mr Alexander Thorpe KC (Counsel instructed by Teelan & Silwal Family Law, Solicitors) appeared on behalf of the husband.

I am grateful to both Counsel for the helpful and clear way they have respectively conducted their cases – both parties have been represented before me at a first-class level; but it has, of course, come at a large cost. The wife has incurred a total of £286,941 in legal costs and the husband a total of £445,752. It should be noted that the husband has paid all the costs of all the experts, this being the main reason why there is a difference between the parties’ totals. The husband has also paid the majority of the wife’s legal costs so this has been an expensive exercise for him.

The court was presented with an electronic bundle running to a total of 1,517 pages, a supplemental bundle running to 67 pages, an authorities bundle running to 240 pages and a number of other documents have been exchanged during the final hearing. I have considered all the documents presented to me, in particular I have considered:-

I have also heard oral evidence from the wife, the husband, Mr Jon Dodge and Mr Paul Singleton, all subjected to appropriate cross-examination.

I have also had the benefit of full submissions from each counsel in their respective opening notes and their closing oral (and partly written) submissions.

The history of the marriage is as follows:-

The financial remedies proceedings chronology is as follows:-

In dealing with the claim, I must, of course, consider the factors set out in Matrimonial Causes Act 1973, sections 25 and 25A together with any relevant case law.

Matrimonial Causes Act 1973, section 25, reads as follows:-

Matrimonial Causes Act 1973, section 25A, reads as follows:-

Although the husband has a 17-year-old child in Country A from a previous marriage, there are no relevant ‘children of the family’ whose needs fall to be considered in this case and it has not been argued that the husband’s children in Country A should have any impact on the outcome of this case.

Although the majority of the figures in my asset schedule are agreed (and need no comment), there are a number of significant computational disputes in this case which fall to be considered under the heading “property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future”. I propose to make the following comments and findings under this heading.

The only real property in the case (outside the company) is the husband’s ownership of the property in Berkshire. This has an agreed value of £1,500,000. This is subject to an outstanding mortgage of £1,249,680, and an ERP of £37,813, so that applying notional costs of sale at 3%, the net equity is £167,507. Although purchased at the very end of the relationship in the husband’s sole name, this was purchased with matrimonial resources and is plainly a matrimonial asset.

Mr Thorpe argues that I should include in my asset schedule a debt owed by the husband to the HMRC of £90,344. Mr Tyzack says I should not. In this respect Mr Thorpe relies on a letter from HMRC dated 29^th July 2024 in which the liability is asserted, which letter was disclosed only as an exhibit to the husband’s statement dated 5^th September 2024. On the face of the letter, this liability arises from the HMRC’s assessment of benefits in kind taken by the husband in the tax y/e 5^th April 2020, in particular the rent paid via the company for the rented accommodation in Northwest London and the use of a motor car by the husband. The letter notes that this assessment follows similar assessments for the two previous tax years. While there is no challenge to the legitimacy of the HMRC letter itself, what is missing from this disclosure is evidence of the husband’s account with HMRC which would confirm whether or not the husband has paid all or some of this amount on account in advance of the assessment. He accepted that he had sold a property in Country A in 2021 and paid £275,000 to HMRC and the evidence is unclear whether this payment covers (in full or in part) the assessed liability of £90,344. The husband was a little vague about this in his evidence. Further, the witness statement itself says that the HMRC assessment “is currently being challenged”, but no details have emerged of what this meant. In the circumstances, doing the best I can without best evidence, I have decided that the fairest thing for me to do here is to include a figure for half of this amount on my schedule, i.e. the figure of £45,172.

Mr Thorpe has argued that I should include a figure of £56,930 as a liability for Country A Tax. Mr Tyzack says I should not. On closer analysis, this is a liability which has not yet arisen (it is assessed as at 31^st December 2024 and is payable on 31^st July 2025) and may be an ongoing annual charge, at least until 2026 (there is a dispute as to whether the liability will cease five years after the husband ceased to be a Country A tax resident). Further, it seems likely (but no calculations have been put forward) that an assessed Country A tax would have to take into account any reduction in wealth caused by my ordering the husband to make payments to the wife. On balance I have decided that it would not be appropriate to include this figure in my asset schedule, which is intended to represent a current snapshot, though I note that the husband may have an ongoing extra tax liability in Country A which he will have to meet from his income, at least until 2026.

Mr Thorpe has argued that I should include a figure of £820,894 as a Company Z Director’s Loan Account liability. Mr Tyzack has queried this on a number of bases. He has suggested that, on analysis of the Company Z accounts for y/e 31^st December 2023, I should have doubts as to whether the payments made to the husband by that time (totaling £360,000) should properly be categorised as Director’s loans, although I note that none of the instructed accountants have raised that doubt. He further challenges the increase in that figure to £820,894 in the course of 2024 by the production of a schedule of payments made in 2024, though there was no real challenge to the schedule itself which largely consisted of payments made for the costs of this litigation. On balance, I have been persuaded that this Director’s Loan Account liability does exist, is a problem for the husband, and should be included in my asset schedule.

The dispute between the parties which has really stood in the way of settlement here is the value to which I should attribute the husband’s 100% shareholding in Company Y and the extent to which this figure should be treated as marital acquest subject to the sharing principle. On these issues, the parties (or in the first instance the husband) have spent a substantial amount of money seeking the advice of various accountancy experts. Initially, Ms Fiona Hotson Moore of FRP, accountants, was appointed as the SJE. Subsequently, she parted company with FRP and another accountant from that firm, Mr Jon Dodge, stepped into her shoes as SJE. Later, Mr Paul Singleton was instructed by the husband after a successful Daniels v Walker application. The wife contemplated, but did not in the end pursue, her own Daniels v Walker application, which might have brought her shadow expert, Mr Roger Isaacs, into the fray. Although the court bundle included reports by Ms Hotson Moore, the principal sources of opinion on these issues before me were Mr Dodge and Mr Singleton.

I want to say at the outset that I found both Mr Dodge and Mr Singleton to be informed and persuasive expert witnesses, albeit with different styles, and I am entirely satisfied they were both giving their honest and best opinion on the matters arising with full and proper respect for their duties to the court. In so far as they differed in their conclusions, it seemed to me that these represented a perfectly unremarkable illustration of how competent professionals can take a reasonable position within a reasonable range of conclusions. In the end, I shall have to make some findings informed by their opinions, but this is an illustration of the well known caution which the courts have often expressed about company valuations. In the words of Lewison LJ in Versteegh v Versteegh [2018] EWCA Civ 1050: “The valuation of private companies is a matter of no little difficulty. In H v H [2008] EWHC 935 (Fam), [2008] 2 FLR 2092 Moylan J said at [5] that "valuations of shares in private companies are among the most fragile valuations which can be obtained." The reasons for this are many. In the first place there is likely to be no obvious market for a private company. Second, even where valuers use the same method of valuation they are likely to produce widely differing results. Third, the profitability of private companies may be volatile, such that a snap shot valuation at a particular date may give an unfair picture. Fourth, the difference in quality between a value attributed to a private company on the basis of opinion evidence and a sum in hard cash is obvious. Fifth, the acid test of any valuation is exposure to the real market, which is simply not possible in the case of a private company where no one suggests that it should be sold. Moylan J is not a lone voice in this respect”.

Further, in determining my findings in relation to the value of the business it is apposite for me to bear in mind the words of Peel J in HO v TL [2023] EWFC 215, where he said: “I suggest that the reliability of a valuation will depend on a number of factors such as: (i) whether there are applicable comparables, (ii) how “niche” the business is, (iii) whether the business is to be valued on a net asset basis (for example a property company) or one of the recognised income approaches (such as EBITDA or DCF), (iv) the extent of the parties’ interests, and accordingly their level of control, (v) the extent of third party interests, (vi) the relevance of any shareholders’ agreements, (vii) whether there is a realistic market for sale, (viii) the volatility or otherwise of the figures, (ix) the reliability of forecasts, and (x) whether the assumptions underpinning the valuation are seriously in dispute.”

In addition to the usual complications involved in company valuations, we have the additional complication of the Country A element. First, most of the figures produced for the holding company are expressed in Country A currency. Inevitably, the £ to Country A currency exchange rate moves around over time. For the purposes of my calculations, for mathematical convenience and the fact that the rate has been hovering around this figure, I propose to use the figure of £1 = 14 in Country currency. Secondly, there are some Country A tax issues which have an effect on our calculations.

Against this background, Mr Dodge and Mr Singleton, in their joint report of 2^nd September 2024, reached the following conclusions as to the current value of the company:-

These figures were produced before the very late company real property valuations were produced. After this, Mr Dodge, in a report dated 3^rd October 2024, expressed the view that since the real property valuations significantly exceeded the equivalent figures in the company accounts, he would be minded to increase his valuation figure by Country A currency 26,480,000(£1,891,429) so that his valuation figure would now be £15,644,643 + £1,891,429 = £17,536,072. Mr Singleton, in a report dated 2^nd October 2024, expressed the view that the new real property valuations made no difference to his figure of £10,379,462.

Both experts agreed that a proper calculation of the net value of the company would require a deduction for tax. If this was Country A Tax (which in my view is, on a balance of probabilities appropriate, taking a snapshot value now) this would result in a deduction of the Country A tax rate % of the value. This would produce a net valuation figure of £11,980,644 on Mr Dodge’s figures or £7,091,248 on Mr Singleton’s figures. Even if it had been my conclusion that UK tax rates should apply in this context, I remind myself that an increase in these rates in the UK seems likely in the foreseeable future, even if the precise details are not yet clear.

So how should I determine the value of the company for the purposes of my task? I remind myself of the fragility of the exercise, and in particular the fragility of the assessment of the multiplier. I have listened carefully to a good deal of evidence of two very experienced professionals arguing with passion for this multiplier or that, backed up with numerous comparables which, as ever, have to be treated with caution in the context of the real world, where many factors come into play in fixing a sale price of a business. As often, there was a dispute as to which business sector was the most reliable indicator of multiplier selection. I could not say that I regarded one expert as having better answers to the many questions asked on the multiplier question. On a balance of probabilities I propose to take a multiplier between the two asserted figures, that is 7.25. I propose to use the agreed EBITDA figure and take the midpoint on the net debt dispute, i.e. Country A currency 66,000,000 = £4,714,286. I preferred Mr Dodge’s view that a figure should be added for the late real property valuations, and I shall use his figure. I shall use the Country A tax rate. Accordingly, I make a finding that the husband’s shareholding in Company Y is worth £(7.25 x 2,403,571) = £17,425,890 less £4,714,286 (net debt) plus £1,891,429 (real property uplift) = £14,603,033 less £4,626,241 (tax) = £9,976,792. This is the figure that I shall place in my schedule.

The experts did not have a very big disagreement as to the sustainable net income which the husband might expect to receive in the foreseeable future from this shareholding. Mr Dodge suggested £601,000 per annum net. Mr Singleton said £582,949 per annum net. I note in passing that the husband will probably have to meet from this sum a Country A Tax debt, at least for a period. He, of course, has his own debts to meet as well as his living costs and any provision ordered by me in favour of the wife.

In the context of reaching conclusions about the outcome of this case I need also to apportion the extent to which the husband’s shareholding in Company Y is a matrimonial asset (the marital acquest, subject to the sharing principle) as opposed to a non-matrimonial asset (only usually to be invaded if needs are established). This exercise caused the experts to look at the business at the commencement of the parties’ cohabitation in September 2010. It is common ground that the husband has held his shares in Company Y since 2004 and so the shares, on any view, existed prior to the relationship so have one characteristic of non-matrimonial property; but in so far as they have grown more valuable since 2010 by reference to factors other than passive growth, they will in part have acquired status as matrimonial assets.

The two experts were able to agree, mostly by reference to an analysis of the accounts in the period leading up to 2010, that the value of those shares in September 2010 was £1,250,000 before tax. That, of course, is a 2010 figure and (to produce a fair figure for a present calculation) a fair methodology needs to be identified for updating that figure. This is sometimes referred to as the assessment of the ‘springboard’. The arguments about how to decide on this issue have been traversed in leading cases such as Jones v Jones [2011] EWCA Civ 41, Martin v Martin [2018] EWCA Civ 2866, XW v XH [2019] EWCA Civ 2262 and Hart v Hart [2017] EWCA Civ 1306. My attention was particularly drawn to the analysis in the well-known judgment of Wilson LJ (as he then was) in Jones v Jones (supra), which seems to me to be apposite in the present case.

I have been persuaded by Mr Thorpe’s analysis that, on the facts, and on the chronology of the development of Company Y, a very important event was the purchase by Company Y of a UK company called Company Z (based in the North of England). This event occurred in August 2010 (albeit that the full ownership was transferred a little later) which was before the parties’ cohabitation began. This might be identified as something of a paradigm ‘springboard’ event because it can be seen from a detailed analysis of the group turnover figures that thereafter Company Y was moved on to a different level from which it has subsequently grown and developed. In these circumstances I have been persuaded that, in assessing the present day figure to be applied in this context, the fair way forward is broadly to follow the guidance of Wilson LJ in Jones v Jones (supra) by doubling the initial valuation figure and then applying an appropriate share index. I have decided to accept Mr Tyzack’s suggestion by taking the average of the FTSE All Share Index, the FTSE 350 Index and the FTSE 100 Index of the period between September 2010 and the present, that is 1.54. Thus, I shall upgrade the 2010 figure from £1,250,000 to £3,850,000. From this must be deducted Country A Tax and I shall use the figure of 28% for this to reach the figure of £2,772,000.

The ‘marital acquest’ portion of the husband’s shareholding interest I shall therefore assess at £9,976,792 less £2,772,000 = £7,204,792.

Having made these determinations, I am now able to set out my assessment of the assets and debts for distribution in this case.

The situation can be summarised as follows:-

Wife

Husband

Wife

Husband

If I were to disaggregate the non-matrimonial portion of the assets (i.e. the non-matrimonial portion of the husband’s interest in Company Y) from this table and then calculate what lump sum would exactly equalise the parties’ share of matrimonial assets, the figures would look like this, requiring a lump sum payment of £3,255,952 to provide exact equality:-

In relation to “the income, earning capacity…which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire”” I have the following comments:-

In relation to the “financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future” I have the following comments:-

I want to say something at this stage about the sharing principle. As a starting point in the division of capital after a long marriage it is useful to observe that fairness and equality usually ride hand in hand and that (save when an asset can properly be regarded as non-matrimonial property) the court should be slow to go down the road of identifying and analysing and weighing different contributions made to the marriage.

In the words of Lord Nicholls in White v White [2000] UKHL 54:-

“…a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination”.

and in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24:-

"This 'equal sharing' principle derives from the basic concept of equality permeating a marriage as understood today. Marriage, it is often said, is a partnership of equals…The parties commit themselves to sharing their lives. They live and work together. When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary. Fairness requires no less. But I emphasise the qualifying phrase: 'unless there is good reason to the contrary'. The yardstick of equality is to be applied as an aid, not a rule." 

In the words of Mostyn J in JL v SL [2015] EWHC 360:-

“Matrimonial property is the property which the parties have built up by their joint (but inevitably different) efforts during the span of their partnership. It should be divided equally. This principle is reflected in statutory systems in other jurisdictions. It resonates with moral and philosophical values. It promotes equality and banishes discrimination.”

Although I have received some submissions from Mr Thorpe to suggest that I might be influenced in this case by the Court of Appeal’s decision in Sharp v Sharp [2017] EWCA Civ 408, whatever the merits of that decision I do not think the present case is in the category of cases which that court had in mind as likely to produce a different outcome on the basis of the principles set out therein. One obvious factor is the length of the marriage and there are other distinguishing features as well. I also share the views of Mostyn J in E v L [2022] EWFC 60 in relation to the dangers of elevating ‘childlessness’ to a feature justifying departure from equality.

 The wife’s open position is as follows:-

 The husband’s open position is as follows:-

Plainly, these pitches are made with different views as to what a sharing claim based on half of the marital acquest might add up to. Having now made my findings on this, which come between the parties’ respective positions, a starting point arising from the above findings would be a sharing claim by the wife requiring a lump sum of £3,255,952 to bring the parties to an equal position.

However, I need to go on to consider how that level of lump sum might be afforded and whether it is reasonable to make an adjustment in the shares to take into account the fact that, on a lump sum scenario, the wife would be receiving cash (or a copper-bottomed asset) but the husband would be left with shares, which may be significantly more risk-laden.

I remind myself on some of the law governing this territory, much of which was helpfully summarised by Peel J in HO v TL [2023] EWFC 215:-

“Fourth, in practice the choices for the court will be, per Moylan LJ in Martin v Martin [2018] EWCA Civ 2866 at para 93: (i) “fix” a value; (ii) order the asset to be sold; and iii) divide the asset in specie. The latter option (divide the aspect in specie) is commonly referred to as Wells sharing (Wells v Wells [2002] EWCA Civ 476).

Fifth, whether a business should be retained by one party, or sold, or divided in specie will depend on the facts of each case. Relevant features will include whether the business was founded during the marriage or pre-owned, whether it has its origins in one party’s non-marital wealth, whether the parties were both involved in its strategy and operation, the ownership structure of the business, whether Wells sharing is practical or realistic given that it will usually continue to tie the parties together to some extent, and how to ensure a fair allocation of all the resources in any given case.

Sixth, as was pointed out in Wells (supra), Versteegh (supra) and Martin (supra), there is a difference in quality between copper-bottomed assets and illiquid/risk-laden assets. As Moylan said LJ at para 93 of Martin (supra):

“The court has to assess the weight which can be placed on the value even when using a fixed value for the purpose of determining the award to make. This applies both to the amount and to the structure of the award, issues which are interconnected, so that the overall allocation of the parties’ assets by application of the sharing principle also effects a fair balance of risk and illiquidity between the parties. Again, I emphasise, this is not to mandate a particular structure but to draw attention to the need to address this issue when the court is deciding how to exercise its discretionary powers so as to achieve an outcome that is fair to both parties. I would also add that the assessment of the weight which can be placed on a valuation is not a mathematical exercise but a broad evaluative exercise to be undertaken by the judge”.

Seventh, when deciding how to reflect the illiquidity or risk in a private company, the court has three choices:

i)

The business valuation may incorporate a discount for factors such as lack of control, lack of marketability, and lack of risk. This is particularly common where a party has a minority holding, or otherwise does not have overall control, and there are relevant third-party interests. In such circumstances, the court may simply adopt the business valuation as reflecting these matters. This I term an “accountancy discount”.

ii)

To step back when conducting the s25 exercise and, in the exercise of its discretion, to allocate the resources in such a way as to reflect illiquidity and risk. Conventionally, that would be to allocate to the party retaining the business a greater share of the overall assets to provide a fair balance. As Bodey J said in Chai v Peng and Others [2017] EWHC 792 (Fam) at para 140: “It is a familiar approach to depart from equality of outcome where one party (usually the wife) is to receive cash, while the other party (usually the husband) is to retain the illiquid business assets with all the risks (and possible advantages) involved”.

It will be for the court to determine whether, and to what extent, to reflect this aspect in what might be a termed a “court discount”. Of particular relevance, it seems to me, is whether the illiquid (or less liquid) business represents the principal asset in the case, in which event the distinction between liquid/illiquid assets may be sharper and require particular attention, or whether it is a relatively modest part of the overall assets.”

In this case, nobody has sought either an order for sale of the company or any kind of Wells sharing arrangement. I think that is perfectly sensible as the obvious solution here is to allow the husband to retain his shares, but to pay monies to the wife over time – the structure adopted by both parties in their open positions. There is, however, a real liquidity issue here and, in my view, since the value of the company represents the very dominant asset in this case, the common practice of allocating “the resources in such a way as to reflect illiquidity and risk. Conventionally,…to allocate to the party retaining the business a greater share of the overall assets to provide a fair balance” is very much in play here.

We have investigated in the course of the evidence before me the possibility of extracting money from the company in different ways to fund a settlement for the wife. Options have included borrowing further money by the company against its real property or trade debtor figure, paying out from existing resources within the company and selling the company real property (for example to a commercial property investor) and leasing it back by some form of long lease which restricted any interference in the business itself by the purchaser, who would become the landlord (Mr Dodge felt that this should release significantly more than £1,000,000). Mr Dodge thought all these were realistic possibilities, though with obvious downsides to the future of the business. Mr Singleton felt all these would be detrimental to the company, but (on this issue) my feeling was that he was articulating the likely reaction of a cautious business owner rather than addressing the court’s task of balancing the needs of a wife to receive capital as part of her divorce settlement against the risks arising to a business owner. In the end it will be for the husband to decide how he can raise money, and he needs to be given time to explore these possibilities more fully, but in my view one of these ways forward should be possible and should be seen by him as a necessary downside of retaining his company. Equally, it would be wrong for me to impose a regime of payments which risked the very survival of the company and a fair balance has to be struck.

Having considered all these matters, I have reached the conclusion that the fair outcome to this case is as follows:-

In this exercise I have reduced the ‘equality’ lump sum payment of £3,255,952 to £2,500,000 to reflect the difference between ‘copper-bottomed’ and ‘risk-laden’ assets, as set out above. This creates an overall division of 38% to 62% (see the table below). In view of the general unavailability of assets other than the company I consider this to a reasonable departure from equality.

I am satisfied that this sharing-based solution provides more money for the wife than would a needs-based solution, so the sharing-based solution is the proper outcome.

I am satisfied that terminating spousal periodical payments in the way suggested above both meets her needs and meets the statutory test (“whether it would be appropriate to require periodical 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”).

This is my decision and, as discussed, I invite counsel to produce a draft order which matches these conclusions. The sending out of this judgment by email on 11^th October 2024 represents the formal handing down of the judgment for appeal period purposes. I am hoping that it will not be necessary for me to convene another hearing, but if it becomes necessary I shall do so. I have no strong views as to whether this judgment should be published on TNA / BAILII and, if so, what anonymisations / redactions are sought, but I am happy to receive representations on the subject when I am sent the draft order.