UK: An Introduction to Family/Matrimonial Finance: Ultra High Net Worth

Over the last year, several cases have come to the fore which may well have profound and far-reaching consequences within high net worth family law. Decisions reached by the judiciary relating to the division of assets where the parties had complex financial arrangements as a couple have set a template that will impact on clients and their representatives in future hearings. Equally important are changes to the Family Procedure Rules which compel parties to attempt means of resolution outside court before proceeding to litigation.

Recent High-Profile Cases

Overseas divorces under Part III Procedure: Potanina v Potanin [2024] UKSC 3

Significant cases involving high net worth couples who divorced abroad occur regularly in the London family courts. So, family lawyers paid keen attention to this landmark case, in which the Supreme Court had to decide whether future applications for financial relief following a foreign divorce under Part III of the Matrimonial and Family Proceedings Act 1984 should now follow a different procedure. This involved parties who divorced in Russia in 2014. Almost all the assets were held through companies and business structures which were not actually owned by the husband, but he was the beneficial owner. As a result, when the Russian court divided the family’s wealth these were not considered assets, with the result that the wife received less than 1% of the vast wealth which had been built up during the marriage. The wife applied in England for permission to apply for money following an overseas divorce under Part III in 2019 and she was granted permission at a “without notice” hearing. After this, the husband applied to set aside the permission, which was also granted. The wife then appealed to the Court of Appeal, which subsequently agreed with the wife that the husband’s set-aside application should not have been successful. It ruled that a grant of permission should only be set aside when there are compelling reasons which amount to a knock-out blow to the application. Following this, the husband appealed to the Supreme Court, which ruled on the procedure of such applications. It allowed the husband’s appeal on the basis that the law does not require a compelling reason or knock-out blow to set aside a grant of permission, and it remitted two grounds of appeal to the Court of Appeal.

Application of the sharing principle: Standish v Standish [2024] EWCA Civ 567

The long-running case of Standish v Standish was a timely reminder that an asset’s origin is key when applying the sharing principle, not in whose name it is held. At stake here were assets that were owned by the husband prior to the marriage which were transferred into the wife’s sole name during the marriage for tax planning reasons. The wife argued that they should be considered her separate property because of the transfer. The Court of Appeal rejected that argument; it also disagreed with the judgment of Moor J and determined that the 2017 assets were not even wholly marital. The Court of Appeal noted that if it was to conclude that the assets had become matrimonialised – an ambiguous term referring to property which becomes shared because of the relationship - during the period in which the husband and wife were still together it would be giving significance to the transfer into the wife’s name, and this is incorrect as a matter of law.

Business valuations: HO v TL [2023] EWFC 215

Mr Justice Peel set out a useful revision of the principles for business valuation in financial remedy proceedings, amongst other considerations. Foremost of these rulings was a confirmation that the court determines the value, not the expert. Where valuations of private companies are uncertain, the reliability depends on whether there are comparable firms, and how niche the business is. Following this judgment, the choices for the court will be to either "fix" a value, order the asset to be sold, or divide the asset in specie (ie, Wells sharing). Determining which is appropriate will depend on the facts. Relevant considerations include the following: when the business was founded (before or during the marriage); the origins of the business and whether they are in one party’s non-marital wealth; whether both parties were involved in strategy and operation; the ownership structure; whether Wells sharing is realistic given the ongoing connection for the parties; and how to ensure a fair allocation of all resources.

Nuptial Agreements – non-disclosure and set aside: TRNS v TRNK [2023] EWFC 133

Accuracy is paramount when it comes to disclosure in big money cases with nuptial agreements. This was a case in which the parties were married for 22 years and separated in April 2019; they then negotiated the post-nuptial agreement (PNA) and reconciled. In September 2021, however, they separated permanently. In dispute was the accuracy of the husband’s disclosures in the agreement. The case concerned the husband’s notice to show cause as to why a PNA should not be made an order of the court. The wife resisted, arguing that there had been material non-disclosure by the husband when they entered the PNA. The wife’s non-disclosure allegations centred on the husband’s interest in an entity called MT (in which he had an 82.2% shareholding) and its underlying assets. This entity invested in another company, PL, which then invested in a third company, PD. PL’s investment in PD was reflected in MT’s accounts as GBP7.128 million or GBP7.319 million. However, PL’s financial statements showed the value of its investment in PD to be GBP132 million with a cost value of GBP66 million. When providing disclosure for the PNA, the husband had valued his interest in MT at GBP3.5 million. Finding that there had been material non-disclosure, Sir Jonathan Cohen reviewed the case law on disclosure relating to nuptial agreements. He stated although a spouse may choose to opt out of the need for detailed disclosure from the other, what is provided to the other party must nevertheless be sufficiently accurate to have provided sufficient information to make an informed judgement of the value of family assets. He further noted that the husband was under an obligation to update his disclosure if there had been a material change in value to an asset prior to the agreement being completed.

Non-court Dispute Resolution (NCDR)

Finally, changes to the Family Procedure Rules were made in April 2024 to emphasise the importance of parties engaging with NCDR before and throughout litigation. The definition of NCDR was broadened to include - but not be limited to - mediation, arbitration, evaluation by a neutral third party (such as a private family dispute resolution process) and collaborative law. From now on, parties must now actively consider NCDR throughout proceedings and demonstrate to the court what attempts they have made before the first hearing. If this proves to be unsuccessful, the parties must tell the court which NCDR methods they have tried and why they failed. Likewise, if the parties have not attended NCDR, they must tell the court why not. The changes mean that it is the duty of the court to consider NCDR throughout. The court may adjourn proceedings (regardless of whether the parties agree to the adjournment) at any stage if it thinks that the parties should attempt NCDR. To bolster enforcement of these rules, there may now be costs consequences in financial remedy proceedings for any party that fails to attend NCDR.