In the case of Jones and Jones [2011] the Court had to consider the wife’s claim against her husband’s company which he brought into the marriage and which increased in value following the parties’ separation.
The case concerned a 10 year marriage to separation. There were no children from the marriage. The husband brought his company into the marriage and the wife brought a house and capital. Following the parties separation in 1996 the company was sold in 2007 for £25 million net. At the final hearing the net assets totalled £25 million.
The husband asserted that the value of the company at the date of the marriage had been £2 million and its value at separation which according to him was the relevant date had been £12 million net. The husband submitted that the wife’s award should be in the range of £3 million to £5 million. The County Court rejected the husband’s argument that the wife should have no claim against this substantial increase in the company’s value post separation stating that by 2006 when the parties separated the company had developed a “springboard” but that the “springboard” had already materialised at the date of the parties’ marriage attributable to a substantial proportion of the company’s subsequent increase. It found that 60% of the net proceeds of sale of the company reflected what the husband had brought into the marriage and therefore only 40% of the net sale proceeds represented matrimonial property. Of the total assets of £25 million, £10 million represented matrimonial assets which could be shared. The judge awarded the wife £5.4 million on a clean break basis. The wife appealed to the Court of Appeal. They allowed the appeal and substituted an award for £8 million.
The Court of Appeal held:
1. For the purposes of sharing, it was appropriate to divide the matrimonial pot into matrimonial and non-matrimonial assets.
2. When considering the value of the company at the date of marriage the judge should have taken account of the latent potential or “springboard effect” as well as passive economic growth. This was not reflected in the £2 million valuation attributed by the judge in the County Court, a fairer valuation being £4 million when taking into account passive economic growth from the date of marriage to the date of sale. The Court of Appeal reiterated that the correct approach was to include as a matrimonial asset the increase in value of the company post separation from 2006 until 2007 when the company was sold because the increase in value was not attributable to any new venture. The judge had been wrong in ascribing a capital value to the earning capacity of the husband at the date of the marriage and in treating it as a non-matrimonial asset.
3. The value of the non-matrimonial assets was £9 million. The divisible matrimonial assets were £16 million. There was no reason to depart from equality and therefore a fair award to the wife was £8 million.
The above case therefore demonstrates the importance of timing for a spouse who owns a company in considering when to issue divorce proceedings. Clearly in the event that they anticipate at the time of separation a substantial increase in the company’s value over the following few years it may well be in their best interests to begin divorce proceedings without delay in view of the fact that the Court are likely to take into account any increase in value post separation.
