"But I owned the business long before I married you...!"

This is a long standing argument of, say, Husbands (for ease of this article) who own their own business and upon divorce, the business is added into the matrimonial pot in dividing up the assets. Is this fair? There is no straightforward answer but yes, in long standing marriages, the Wife's contribution would be seen as equal in the development and growth of the Husband's business and this, as an asset, would be considered in the overall matrimonial asset pot.

However, what if the business was established before the marriage?  What is the Wife's entitlement in that situation and how is her share quantified in a business which was in existence long before she ever met the Husband? 

This is a common scenario the Courts are often presented with and the recent case of Jones v Jones [2011] reached the Court of Appeal this year after the Husband appealed the decision in the first instance of Charles J.

Facts

The principal issue in dispute between the parties was as to how the Husband's company should be treated.  He had owned the company for 10 years before the parties married.  The parties had been married for 10 years.  One year after the parties separated, the Husband sold the company for £25 million.  Not your average case and not your average company. 

The wife relied on the sharing principle which the Court will adopt for the division of matrimonial assets and sought a lump sum of £10 million which equated to 40% of the net assets.  

The Husband applied a less simplistic formula and argued that the Wife should receive a lump sum which was equivalent to one half of the increase in value of the company from the date of the marriage through to value of the company at the date of separation.  However, the company was valued at £12 million at the date of separation and yet was sold one year later for £25 million!  The Husband's position was that the Wife should not benefit from any value of the company prior to the marriage or a share in the post separation increase. 

Appeal

The starting point for the Court was to look at total assets of £25 million and determine what amount reflected matrimonial assets and what reflected non-matrimonial assets.  The Judge did agree with the Husband's proposed formula for determining the share the Wife should receive and agreed that the value of the company at the date of the marriage, should be deducted from any sum the Wife should receive as it was a non-matrimonial aspect of the assets. 

• Despite the company being worth £2 million at the date of the marriage, the Judge started with a value of £4 million due to the potential of the company at the time of the marriage  and how this was attributable to the subsequent increase in the value.
• The value was then increased by 116% to take account of the increase in the FTSE index from the date of the marriage to the date of the sale of the company.
• This left a (rounded up) figure of £9 million.  This was the sum used by the Judge as the value of the company at the date of the marriage and was deducted from the total of £25 million.
• This therefore left matrimonial assets of £16 million for division.
• The Wife was awarded the sum of £8 million which represented 32% of the total net assets.

Whilst the above approach appears logical and resulted in a fair outcome for both parties, it is not the reality of most divorcing couples and unfortunately, most couples do not have assets of £25 million to argue over.  Does this case therefore really help the District Judges in the county courts dealing with the average kind of cases which simply do not involve the sort of sums the Joneses were dealing with?  In short, no. 

In your average case, the idea of the 'sharing' principle as applied by the Judge in the above case, can often be trumped by the 'needs' principle.  Sometimes in these cases, 'non-matrimonial' assets have to be invaded in order to meet the reasonable needs of the other party.  Although Mr Jones was able to keep £9 million out of the matrimonial pot before division, the average couple would not have sufficient assets in the first place to be afforded that luxury and it may just not be possible for the pre-marital value of a company to be excluded from the division in order to meet the parties' needs. 

If you wish to speak to someone regarding matrimonial difficulties, please contact our family department on 0124 574 244.