It is a common scenario that one of the main assets of a marriage is a business that was acquired or established by one of the parties prior to the marriage. When the marriage breaks down the court will often order that the value of the business that accumulated during the marriage should be shared between the parties. Accordingly, the court must decide two matters in relation to the business: how much is it worth, and what proportion of that sum accumulated prior to the marriage?
These were the central questions in the recent Court of Appeal case Martin v Martin.
Now, there is an awful lot going on in Martin v Martin (as is often the case in big money financial remedy cases, especially when they are concerned with business assets), and I am just going to scratch the surface here. If you want all the detail, you can read the full judgment, all 147 paragraphs of it, at the link below. I’m just going to concentrate on those two central questions, dealing with them as simply (and hopefully understandably!) as I can. I have also taken some small liberties with the case, for the sake of clarity.
Extremely briefly, the relevant facts in the case were that the husband started the business in 1978, the parties began living together in 1986, were married in 1989, separated in 2015, and divorce proceedings ensued. (I told you it would be brief!)
In 2017 the wife’s financial remedies application was determined by Mr Justice Mostyn. He awarded the wife a half share of the marital wealth, which included the value of the husband’s company (and other assets), less its value as at the date the parties started living together.
To value the company, Mr Justice Mostyn used its net value, which he considered was equivalent to cash, as “the only difference between it (i.e. the company) and its cash proceeds is … the sound of the auctioneer’s hammer”. In other words, the value of the company was “the estimate of what it will sell for now”.
To determine the value of the company as at the date that the parties began cohabiting Mr Justice Mostyn applied a ‘straight line apportionment’ to the present value of the company, from the date that it was first incorporated in 1978 to the date of the hearing. To understand this, I refer the reader to paragraph 19 of Mr Justice Mostyn’s judgment (which you can find here), which sets out the method in graphical form.
The wife appealed against the decision, to the Court of Appeal, and the husband cross-appealed. Both appeals were in relation to how Mr Justice Mostyn had approached those two central questions in relation to the company. The wife argued that he was wrong to use a straight line apportionment, and the husband argued that he had wrongly treated the value he ascribed to the company as equivalent to cash and, as a result, had awarded the wife an unfair proportion of the ‘non-risk’ assets.
The leading judgment of the Court of Appeal was given by Lord Justice Moylan.
As to the question of the valuation of the company, he found that the husband had not shown that Mr Justice Mostyn’s factual determination of the value of the company was wrong. However, Mr Justice Mostyn was wrong when he said that the “only difference between [the company] and its cash proceeds is … the sound of the auctioneer’s hammer”. As a result of this conclusion Mr Justice Mostyn failed to consider whether his proposed award achieved “a fair division of both the copper-bottomed assets and the illiquid and risk laden assets”. There was no evidence that the sum awarded to the wife could be extracted from the company within the timescale that Mr Justice Mostyn envisaged. Lord Justice Moylan therefore increased the period for the payment of that sum, from one year to four years.
As to the question of the value of the company as at the date that the parties began to cohabit, Lord Justice Moylan found that Mr Justice Mostyn was entitled to adopt the straight line apportionment approach. That approach may be ‘broad brush’, but it saved the time and expense of getting an accountancy valuation. He also found that it “resonates with fairness”, because it “takes an overarching view of the weight to be attributed to the husband’s contributions to the business throughout its existence.”
Accordingly, Lord Justice Moylan dismissed the wife’s appeal, and only allowed the husband’s appeal to the extent set out above.
Lords Justices Coulson and Simon gave concurring judgments.
If you wish to, you can read the full Court of Appeal judgment here.
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Author: John Bolch