Is This The Death Knell For “Special” Contributions?: XW v XH [2019] EWCA Civ 2262.

In the case of XW v XH [2019] EWCA Civ 2262 the Court of Appeal overturned a decision made by Baker J (as he then was) in 2017 that the husband (H) should retain the majority of the financial resources partly due to his “special contribution” in a case where H was a ‘breadwinner’ and the wife (W) a ‘homemaker’. W was awarded approximately £152 million, being roughly 29% of the parties’ combined capital resources of £530 million.

 Background

The parties married in 2008 and separated in 2015. At the date of the Judgment, H was aged 50 and W was 48.   They have one child together, a son, who has a rare, life-threatening genetic condition and significant disabilities.   The vast majority of his care was undertaken by W.   H was the CEO of a company that he had set up with others some years before the marriage. It was during the course of the marriage that this company became hugely successful. When it was sold in 2015/16, H received approximately £370m from the sale of his shares. Due to investments and exchange rate changes, by the time of the final hearing before Baker J, the funds were worth some £500m gross, or £490m net of tax.   W was working as an artist at the time that the parties met. She was from a very wealthy family, and was found to have received substantial support from her mother both before and during the marriage, as well as benefitting from trust funds. In all, Baker J found that W had net assets of just under £34m.

Finally, the parties jointly owned a property valued at £3.7m net.

The First Instance Hearing

W’s case at first instance was that she should be awarded a sum equal to half the marital property which included (and almost entirely comprised) the increase in the value of H’s shares in the company since the marriage.   H argued that W’s case was a needs case and submitted that she was not entitled to a share of the wealth for a number of reasons, including:

  • When the parties married in Italy, they had signed a deed of marriage which elected ‘the regime of separation of assets’ rather than community of property – further, they had maintained a separation of assets throughout the marriage;
  • The shares in the company should be considered to constitute non-matrimonial property because they had existed and been owned by H before the marriage;
  • H’s exceptional business acumen should be considered to be a special contribution;
  • The relatively short length of the marriage should reduce the scale of W’s claim; and
  • W already had her own resources.

Despite rejecting H’s argument that the shares were unilateral assets, Baker J concluded that the fact that the wealth was generated almost entirely by H’s business activities could not be ignored entirely. He said while it would be wrong to exclude these assets from sharing entirely, the nature and source of the assets could be considered in deciding how they should be shared and this despite referring to W’s contribution to the family as “incalculable”.

The Appeal

W appealed to the Court of Appeal on the following grounds:

  • that any principle that the manner in which the parties managed their financial affairs might impact on the division of the marital wealth had no application to this case;
  • that H’s “business assets” created during the marriage were marital property which should have been shared equally between the parties;
  • that the Judge was wrong to find that the company had latent potential;
  • that the Judge was wrong to find that H had made a special contribution, in particular because he only considered H’s financial contribution and did not balance this with W’s contribution or consider the disparity in the parties’ respective contributions when determining this issue;
  • that the Judge failed to quantify how each of the above factors, in particular latent potential and special contribution, impacted on his award;
  • that the Judge’s decision in respect of restricted stock units (RSUs) and stock options was flawed and he should have awarded W a share of these when received by H.

The Court of Appeal’s Decision 

The Court of Appeal, having assessed the first instance Judgment, determined that the Judge was wrong to conclude that H’s contribution fell within the concept of a special contribution and therefore to order a departure from equal division. Regarding the issue of special contribution Moylan LJ referred to the case of Gray v Work [2017] EWCA Civ 270, and decided that Baker J had failed to consider whether there was such a disparity in the parties’ respective contributions to the welfare of the family that it would be inequitable to disregard. This was the clear test from Gray v Work and it had not been applied. As a consequence, Baker J’s finding in this respect was set aside.  The Court of Appeal could not see how a proper application of the legal principles could lead other than to a determination that there was not such a disparity in the parties’ respective contributions that it would be inequitable to disregard them when deciding what award to make. Although H’s contributions had clearly been very significant, the necessary disparity was not present in this case. There was no balancing by Baker J of the parties’ contributions.   Moylan LJ did offer some further guidance on special contribution, stating at [122] that in his view, ‘the search for an analysis of whether a special contribution is established should be undertaken through a relatively general, or broad, assessment of the evidence.’

On the other grounds of appeal the court held that Baker J was wrong to decide that the fact that the “assets which grew so substantially during the marriage were the husband’s business assets”, was relevant to the division of that wealth between the parties. In so far as they were the product of endeavour during the marriage they were marital assets which should be shared equally between the parties absent other factors.

Regarding latent potential, Moylan LJ held that Baker J had been entitled to find that part of the proceeds of sale of the shares was non-marital property to which the sharing principle did not apply.    He had also been entitled to determine what proportion was not marital property other than by applying the expert’s valuation increased by indexation. It was open to him to undertake ‘a broad evidential assessment’ and to conclude that there was significant value not reflected in the formal valuation.

The appeal was therefore allowed and the Court of Appeal went on to substitute its own decision. As to the marital property question, the Court of Appeal undertook the broad assessment required and applied Baker J’s determination that the ultimate success of the company was attributable to ‘a not inconsiderable extent’ to its pre-marriage ‘foundations’ and that they remained a ‘significant’ factor.    The Court of Appeal concluded it was fair to treat 60% of the wealth derived from the shares as matrimonial property (£293 million) and 40% as non-matrimonial (£195 million).   This led to W receiving a lump sum of £145 million (in place of Baker J’s £115 million) and the jointly owned property worth £3.7 million. This then gave W 34.5% of the parties’ combined wealth and left H with 65.5%, as opposed to the 28.75% to 71.25% that had been originally ordered by Baker J.

Significance of the decision 

The Court’s decision in this case is one that is said to be a landmark judgment for sex equality in divorce.   The breadwinner v homemaker debate will no doubt continue, but, for now, this case reaffirms that domestic roles in a marriage are not overlooked in financial claims on divorce and a financial contribution to a marriage is not any more significant than a domestic contribution.