Family Businesses and divorce

A recent case demonstrates how intermingling business arrangements within families can create a further layer of difficulty when marriages breakdown and emotions run high.

The case of Mr and Mrs M ( M v M [2020] EWFC 41) underlines the dire consequences of losing perspective, sense and reason when litigating family disputes.

After 13 Face to Face Hearings, the financial disputes between Mr and Mrs M were determined by Mr Robert Peel QC on 6 May 2020 following a 5 day Remote Final Hearing in the High Court

Mr and Mrs M were married for almost 22 years; they are both in their early 50s and have 3 children - the youngest being 14. During the marriage they lived a comfortable lifestyle; living in a 5 bedroomed property in London, enjoying regular holidays, eating out frequently and their children attended private school. Throughout the marriage their lifestyle had been subsidised by the Wife's parents who paid the majority of the children's school fees.

The family finances were intertwined with the Wife's family's businesses - the Wife's parents had set up two Companies and they had gifted the Wife shareholdings in those businesses. At the time of separation (June 2018), the Husband was employed as Managing Director of one of the Companies - having worked for the family business since 2005.

The Husband resigned as Managing Director towards the end of July 2018 and in the October of that year, he was accused by the Wife and her family of alleged financial misfeasance whilst running the Family Company - this lead to his arrest. By the time of the Final Hearing in May 2020, the Husband still had not been charged with any offence.

It is easy to surmise that there was heightened emotion and anxiety for everyone involved when the marital problems arose - the Wife, the Husband, the Children, the Wife's parents, the Wife's brother were all financially and emotionally affected by the separation.

By the time the Final Hearing began on 1 May 2020, the Wife had spent and owed £214,830 in legal fees whilst the Husband had spent and owed £251,000. The eye watering level of costs in this case underlines the extent of the disputes that were being raised and the level of anger brimming below the surface. After dismissing the Husband's arguments in relation to the Wife's jewellery and car registration plate; the Judge concluded that the only substantial liquid asset was the proceeds of sale of the matrimonial home (£630,500).

Both parties raised arguments about additional loans/debts that they owed members of their families - the Wife indicating that in addition to her legal fees she owed her brother £155,000 and her father £50,000 - the Husband indicating that he had credit card debts of £122,000 that related to family expenditure and he owed £46,000 to his sister and brother in law. The Judge accepted that the Husband's credit card debt and £33,000 of the monies owed to the Wife's brother were relevant debts.

In relation to illiquid assets the Husband had pension provision worth just over £500,000 from which he could access £125,000 as a tax free lump sum in October 2021; the Wife had pensions worth £229,000; her minority shareholdings in the family businesses were valued at £319,848 and it was determined that she was also owed £11,000 by one of the Companies.

By May 2020 the Husband was working at a Plumbing and Heating Company earning £32,000 per annum and the Wife was earning £36,500 per annum from one of family businesses.

Ultimately the Judge ordered that the Wife's brother should receive repayment of £33,000 from the proceeds of sale of the matrimonial home before the balance (£597,500) was divided £377,000 to the Husband and £220,500 to the Wife.

After payment of their legal fees the Wife would be left with £5,368 and the Husband would have £5,423. A Clean Break was also ordered so the Wife retained approximately £200,000 more in illiquid assets than the Husband.

Both parties raised costs arguments against the other with the Judge concluding that the Husband was more blameworthy given the number of applications and appeals he had made and he was therefore ordered to pay £15,000 as a cost contribution to the Wife. Coincidentally £15,000 was equivalent to an amount that the Wife was likely to be assessed to pay the Husband in relation to the costs of an appeal hearing that had taken place in January 2020.

Putting to one side the level of costs in this case in comparison to the asset values, an interesting aspect of the Judgment is the assessment of whether wider family resources that might be available to either party should be taken into account. Increasingly this is an argument raised in many cases where the parties themselves do not have assets/income to sustain their standard of living and throughout the marriage financial support has been provided by the wider family.

In this case the Judge concluded that despite all the support that had been provided to the Wife and the family throughout the marriage there should be no "judicial encouragement" placed on the Wife's family to provide monies to the Wife going forwards in order to justify a greater share of the "matrimonial" assets being awarded to the Husband. One wonders whether the Judge might have taken a different view if the Husband had not lost perspective and conducted the litigation as he did; but then it is also hard to say how any of us may react to being arrested for financial misconduct. Being able to separate family and business issues when they have been intermingled for 20 years is a big ask and devastating from an emotional and a costs perspective for everyone involved.

The Husband will probably feel the most aggrieved because unless his financial circumstances unexpectedly improve he will need to service his credit card debts for another year before drawing his tax free lump sum from his pension to repay those debts. It is questionable whether he will then be able to buy a very modest home for himself. In comparison whilst the Judge considered it more than likely that the Wife's family would choose to assist her to purchase a property, he concluded that there was no obligation on the Wife's family to do so.

Is this fair? The Judge considered it was and he proceeded to apportion the marital assets between the parties on a roughly equal basis.

Might there have been a way to protect the parties from this mammoth litigation nightmare? Pre-nuptial and Post- nuptial Agreements may have helped to limit the arguments and therefore the level of costs. A Family Council/Constitution that addressed the consequence of the "4 Ds" - divorce, death, disability and debt on the Family Companies and all members of the wider Family may also have been useful.

Unfortunately the litigation between the Husband and Wife is not completely concluded - the Husband has not seen the parties' youngest child since August 2019 and there are ongoing Children Act proceedings. How hard must it be for the children to navigate their way through this minefield involving every member of their close and extended family? If both parents are now able to take the opportunity to stop and reflect - they may still be able to find a way forward for themselves, their children and future grandchildren.

Our team of family law solicitors are sensitive to your concerns and are here to provide you with clear, practical advice to help resolve your family disputes . We offer guidance in a number of areas including divorce and separation advice, children and parenting arrangements & financial issues. Call us now if you need any advice or assistance.

Sheridan Ball, Partner (01482 337361)

Karen Myles, Associate (01904 688507)

Alison Benson, Associate (01482 337363)

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.