Special contribution of a spouse

Special contribution of a spouse in the context of the growth of business value

Background

In a divorce matter XW v XH (2017) EWFC 76, the Judge decided that *special contribution* is one of the reasons for departing from the equal sharing of assets.

XW and XH were married in October 2008.  At the time of the marriage, the husband was employed and owned shares in a company that is best known for owning a very well-known product.  The marriage lasted for six years and 10 months.

At the start of the marriage, the husband asserts that the company was worth about E416 million, however during the course of the marriage, the company’s value increased substantially and the husband sold his shares for US$540 million in 2016.

Given the substantial increase in the company’s value during the course of the marriage, the Court were to decide among other things (1) if the wife was entitled to share in the value of the husband’s company shares, the calculation of that share should reflect the latent potential in the value of the husband’s share at the date of his marriage, and (2) whether there was any *special contribution* by the husband.

To assist the Court, a valuation expect was appointed to provide an opinion on the value the company.

Judgement

“…..I am satisfied that there was a latent potential in the company not reflected in the conventional valuation conducted by Mr Kay.  The ultimate phenomenal success of the company was due in part to developments and decisions taken in the business during the marriage, but it was also attributable to developments and decisions taken before the marriage – the creation of the company, the putting together of the team, the earlier activities of the company in its fiend, including the original product models, and the development of a marketing strategy.  Mr Kay thought that this was not a significant factor in determing the value of the company at the marriage because the subsequent growth in the business did not occur for several years after the marriage.  In my judgment, however, the latent potential was there at all material times – it just remained latent for rather longer until the opportunities arose.

….My assessment is that there was a significant, though unquantifiable, latent potential in the company at the date of the marriage which is not reflected in the formal valuation……

….the husband’s contribution to the growth in the value of the business assets during the marriage comes with the concept of special contribution.  The growth in the value of the company, and therefore of the husband’s shareholding, was due in part to the latent potential that existed at the date of the marriage, but it was also due to developments during the marriage…..I do consider that the husband’s contribution to the business during the marriage was a quality which can be properly be described as special…..

The Judge ruled to award the wife a lump sum equivalent to 25% of the difference between the husband’s share of the proceeds of sale of the company in 2018 and the value of the husband’s share at the date of the marriage as assessed by the Single Joint Expert, but increased to take account of passive growth applying the MSCI World share index as proposed by the wife.

Resource: PwC