One might imagine that dividing matrimonial assets on divorce involves simply calculating the total value of the assets and deciding how that total should be divided between the parties.
However, there can be a problem with such a simplistic approach. Not all assets are necessarily the same, and treating them as if they were could result in unfairness. Whilst the actual value of liquid assets can be quite easily determined, the value of illiquid assets can be quite uncertain, in terms of how much they might actually realise.
This difference in the nature of assets is recognised by the courts, as the recent judgment of Mr Justice Peel in the case BR v BR demonstrated.
Paradigm case for an equal division
The relevant facts in the case can be quickly stated.
The parties had started their life together with next to no assets. During a long marriage of nearly 30 years (including a period of cohabitation), their focus had been on raising a family and building a business, with each party making a full contribution. The assets they accumulated during the marriage were valued at a total of £263 million, of which £45 million were non-business assets, and £218 million were business assets.
As one would expect, it was common ground between the parties that both of their needs would be more than provided for.
In the circumstances, Mr Justice Peel stated that this was prima facie “a paradigm case for an equal division”, as both parties in principle accepted. It might therefore be expected that he would award each party one-half of the total assets.
But he did not. Instead, he awarded 55% of the assets to the husband and 45% to the wife.
The reason for this was the difference in the nature of the assets that he awarded to each party.
Risky and uncertain
Mr Justice Peel ordered that the husband should retain almost all of the business assets (as he was primarily responsible for the running of the businesses), but should pay a lump sum of £86 million to the wife. This resulted in the husband having assets worth £144,799,000 and the wife having assets worth £118,472,000.
Mr Justice Peel was satisfied that this was an appropriate division, in particular because in his judgement the business assets were risky and uncertain. They comprised trading companies with modest asset bases, there was only modest liquidity within the businesses, and they operated in a “highly volatile sector”.
On the other hand, the wife would be left with mainly liquid assets, which did not carry any such risks.
A fair outcome
This approach to liquid and illiquid assets is nothing new. On the contrary, as Mr Justice Peel stated in his judgment, it “is a well-trodden judicial path with many … examples”. Indeed, as he pointed out, in a 2017 case Mr Justice Bodey had said this: “It is a familiar approach to depart from equality of outcome where one party (usually the wife) is to receive cash, while the other party (usually the husband) is to retain the illiquid business assets with all the risks (and possible advantages) involved.”
And Mr Justice Peel himself said this:
“I reject the submission that because [the wife], as a spouse of decades standing, is entitled in principle to an equal share of assets, it is in some way discriminatory, or confiscatory, for her to receive less than half the assets by value. The function of the court is to achieve a fair outcome; fairness is not necessarily met by an equal share by value. The courts are alive to the type of asset, and the proposed structure. There are numerous reported cases where a discount from (say) 50% is justified by a carefully calibrated balancing exercise which reflects the different nature of certain categories of assets.”
In summary, whilst BR v BR may tell us nothing new, it does serve as a useful reminder that the courts are aware of the unfairness that can result when a settlement involves the distribution of assets of differing natures.