8 Jun 2005

Divorce is seldom an easy business, but the problems are compounded when there is a family business involved. The division of the spoils has traditionally been the subject of a great deal of argument, but recent cases have at least clarified the thinking of the highest judges in the land. The leading case, which was decided in the Lords, involved a Mr and Mrs White, who were farmers. The ruling established the principle that there has to be a good reason for the division of assets to be unequal.

Unequal splits of joint business assets can be proper in some circumstances. For example, in a case in which the husband’s business did not have sufficient liquidity (ability to generate cash) to finance an equal split, Mr Justice Coleridge awarded the wife a 39 per cent share of the total assets, which included the family home. Because of the financial circumstances of the business, the balance of her settlement was ordered to be paid over a period of years. The judge commented that the “…old taboos against selling the goose that lays the golden eggs have been largely laid to rest…but if it is necessary to sell her, it is essential that her egg-laying abilities are damaged as little as possible in the process.”

In a more recent case, a husband who argued that his ex-wife’s settlement should be reduced, because she had taken up with a new partner and had a luxurious lifestyle, failed in his attempt.

Splitting income shares is less predictable. In a case involving Premier League footballer Ray Parlour, the court went further, awarding Mrs Parlour a share of his substantial future income which was not based, as had been the norm, on her needs, but rather on her contribution to his earning capacity. She had 'straightened him out' when drink seemed likely to shorten his career. It has yet to be seen what effect this case will have in general terms.

The division of assets themselves is also once again in the melting pot, following the issue of  guidelines on divorce from the Law Society. Where there are no 'surplus assets', the courts will look first to the housing needs of the parent who looks after the children, with any additional assets being fairly apportioned by reference to the needs of each party and their ability to provide for their needs. However, in 'big money' cases, the courts will now apply a fairness test based on relative contributions to the family assets, including money brought into the marriage.