Divorce law meets business law

We don’t tend to cover family law in this newsletter. However, sometimes a case comes along which, although it has its roots in family law, is of interest to the business community. The recent case of Martin -v- Martin [2018] EWCA Civ 2866 concerned how to value the pre-marital elements of a business.

The husband started his business in 1978. He met his future wife in 1985, they moved in together in 1986, married in 1989 and, separated in 2015. During that time, the business went from strength to strength and was given a current day value of £221 million.

The issue was how the business should be valued in 1986 when the couple commenced cohabitation as the pre-marital value would be excluded from the calculation of the value of the marital assets.

Previous case law is conflicting. In Jones -v- Jones [2011] EWCA Civ 41 the Court adopted a “springboard” approach. The Court refused to accept the expert’s pre-marital valuation of £2m on the basis that it did not take into account the latent potential or springboard effect. The Court held £9m to be a fair value of the non-marital portion of the business. In Robertson -v Robertson [2016} EWHC 613 (Fam) the Jones’ approach would have given a pre-marital value of the husband’s shares in ASOS at £4.8m which was only 2% of the current value ASOS. The judge exercised his “broad judicial discretion” to increase the pre-marital value of the husband’s shares to 50% of their current value.

In Martin, the expert pre-marital valuation of the business was £1.5 to £3m using a mathematical approach. This was rejected and a “straight line apportionment” approach adopted instead. The marital relationship had lasted for approximately 80% of the time the business had been in existence. As such, a pre-marital valuation of 20% was appropriate, reflecting the time the business had been in existence for before the marital relationship. The pre-marital valuation was given as £44m and that sum was excluded from the “matrimonial pot”. The wife was awarded 50% of the matrimonial pot. 

Comment

The Court made it clear that the straight line apportionment approach in this case was not a hard and fast rule for establishing the pre-marital valuation of a business. The Court will decide on the fairest approach and will take into account matters such as the time and cost in producing speculative business valuations.