Cambridge Family Law Practice

A financial agreement made between a divorcing couple remained valid despite a large increase in the value of a company run by the husband, the Family Court has ruled.

The case concerned a ‘financial remedy consent order’ made back in 2007 between a wife, referred to as ‘XP’, and her ex-husband, company director ‘YP’. Such orders are made when parties divorce so as to finalise agreements concerning the division of their assets. They are so-called because each party ‘consents’ to the formal agreements set out within them.

XP claimed she was entitled to a share of funds generated by YP’s sale of his shares in a software company referred to by the Judge as ‘Company X plc’. Her claim was based on a statement within the consent order which stated she would be entitled to a share in the proceeds if XP ever sold his shares in the company: specifically, 25 per cent of the net proceeds if the shares were sold for less than £12 million, and 15 per cent if they sold for more than that amount.

The overall value of the company increased very significantly after the divorce, by a factor of around 100. When the couple separated, the estimated value of his shares was a little over £320,000. But, as the Judge explained:

“In the event, Company X’s assets were sold for cash and on or around 7 December 2022 … [YP] received £32,792,669.42 at the time.”

As a result, his ex-wife sought £5,219,041 plus interest. YP resisted her claim, arguing that she was not entitled to the payment because the company’s complete assets had been sold, not his specific allotment of shares. He also claimed that the payment she sought was not a fair one, because the huge increase in the value of the company amounted to “a significant change in circumstances.”

In the Judge’s estimation:

“Although proceedings were commenced promptly after the relevant events occurred, this is a stale case in the sense that memories have dimmed over the last 19 years and each party’s life has moved forward.”

But YP’s arguments failed to convince the Judge, who concluded that the wording of the consent order did entitle the wife to the funds claimed. He explained:

An increase in the turnover, profitability, and value of Company X was foreseen as [YP’s] own figures from 2005, 2007 and 2011 show. The scale of the growth may not have been foreseen, but the scale of the growth does not undermine the fundamental assumption underlying the final order which was that the applicant would receive a share of the capital receipts upon realisation. It is fair to say that the respondent’s circumstances have changed but for the better – he is now significantly wealthier than he ever anticipated. He has received the vast majority of the increase in the company’s value…”

Tricia Ashton, one of the partners here at Cambridge Family Practice, comments:

“The judgment tells us that this couple’s consent order was agreed without legal advice, and only later converted into a binding order by a solicitor. If the husband had sought legal advice at an earlier stage, the wording might have better reflected his intentions and resulted in an outcome more favourable to him.”

The full judgment is available here.