If you are separated from your spouse, but not officially divorced, or are divorced, but did not do anything with regards to your finances at the time, it is really important to know what your rights will be in the future.
The recent case of JB v MB  dealt with a situation just like this. The husband and wife in this case were married for approximately 10 years until they separated some 8.5 years ago, in late 2006/early 2007. They had two children, currently aged 16 and 13.
Having been separated for a number of years, the husband and wife divorced in 2011 however they did not deal with their financial assets at this stage but waiting until 2014 to begin proceedings to get their finances sorted.
The husband in this case was a systems analyst and before he married the wife, he set up a company which I shall refer to as Z Ltd, with two other shareholders. In 1995, before the marriage broke down, the company developed the first website on which users could purchase motor insurance in real time. When the couple separated in 2006/2007, the husband’s 70% shareholding was worth approximately £1.9 million (pre-tax).
The husband then went on to produce a specific product for the insurance industry which propelled the company to increase its turnover significantly from around 2010 onwards. By the time the husband and wife went to trial to deal with their finances the husbands shareholding was worth between £7.4 million and £8.5 million (net of tax), significantly more than it was worth when husband and wife separated.
The wife had worked as a PA when the parties met and by 1997 was earning £30,000 per annum. She stopped working when the parties’ eldest child was born and did not return to work until after the parties’ separation, when she started working as a school receptionist earning around about £1,000 per month.
The Deputy High Court Judge at the final hearing in this case, Nicholas Cusworth QC, had to decide whether the husbands shareholding in the company should be considered as a matrimonial asset, therefore allowing the wife to claim against it, or not.
The Judge decided that the husband’s shareholding had originally been a matrimonial asset, but due to the husband’s efforts in the company since separation which had effectively made it the success that it is today, he had added significant value since separation. The Judge decided that in delaying dealing with the finances, the husband had been able to use the wife’s interest in the husband’s shareholding in the company in order to trade with the full value of the shareholding. However, the increase in the value of this shareholding post-separation, was due to the husband’s endeavours and this should be reflected in any award which the wife received from the shareholding.
The Judge therefore awarded the wife 20% of the value of the shareholding in addition to her share in other matrimonial assets. This equated to just short of 25% of the total asset pot in this case. It was further decided that the value of 20% of the husband’s shareholding would be paid to the wife upon the company’s eventual sale.
Fiona Wilson of Child & Child who represented the husband in this case commented:
“If a spouse owns shares in a company, these will be treated as being a ‘matrimonial asset’ on divorce and this will still be the case even where the financial settlement takes place some years after separation. However, the extent of the non-shareholder spouse’s interest may reduce as time goes on especially if the shareholder takes active steps to increase the value of the company. The only way to terminate an interest is for there to be an order made on divorce. I would always recommend that parties take steps to deal with their financial issues as soon as they can after separation to avoid future difficulties.”
It is therefore important to consult a family solicitor when you separate to ensure you know what your current position is and what the risks are going forwards if you decide not to deal with your finances straight away. In most cases, your safest bet is to get your divorce and finances dealt with when you separate to reduce the risk of complications and potentially significant claims against you in the future.