Posted: 22/04/2015
In English law, the principle that a couple's contribution to a marriage should be regarded as equal, regardless of their relative financial input, is well established. In a small number of cases, however, the breadwinner has successfully argued that they made such an exceptional contribution that they should be awarded a greater share of the pot. The recent High Court case of Gray v Work provides further guidance on when the court will consider an individual’s contribution to be so ‘exceptional’ that their efforts should trump equality.
The case also serves as a cautionary tale to those who enter into a post-nuptial agreement as a wealth management tool, rather than a genuine attempt to deal with the division of wealth following the breakdown of a marriage.
The couple, both US citizens, met in their twenties and had modest earnings and very little capital between them. The husband, having completed an MBA, and, very much supported by his wife, found employment in 1997 with a global private equity firm.
After a brief stint at the firm’s headquarters in Texas, the husband and family relocated to Japan to set up the firm’s new outpost. Taking advantage of the depressed Japanese market, and as a result of being 'in the right place at the right time' (in the court’s opinion), the husband was hugely successful, both personally and on behalf of the company. In a mere eight years, the husband amassed a $300 million personal fortune before exiting the business and relocating the family to London in 2007. Following a near 20 year marriage, the relationship broke down in 2013.
The High Court had to decide the wife’s financial remedy application and, in particular, make a decision as to whether the post-nuptial agreement entered into by the parties in October 2000 was binding. If the agreement was not binding, the court also needed to consider if the husband’s contribution to the family was so special that the financial settlement should depart from the starting point of equality.
Both parties had relocated to Japan by 1998. In 2000, despite having no remaining connection to Texas, the parties entered into a post-nuptial agreement prepared by Texan lawyers. The husband’s wealth at the time of entering into the agreement was in the region of $5 million. The agreement was divided into two separate parts; part 1 'the agreement' and part 2 'the addendum'. Part 1 restricted the wife’s claims for financial relief. Part 2 offered a far wider range of remedies.
The wife successfully argued that the structure of the post-nuptial agreement was for tax purposes only. Part 1 of the agreement sufficiently separated the parties’ property so that the husband could renounce his US citizenship, and ensure that any ties which may link him to the US tax regime were severed. The addendum, on the other hand, contained detailed provisions for the wife in the event of a divorce. Under the terms of the addendum, the wife would be entitled to 50% of the first $10 million of the husband’s net worth after tax, the total sum payable (TSP). By the addendum, the wife was also free not to accept the TSP and 'freely seek' alternatives.
The court concluded that the wife would not have entered into the post-nuptial agreement without the protection offered by the addendum. On consideration of the guiding principles contained in Radmacher v Granatino, the court also concluded that if the post-nuptial agreement was to restrict the wife’s claim in the way set out in Part 1, then the wife did not have a 'full appreciation of [its] implication' and the clear effect of the agreement was that it would not be fair to hold the parties to their agreement.
In light of the above, the court held that no weight should be given to the post-nuptial agreement. The court exercised its discretion and awarded the wife one half of all the assets; with the first $60 million lump sum being paid within 28 days of the date of the judgment.
The case continues the precedent which has now become well established. A party’s contribution must be so wholly exceptional that it would be inconsistent with the principle of fairness for it to be ignored. The court has ruled that exceptional remuneration alone is not a sign of exceptional contribution. In this instance, the court concluded that while the husband’s earnings were impressive, they were as the result of employment (rather than exceptional entrepreneurship) and were equally matched by the wife’s contribution, raising a young family in a socially and culturally different environment in the Far East.
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