Is there a time limit for financial settlement after divorce?

Most people sort the money out when they divorce, but others – for whatever reason – don’t. This was a case involving a couple who had separated many years ago. Was there a time limit for the wife to seek financial settlement after divorce?

The financial settlement claim

Not long after they had separated, they had entered into an agreement which sought to provide a financial settlement for the wife’s claims. There was no court order, and it was questionable whether the agreement was final and whether the wife should be allowed now to pursue her financial claims against the husband. Was there an agreement? Should it be upheld? Should the wife get more?

The Judgment

In opening his judgment, Holman J made three observations:

1. He was delivering his judgment in open court – for all the world to see and hear;
2. Mr and Mrs Horohoe had each spent far too much on pursuing this litigation; and
3. During their six long days in court, the advocates and solicitors on each side had delivered a “masterclass” in how to present a case to court.

Background of the case

And it was quite some case, involving a rags-to-riches story of a penniless couple from Ireland who built a construction and property empire in London, who survived economic crashes, illness and adversity to become, in the end, keepers of combined wealth of over £14 million.

They had separated back in 2010, and for the most part had worked together to make their separation as painless as possible, both for themselves and their three children, whom they had continued to parent together.

They took advice from a trusted friend, Mr Cahill, who was a retired IFA, and by August 2012 he had drawn up for them a document which included schedules of their assets and how those assets were to be shared in order to achieve an equal division of cash. Various properties were to be shared between them; Ciaran Horohoe was to keep the two family companies, and Sharon Horohoe was to pay a lump sum to Ciaran and release her interest in the two companies to him.

Within Mr Cahill’s document, there was a statement to the effect that if either party disagreed with the property valuations referred to in the asset schedules, they were free to seek their own independent valuations. It was also said that the asset split proposed was still open for further discussion.

Neither party sought independent valuations, and there was no further discussion.

Very sensibly, Sharon took Mr Cahill’s document to a solicitor, who advised her not to enter into an agreement without first establishing the value and liquidity of the construction business. Not so sensibly, Sharon ignored that advice.

Over the next four years, Sharon and Ciaran pretty much completed the agreement by transferring properties into the sole name of one or the other and by Sharon signing over her interest in the business. She also paid him the agreed lump sum.

Holman J’s findings

Thus it was that Holman J found that Mr Cahill’s document, whilst not a final agreement when it was produced in 2012, had become final well before Sharon finally commenced divorce proceedings in March 2019 – nine years after separation.

Having found that the parties had concluded and substantially implemented an agreement, Holman J was required to decide to what extent they should be held to it. In today’s terms, Sharon had ended up with only 11% of their combined wealth. Was that fair?

Sharon wanted more – she wanted a whopping £5.5 million – which would have brought her share of the combined assets to 50% in today’s terms. Ciaran – startlingly – offered her nothing. (I say startlingly not because that was not an arguable position, but because the parties’ combined legal costs ran to £500,000 and he must have recognised at least the possibility that he would have to pay something. Why did he not, as implored by the wise judge, offer Sharon something – anything – to avoid what came to pass?)

In considering the extent to which the parties should be held to the agreement, the judge considered our old friends Radmacher v Granatino [2010] UKSC 42 and Edgar v Edgar [1980] 1 WLR 1410. On the whole, he concluded that the agreement was not vitiated by any of the factors with which we are all familiar. He also found that, save in one respect, the agreement was fair. As such, he said, the parties should be held to the agreement, save in that one respect.

The exception was the way in which Ciaran and Sharon had dealt with the business. The business in fact comprised two distinct companies. Originally, Ciaran and Sharon had been equal shareholders. Sharon had been the company secretary and had provided services to the companies in the early years. As part of the agreement, Sharon transferred her shares to Ciaran, and resigned as company secretary. They both believed at that time that neither company had a value. The value, said Ciaran, was simply him. If he walked away, there would be nothing. (How often have we heard that? Only, in this case, everyone believed it to be true.)

Now, you will remember that at the time of the agreement, Sharon was advised to get this checked out. Interestingly, Holman J found that her failure to do so was not in fact a failure. In her mind, she had checked it out. She had relied on Ciaran, whom she trusted. Ciaran himself had honestly believed what he told her.

As such, Holman J found that they had made a common mistake, and in his view, that mistake vitiated the relevant part of the agreement.

The judge then had the unenviable task of deciding what the companies were worth back in 2012, when the agreement was reached. His judgment in relation to that thorny issue is itself a masterclass in pragmatism and clarity. He unravelled an inter-company loan, grappled with the question of diversification following the 2008 recession and knocked out a load of potential tax. In the end, perfectly cogently, he valued the two companies at £1.5 million, and for those of us less numerate than himself, he helpfully shared with us that half of £1.5 million is £750,000. Ta-dah!

I can imagine the groans on Sharon’s side of the courtroom at that point. She’d wanted £5.5 million, not a measly £750,000! But worse was to come!

The judge knew that in 2012 it was important to Sharon to retain assets which were more secure; ie property. It suited her for Ciaran to take the company shares. She thought they were worthless, but even if she thought they had a value, she would have known that the value was volatile and unpredictable.

The judge was clearly impressed by Ciaran, who had worked hard for many years and in difficult economic conditions to make a success of his business. It was as a result of his endeavour, as well as improved economic conditions, the judge said, that the shares had since greatly increased in value.

For that reason, Sharon’s share of the 2012 valuation should be discounted by one-third to only £500,000. He indexed it by reference to the RPI, which added another £100,000, but still, Sharon must have been fainting in the aisle by then, remembering the amount of legal costs she had incurred. (Actually, I’m sure that Sharon is made of sterner stuff, but must at least have been haunted by a sense of anti-climax.)

As a side-issue, I found the judge’s choice of index interesting. These days we are more accustomed to indexing by reference to the CPI, which is not so generous. I was also interested in the one-third discount. The judge didn’t provide any basis for that discount, any authority or any reason. A perfect example of judicial discretion.

Ciaran was required by the judge to pay a lump sum of £600,000 to Sharon (or to transfer property to her with an equivalent net value), bringing Sharon’s share of the net assets to a less than princely 16% in today’s terms.

What are the lessons to be drawn from this judgment on financial settlements?

Here are my thoughts:

• Parties must always, always seek – and, importantly – take expert legal advice when thinking about entering into a financial settlement on divorce;
• Any agreement should be incorporated into a final order, thus providing certainty for the future and protection for the economically stronger party against future claims;
• If the parties make a common mistake about the value of an asset, that may undermine the relevant part of an otherwise impregnable agreement, and it thus important to get expert valuation advice, regardless of how much the parties may trust each other;
• The court will uphold an agreement in the terms envisaged by the decision in Radmacher (as later embodied in the Law Commission in its final report on the Matrimonial Property, Needs and Agreements Project (Law Com no 343), even where proper disclosure hasn’t taken place and the parties are, in effect, ignorant as to the true value of their assets (although the agreement may not be upheld in full);
• Where there is a common mistake as to the value of assets, it may nonetheless be fair for one of the parties, after a long marriage to which they have each contributed to the full (and where delay is present) to receive as little as 16% of the overall assets – remember, an agreement will only be upheld if it is “fair”;
• If the payee finds herself questioning the wisdom of her decision, she shouldn’t leave it for 9 years or whatever it was. The quicker she can get her award, the more chance she might have of persuading the court that the agreement wasn’t final, or that it is completely vitiated, or that her award should be based on current, rather than historic, figures;
• Importantly, the payee should not expect to benefit from growth to which she has made no direct or indirect contribution, particularly, it seems, when the payer has impressed the judge with his sheer hard slog.

There are no doubt others.

What did Ciaran and Sharon make of the financial settlement outcome?

I have already alluded to the slight whiff of disappointment which Sharon may have emitted. From her £600,000, she is going to have to pay her solicitors about £250,000, leaving her with – after a gruelling 6 days in court and years of stressful litigation – £350,000. A nice sum of money, but so very much less than she had hoped for. Was it enough to make it all worthwhile?

Ciaran will also have to pay costs of about £250,000, plus the £600,000 award. It could have been so much worse for him. For example, at no point did the judge suggest that there should be anything other than an award based on asset values from 2012. If the judge had based his award on current values, Sharon might have got what she wanted, and there was no guarantee that she wouldn’t. So overall it was a good result for Ciaran, but I’m certain that he would have preferred to pay nothing. He too may have ‘tutted’ at the result.

So, a masterclass presented by both the judge and the lawyers, and a mistake by the parties, leading to disappointment on both sides, and mainly just the lawyers enriched by the experience.

Should you wish to discuss any financial settlement issues, please do get in touch with Rachel Osgood, or any other member of our Family team and we will be delighted to help.