When a couple divorce and separate their finances at least one party wants what is known as a “Clean Break”.
A clean break order is a settlement which ends the financial ties between spouses. It ensures that all claims which arise because the parties married and which either party may have against each other are dismissed. These claims are for capital income, pension sharing and those under the Inheritance Act. A clean break order gives both the husband and wife financial freedom moving forward and prevents any further claims being brought by one or the other party.
In the case of Waggot in 2018 the husband appealed the making of a joint lives’ maintenance order (an order which made him pay spousal maintenance to his ex-wife until he or she died, unless she remarried) on the basis that the judge did not put enough weight on the clean break principle. This appeal was allowed and a term was put on the ex-wife’s award for spousal maintenance to expire on 1 March 2021 and the wife was also prevented from applying to extend the term. Ultimately the court decided that it was not correct for future earnings to be shared following divorce.
In the recent case of CG v DL 2023 the court ordered the ex- wife to have a percentage share of the ex- husband’s future profits in the hedge fund he established. It should be noted that the parties were married for 27 years and the hedge fund was established during the marriage and was funded with the couples savings, but the money was invested in the hedge fund solely in the ex- husband’s name giving him a 62.5% share in the hedge fund. The working capital of this hedge fund was worth millions. This represented most of the matrimonial assets bar the two properties owned by the parties.
The ex-wife argued that she should have a 25% lump sum of the hedge fund on the basis that it was established as a marital venture. Experts valued the hedge fund and concluded that it would be unlikely that a third party would purchase it, so their valuation was a capitalisation of the ex- husbands predicted future profit share. The court determined that it could not place a value on the hedge fund as it would be a guessing exercise, but the historic earnings from it evidenced that the ex-husband would receive a substantial return throughout the rest of his working life.
It was determined that the hedge fund could be shared, even though a value could not be placed on it as it would be unfair for the ex-wife to receive nothing considering it was set up years before the parties separated (it was set up in 2017 and the parties separated in 2020).
The ex- wife was awarded 17.5% of the ex- husband’s profit share, but like the Waggot appeal this was limited to a term of 4 years. The time limit was put in place to account for the fact that as time passed the ex- husband’s profit share would decrease in being identified as matrimonial. Therefore, the awarded percentage and period fairly reflected the initial marital venture. This allowed a clean break to take place in due course.
Whether or not a clean break can be achieved always depends on the specific facts of the case and one party is often more likely to want to achieve this than the other. Early settlement, advice and a focus on whether this can in reality be achieved is often helpful.
Pinney Talfourd’s family law team are ranked Tier 1 in 2023 by Legal 500 and offer expert advice on post-divorce finances. If you have any queries, please contact a member of our family team to book a free initial consultation.
The above is meant to be only advice and is correct as of the time of posting. This article was written by Shevonne Weir, Solicitor in the Family team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2023.