Tycoon’s divorce battle a warning to business owners, says Mace & Jones

Published: 4th April 2006

Mace & Jones, an official adviser to small business lobby group the Forum of Private Business (FPB), said the divorce case of insurance multi millionaire John Charman will set an important precedent for business owners. Charman and his wife are currently thrashing out a settlement deal contesting his fortune worth an estimated £160m. (see notes to editors)

Mace & Jones family law adviser Ros Bever said divorce settlements are increasingly giving big pay outs to estranged spouses of business owners, and that it is difficult to prevent all assets including business assets and trust funds from being taken into account.

"The blunt truth is that a spouse may have never even set foot in their partner's business, but if a marriage breaks down they could still claim against the firm's assets or even force its sale," she said. "For this reason it really is imperative that business owners pay close attention to the outcome of recent cases, including the Charman appeal and ensure they take advice to protect their business."

Ms Bever said the bad news for business owners is that recent legal cases have shown that it is increasingly difficult to ring-fence or conceal assets.

"The divorce courts are a lottery, and when businesses are involved the stakes are higher and the odds even harder to call,' she said. "The final settlement depends on a series of factors, including the length of the marriage, the contribution to the business, the presence of children, future case law and the whim of a judge.

"However the starting point is that there must be a fair division of the assets, including the business, whether your spouse has ever worked in the business or not. A fair division may mean an equal split of the assets, but that is not set in stone: it could even mean more than half. In some cases, there aren't sufficient assets, apart from the business, to satisfy a spouse's claims and it is in these cases that the business is particularly vulnerable."

Ms Bever said businesses should think about the possibility of entering into a pre-nuptial agreement before marriage, or a post-nuptial settlement if they are married.

Businesses wanting to know more about protecting themselves from divorce can email Ros Bever at ros.bever@maceandjones.co.uk or visit www.maceandjones.co.uk

Notes to editors

Divorce Background

Charman case

John Charman is responsible for setting up Axis Capital with offices in London, Dublin and New York, and now lives in Bermuda. Mr Charman tried to strike a deal with his wife, following their separation in 2003, when he was number 263 on the Sunday Times' Rich List, by offering to pay her a large capital sum without the court's intervention. On advice however, his wife was determined to ascertain the full extent of his assets, including assets invested in a Bermuda-based trust fund, which she regarded as a sham, designed to reduce the court's perception of his overall wealth. Mr Justice Coleridge ordered the disclosure of documentation and information relating to the fund. Mr Charman argued that the trust fund was established with the specific intention of providing for future generationsThe case is ongoing Mr Charman appealed the decision of Mr Justice Coleridge, alleging that his wife was on a "fishing expedition", but the Court of Appeal dismissed his appeal, in December. The final outcome of the Charman case is awaited.

Previous landmark cases

Entrepreneur Harry Lambert built up family wealth worth £20.2m from his freesheet newspaper business Adscene. When he split from his wife Shan Elizabeth after 23 years of marriage she claimed half of those assets, even though Harry was the driving force behind the business.

In October 2001 a judge ruled that she should receive 37%, totalling a cool £7.5m. But a year later the Court of Appeal overturned this and ordered a straight split down the middle, declaring it was intrinsically wrong to view the breadwinner as making a greater contribution than the homemaker, because she may have sacrificed their own career.

Nevertheless, the case of Sorrell seems to suggest that the "special contribution" argument is not dead, and this judgment stands as a landmark in a landscape of recent judicial decisions which have been perceived as "wife biased".

The fortune amassed in the Sorrell case was considerable: circa £100 million gross. It was a long marriage lasting in excess of 32 years, with three children. The parties had assumed traditional roles, the wife as homemaker and the husband as breadwinner. He was the founder of the highly successful advertising agency WPP. Despite the finding that the wife has 'done all she could be expected of her', the Court refused to award her fifty per cent as she had requested, and chose to award her forty per cent, accepting the husband's argument that his contributions had been 'stellar'

Divorce Factfile

Every year tens of thousands of married couples split, according to the Office of National Statistics. There are now more than 5m divorced people in the UK, the highest number in Europe. Four out of 10 married couples will eventually part.

250,000 couples get married each year but as people marry later, the average age for divorce has crept up to 42 years for men and 39 years for women - with their marriages lasting an average 11 years. Advisory service Relate says long working hours are a growing source of marital discord, which is bad news for hard-working entrepreneurs.

Around seven out of 10 divorces are among first-time couples, but this percentage is falling as the number of second and third marriages grows. If you have been previously divorced, it is more likely any future marriage will fail. Marrying young also makes divorce more likely.

One in six people now move in with their partner rather than marry. The average couple cohabits for just over three years, with six out of 10 then getting married. People who live together are nine times more likely to break up than married couples.