GA v EL: Divorce Delays and Million-Pound Questions

After perhaps years of bashing heads with a spouse, struggling to make a marriage work, or even being too afraid to press the ‘Go’ button on divorce, when our clients do push ahead, most already want it to be over with.

The Divorce, Dissolution and Separation Act 2020 added a 20-week waiting period between initiating proceedings for divorce, and the granting of the Conditional Order. For somebody who just wants to get on with it, the idea of waiting for 20 more weeks indeed sounds frustrating. Frequently, though, 20 weeks is just the tip of the iceberg. By that point, our clients – who often have complex business interests to delineate, or a raft of personal investments to list – may only just be exchanging financial disclosure. Then, once both halves of the couple are ready to enter the court system (whether consensually, or dragged kicking and screaming), that’s when it can feel to them like queuing for a 6am porta-shower at Glastonbury: they just want to be out the other side feeling clean and refreshed, but first they have to go through what might be a rather undignified experience, with the added insult of having to wait an inordinate amount of time first.

Of course, that’s when it’s important to have good lawyers on your side. But this is not just so they can hold your hand; there may well be other more pressing issues created by the drawn-out nature of some proceedings.

In GA v EL [2023], where Vardags represented the husband, our client applied for a divorce on 1 April 2020. The final court judgment in the proceedings was handed down on 27 November 2023, meaning the process took 3.5 years to conclude. During that time, the value of the husband’s business (of which the couple held a combined 50% interest) increased from c.£30m to £60m on sale. Incidentally, earlier that year, the High Court handed down their judgment in DR v UG [2023], a case with a similar fact pattern. There, the value of the husband’s shares in his company increased in from £16.5m at the date of separation, to £275m almost four years later. Despite the husband’s submissions to the court that this post-separation growth should be treated separately from the matrimonial assets, Moor J concluded that ‘any possible argument […] in relation to post-separation endeavour fails’. As such, the proceeds of the business sale were split equally between the spouses along with the remaining matrimonial assets.

In GA v EL, though, Vardags managed to underline differences between the two situations to win on a post-separation endeavour argument. One of the crucial weaknesses of the husband’s arguments in DR v UG lay in the fact that courts draw a tangible distinction between cases of passive and of active growth, as reiterated in Cooper-Hohn v Hohn [2014]. Thus, in a situation where the husband was working in the company for only one day a week, and was unable to work for some of that crucial growth period due to having a breakdown, the court struggled to find that he contributed to the growth in value of the company (instead finding that much of the management was actually handled by Mr S). Equally, the court found that a purchaser of the company would have identified the potential for their product’s particular use in therapy even if the husband had not already done so. In GA v EL, however, Stephen Trowell KC acknowledged that ‘the husband has made a significant contribution to the increase in value of this business’. The wife tacitly accepted the same, since she gave evidence that she had to look after the children more during this period of growth and sale of the company because the husband was so busy. As such, the judge awarded the husband 15% more of the business value than the wife.

Now it’s not quite as simple as showing that you contributed strongly to the growth of the company. As it stands presently, there are further building blocks you need to assemble in order to pursue a post-separation accrual argument successfully. Firstly, the timing needs to be right, with one guide being that accruals within the 12 months from separation still count as matrimonial (per Rossi v Rossi [2006]). In GA v EL, the court held that this timescale is not a rule, but is nonetheless a reflection of the distinction they draw between active and passive growth. Secondly, and as was a particular issue in DR v UG, the court will want to see whether pre-marital assets were used to fund the growth in the business (with the family home being remortgaged in that case to invest in the company). A final point may be tentatively added: it is likely that courts do keep an eye on achieving rough justice. Whilst an increase from £30m to £60m in the years following separation may be significant, sharing in even the lower number would still result in a substantial award for the wife in that case. Conversely, where there was an 1,567% increase(!) in the value of the company as in DR v UG, the court – separate from more academic arguments – may well have felt generally uncomfortable about the fairness of keeping that astronomic growth at arm’s length from the wife (even though her needs would still be met if the court departed from equal sharing of the assets).

It is, of course, quite a rare situation for these arguments to arise in the first place. In fact, the value of parties’ companies more often fall in the time of “divorce blues”. Some of this may reflect the fact they have less time to guide the company whilst proceedings are ongoing in their personal lives. Equally, it can go as far as a mix of “creative accounting” and “sob stories” about the company’s expected performance (where having Vardags’ in-house accountants on your side can really help!). But where a post-separation accrual argument does arise, it stands to highlight the issues raised by a drawn-out divorce process. It’s true that the delays in the court system can contribute to this, but it’s important not to overlook the acrimony between parties and the part that can play. And when there is delay, and the values of certain assets fluctuate, this allows for seemingly resolved issues to be re-opened down the line.

So, whilst parties themselves may be fed up of a divorce dragging on, the effects can be more significant than just delaying them from moving on with their lives. There may be skirmishes around the edges of a settlement when values of assets change, or – as in DR v UG and GA v EL – it may lead to full-scale litigation on the matter where a post-separation accrual argument is pursued. Whilst it’s not yet perfectly clear how much you need to show in order to win on this argument, it is clear now that you can use it. Of course, this is useful where clients are seeking to protect assets gained or generated post-separation. But wouldn’t it be easier if they could just conclude the proceedings before this became such an issue?