Jones v Jones

For the sharing principle, a spouse’s established earning capacity at the date of marriage is not a capital asset capable of classification as non-matrimonial property. It may be reflected only insofar as it had already created identifiable capital by that date.

The value of a pre-acquired business may be adjusted where evidence establishes latent value not captured by a professional valuation. A fair allowance may also be made for growth representing the fruits of the original non-matrimonial asset. The resulting division must be tested against overall fairness. Obiter, the assessments under the needs and sharing principles are separate exercises; the higher assessment should ordinarily determine the award.

The wife appealed from an ancillary-relief order of the High Court, Family Division, by which she received a clean-break lump sum of £5.4 million, including £0.4 million towards costs: [2010] EWHC 2654.

The husband had owned a specialist-gases company before the marriage. He sold it during the financial-remedy proceedings and the parties’ net assets were treated as £25 million. The judge held that 60% of the sale proceeds represented the husband’s pre-marital contribution, including his pre-marital earning capacity, and awarded the wife about 20% of the proceeds.

The central issue was whether, for the sharing principle, the husband’s personal capacity at the date of marriage to develop the business could be capitalised as a non-matrimonial asset, and how the pre-marital value of the company should be assessed.

1. Appeal allowed unanimously. Wilson LJ held, with whom Arden LJ and Sir Nicholas Wall P agreed on the result, that the judge’s attribution of 60% of the sale proceeds to the husband’s pre-marital contribution was flawed. It impermissibly capitalised his earning capacity at the date of marriage.

2. The court formally overruled GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611. An established career, earnings, expertise or acumen is not itself a non-matrimonial capital asset for the sharing exercise. The court must not place a capital value on a spouse as a person. Earning capacity remains highly relevant to needs, periodical payments and their capitalisation under section 25, but that does not make it property for sharing.

3. The company itself was a pre-marital asset. Its agreed £2 million value at the date of marriage could properly reflect capital then created by the husband’s earlier work. The court could also make a broad adjustment for latent potential, described as a spring-board, which the judge had found was not captured by the valuation. It valued the company at £4 million at that date.

4. Wilson LJ treated passive economic growth of a pre-marital asset as non-matrimonial. Arden LJ agreed that an allowance was appropriate, while preferring the broader description of the fruits of the original non-matrimonial asset. On the unusual facts, the court applied an industry index to produce a non-matrimonial value of £8.7 million, rounded to £9 million. The remaining £16 million was matrimonial and was shared equally. A cross-check against overall fairness confirmed that £8 million, or 32% of the assets, was fair.

5. The £5.4 million award was replaced by an award of £8 million. No further contribution to the wife’s costs was ordered, apart from costs of the appeal subject to argument. Wilson LJ additionally observed, obiter, that needs and sharing are separate exercises and that the needs assessment should not be used to reduce a higher sharing award.

• Court of Appeal (Civil Division): allowed the wife’s appeal and substituted a lump-sum award of £8 million: [2011] EWCA Civ 41.
• High Court, Family Division: Mr Justice Charles awarded the wife a clean-break lump sum of £5.4 million: [2010] EWHC 2654.