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Cite as: [2019] 1 FCR 745, [2018] EWHC 3186 (Fam), [2019] 1 FLR 939

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		Neutral Citation Number: [2018] EWHC 3186 (Fam)
		Case No: BV16D14589

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

22/11/2018

B e f o r e :

THE HONOURABLE MRS JUSTICE ROBERTS
____________________

Between:

	C	Applicant
	- and -
	C	Respondent

____________________

Richard Castle (instructed by Mishcon de Reya LLP) for the Applicant
Patrick Chamberlayne QC (instructed by Stewarts Law LLP) for the Respondent
Hearing dates: 25 July to 27 July 2018 and 16 November 2018
____________________

HTML VERSION OF JUDGMENT
____________________

This judgment was delivered in private. The judge has given leave for this version of the judgment to be published on condition that (irrespective of what is contained in the judgment) in any published version of the judgment the anonymity of the children and members of their family must be strictly preserved. All persons, including representatives of the media, must ensure that this condition is strictly complied with. Failure to do so will be a contempt of court.

Mrs Justice Roberts :

Introduction

This is an application by a wife for financial remedy orders. She is represented in these proceedings by Mr Richard Castle instructed by Mishcon de Reya LLP. The husband is represented by Mr Patrick Chamberlayne QC. His solicitors are Stewarts Law LLP. Decree nisi was pronounced as long ago as October 2016 but has not yet been made absolute. For the purposes of this judgment, it will be convenient to refer to the parties as "the husband" and "the wife". I intend no disrespect to either in doing so.

The single issue in the case is the extent to which there should be a departure from equality of division of the assets on the basis of the husband's post-separation endeavours and his creation of what he asserts to be non-matrimonial property. In this context there was initially disagreement between the parties as to the correct application of the legal principles articulated by the Court of Appeal in the judgments delivered by Lord Justice Moylan in Hart v Hart [2017] EWCA Civ 1306, [2018] Fam 93 and Waggott v Waggott [2018] EWCA Civ 727, [2018] 2 FLR 406.

Background

The background can be simply stated. The parties are now in their mid-forties. Both are educated professionals although the wife has, since 2010 devoted her time and energies to caring for their two young children who are now 9 and 6 years old. The parties met in 2003 and started to live together some three years into their relationship. They married in May 2008 and separated in June 2016 when the husband, at the request of the wife, moved out of their matrimonial home. Because of the manner in which the husband presents his case in terms of a forensic account of the post-separation assets, the precise date of separation has been an issue, albeit one which has not been pursued during the hearing. The wife's petition seeking dissolution of the marriage was issued in May 2016 following a letter from her matrimonial solicitors to the husband in April that year advertising her intention to issue divorce proceedings. Her Form A followed in November that year. This was thus a marriage of some 8 years albeit a committed relationship of more than 10 years.

For the last sixteen years the husband has worked in increasingly senior positions within an investment bank. He is now one of the Bank's senior heads of department and leads a team in London trading a significant portfolio of equity assets which includes some volatile and high risk stocks. Over the years he has enjoyed increasingly substantial annual remuneration packages which have included a significant element of deferred equity participation or RSUs (Restricted Stock Units). As a result, the family has built up reserves of capital whilst enjoying a good standard of living in central London. Leaving aside issues of presentation to which I shall come, the agreed asset schedule in this case (as it was presented when the case was opened) shows the assets available for distribution at the end of this marriage to be just under £25.36 million (on the husband's case) and £27 million (on the wife's case). For these purposes, the husband has excluded the very recent 2018 awards, none of which have yet been earned or vested.

For the first four years of their marriage, the parties lived in rented accommodation. In January 2012 they purchased their first, and only, matrimonial home in central London. Following the purchase they carried out a substantial programme of renovation. The property has an agreed value of £5.1 million and is subject to a mortgage of just under £2 million. At the time of purchase the parties took some tax advice about structuring the ownership so as to enable them to take advantage of the husband's status as an American citizen and his entitlement to the US lifetime gift allowance. The property was purchased in their joint names but, as a result of a declaration of trust executed at the same time, the beneficial interest in the property is now held by the wife. During the marriage the husband diverted a substantial tranche of capital into the wife's name. In accordance with the tax advice they received, she has since discharged the mortgage from those resources save for two recent payments which the husband has made to reduce the debt secured on the property by some £100,000. There is an issue as to the tax consequences of those payments to which I shall come shortly.

Notwithstanding the breakdown of the marriage and the demands of his current role in the Bank, the husband has continued in his role as a 'hands on' father to their two children. The parties have come to an arrangement whereby, with the assistance of the children's long-term nanny, the two children divide their time between their parents' two homes spending about five nights each fortnight with their father. Since leaving the former matrimonial home, he has been living in rented accommodation.

It is agreed that the future housing needs of both parties are similar. The annual rent on his current home in central London is £214,500 per annum. Whilst both parties would have wished to retain the London family home at the conclusion of these proceedings, the husband has now accepted that the wife should keep it on the basis that she will discharge the mortgage debt from the award which she receives at the conclusion of these proceedings.

Prior to the parties' decision that the wife should not return to full-time work at the end of her maternity leave following the birth of their elder child, she was working as a director at an investment bank. Her evidence is that, in 2006 when the parties started living together, she earnt US$1.3 million, a figure in excess of the husband's income at the time. In terms of her future earning capacity, she accepts that at some stage she will probably wish to consider a return to some form of paid employment but this is unlikely to be on a full-time basis. The husband contends that, whilst she will never need to work again even on the basis of the division of capital which he is proposing, she could resume her previous professional career if she wished to do so.

The husband's income in 2016/2017 was £7.77 million gross, £4.287 million net. His receipts this year (including the RSUs vesting from previous awards) will be £3.124 million. The wife does not seek to extend her sharing claims beyond 2017 but there is an issue as to whether she should be entitled to a 50% share of the income earned during the year of separation and the 12 months thereafter.

The parties' open positions

The wife made an open offer on 24 May 2018. In addition to the transfer of the former matrimonial home, she seeks a series of lump sums equal to 50% of the husband's future receipts from the RSUs awarded for the performance years 2014 to 2017. In the event of a settlement which avoided the need for a final hearing, she agreed to limit her claim to those RSUs awarded in 2015 and 2016. In other words, her entitlement to share would end in the year during which the parties separated. All other assets (including pensions) would be equalised by means of an in specie division and a balancing lump sum payment. In terms of child support, she seeks (i) periodical payments for each of the children in the sum of £25,000 per annum together with the costs of employing their nanny until 2023 (c. £51,000 per annum) and (ii) school fees with extras and education costs to the end of a first degree.

The husband accepts that the marriage was one of equal contribution. His first open offer was predicated on the basis of the ring-fencing of his post-separation assets of some £6.5 million. His revised offer dated 20 July 2018 contained a simplified solution. He now proposes a 60:40 division of the assets in his favour which, with a balancing lump sum payment of £1.78 million, leaves in the wife's hands assets with a value of c.£10.2 million. This proposal represents a very small departure from a full exclusion of his post-separation assets which the parties agree would result in a 66:34 split in his favour. Support for the children is agreed at £25,000 per annum per child but the husband seeks from the wife an equal contribution to the ongoing costs of their private education.

As the case was opened, the parties were some £3.37 million apart in terms of outcome.

The husband's arguments in support of a departure from equality

The husband relies on several factors to justify his position that he should retain an enhanced share of the assets. Some are general points of dissatisfaction about the manner in which the litigation has progressed over the last two years. (In general terms, he asserts that the wife and her solicitors have taken active steps to delay settlement with the intention of trying to justify a greater share of the post-separation accrual.) The balance consists of a detailed forensic accounting exercise in relation to certain funds/investments and the gains they have attracted since June 2016.

Since he left the former matrimonial home, the husband has supported the family, on his case, by maintaining the financial status quo ante from his salary which has been paid into a joint account to which the wife has had full access. He has also diverted a further £300,000 from his May 2016 supplemental compensation allowance, a total of more than £700,000 in just over two years. He has, however, set up new accounts into which he has deposited the performance-related elements of the income he has received since separation.

The wife accepts that she has had access to his salary through the joint account but maintains that she has from time to time had to use funds in other accounts in her name to meet additional family expenses.

Post separation accrual

In this context the husband points to steps which he took shortly after the end of the marriage to carve out a clear segregation of his post-separation remuneration. As is commonplace in these cases, his income is made up of a number of elements. He receives a basic fixed annual salary of £485,000 gross (£257,000 net) which is paid monthly. In addition, he receives a supplemental compensation allowance awarded retrospectively at the end of each year and paid in tranches throughout the next financial year. He regards this as an integral part of his salary (US$3.22 million for the past three years). On the basis of the evidence I heard, I accept it as such. In 2017, he received £1.26 million net by way of a supplemental compensation allowance and he envisages that he will receive a similar sum this year. He is entitled each year to a discretionary bonus which does not form part of his fixed compensation. In 2015 he was awarded US$1.8 million whereas in 2016 (the year of separation) his bonus was reduced to US$600,000. His bonus is paid exclusively in RSUs but, on his case, their vesting and his ability to liquidate value in them remains performance-related over a specified number of years.

He has continued to receive RSU payments as they vest each year at the end of each "earn out" period. As each tranche of RSUs vests, they are automatically sold by the Bank and the proceeds are paid net of tax to the husband.

His principal argument is that a significant element of the remuneration he has earned post-separation is represented by the current value of the RSUs. These awards are susceptible to a claw back by the Bank over a fixed period in the event that certain ongoing performance targets are not met. The fixed term of the claw back provisions are between three and a half and five and a half years. Thus, taking account of the 12 month period which it takes for the individual annual awards to vest, the husband's case is that he must continue to perform for between four and a half and six and half years to realise full value in this part of his compensation package. In particular, he maintains that these awards are vulnerable to a 'performance-based cancellation' provision in the Scheme Rules which governs not only individual losses but also losses incurred by any senior business leader as a consequence of failing to hit group performance targets on a quarterly basis. In essence, he needs to make profit for the Bank over the whole vesting period. It is not enough, on his case, to keep his job and turn up for work.

Thus he argues that the potential future value in the RSUs is not "banked", nor are they assets in respect of which value has crystallized. He must continue to perform in order to realise that value, a contribution which he contends is wholly external to the subsistence of this marriage. Of the stock awarded from 2013 to 2017 which has now vested, he has calculated that £4.234 million is matrimonial and £1.435 million (c. 25%) is non-matrimonial. He deploys the same arguments in respect of his RSUs which have been awarded but have yet to vest. Of unvested awards worth £2.19 million, on his case £1.312 million (c.60%) is non-matrimonial.

In summary, he puts his total unmatched contribution at c. £8.27 million being:

US$3.413m (£2.53m) from his supplemental compensation allowance (all of which he has saved since the parties' separation);

£1.68m from vested RSUs;

£1.46 m of unvested stock;

£2.5m of general investment gains secured through his active management of the funds since the date of separation;

US$60,000 (£45,000) of investment growth from the loan he took out in anticipation of discharging the mortgage on the former matrimonial home; and

£54,000 of additional pension contributions which he has been making at the rate of £2,000 pcm.

By the time of closing submissions, not all of these elements were being pursued: see para 70.

In terms of his more general complaints, he alleges that the wife sold some shares in mid-2017 at a significant loss to the family's overall wealth. These were her shares to sell although he had transferred them into her name. He alleges that the transaction has cost the family c.US$1 million. He contends that her failure to agree a means of repaying the mortgage on the family home when fx exchange rates had fallen has resulted in a further loss of £114,000 (being the additional cost of discharging the sterling mortgage from assets held in US dollars).

He alleges that the wife's current wish to retain the family home in Kensington at the conclusion of these proceedings has deprived him of a tax advantage worth some US$5.49 million (i.e. the value of the 'one off' US Gift Tax Allowance). He has now exhausted that entitlement and claims that the intended beneficiaries of the one-off tax break (the children) will not receive the full benefit of the gift for their further education or to assist them with acquiring homes of their own. Further, the cost to him of gifting a similar sum to third parties, whether during his lifetime or on his death, will, he contends, result in an additional tax bill of US$2 million.

Finally, he asks me to take into account in any final distribution of the assets the foreign exchange loss he will sustain if the wife retains the family home since its value in US dollars (the currency in which he is paid) is now some £1.2 million less than it was in 2012 when the property was purchased.

Thus, on the one hand the overall approach adopted by the husband to the overall fairness of his arguments for a departure from equality is one of strict computation on the basis of crystallized figures attributable to each element of loss or gain outlined above. However, his case extends beyond mere post-separation accrual per se and into the realms of a financial / litigation misconduct case. In the context of this judgment I propose to ignore that aspect of his case in terms of specific findings. Mr Castle submits that the allegations are little more than "evidential froth". Mr Chamberlayne (wisely, in my view) does not pursue these points.

For her part, the wife's argument is that, notwithstanding the demise of the marriage, she has continued to make her own individual contribution to the welfare of the family through the care she has provided to the children in the post-separation period. In this context, she points to the fact that the end of the marriage has impacted upon the children to the extent that they have been attending weekly therapy sessions which, for the time being, continue. She argues that it is not permissible to discriminate between their contributions as the husband seeks to do. Further, she maintains that there is no legal or evidential basis for his complaints that she has caused the husband, or the family, any financial loss. On the contrary, she contends that her role in managing those of the family's investments which remain under her control has continued as before.

Furthermore, the wife contends that the clear segregation of pre- and post-separation income which the husband claims to have undertaken is not borne out by his disclosure which involves an element of retrospective accounting. In particular, she claims that he has not maintained the family from post-separation income. This particular submission is made on the basis that there is an excess of some £1.08 million between what he has spent on the family since June 2016 (just under £760,000) and funds which he transferred to his personal account and which represented matrimonial savings (£1.84 million).

Mr Castle submits on behalf of his client that, if the court were to embark upon the mathematical precision required by the husband's approach to this litigation, the court would have to undertake a detailed forensic examination of movements on all the parties' accounts at the time of separation in order to determine how funds have been applied and the point or points at which any latent growth occurred. Because of the deferred nature of the supplemental compensation allowance and the RSUs, there is inevitably an overlap between assets existing pre- and post-separation.

It is accepted that both parties have had recourse to their share of the matrimonial assets to fund other expenses associated with the breakdown of the marriage such as the significant burden of legal costs.

There is no issue but that there has now been full disclosure in relation to all the assets which are available for distribution. In relation to the assets at the time of separation in respect of which the wife should be entitled to an equal share, Mr Castle submits that these will include:

(i) all RSU awards made by the Bank prior to May 2016;

(ii) the supplemental compensation allowance (SCA) awarded at the end of 2015 but payable in 2016; and

(iii) 50% of the awards in respect of both RSUs and SCA made subsequently for the 2016 service year.

These would necessarily include all RSU receipts in 2016 and 2017 (some US$4.9 million) as well as those received this year. On this basis, the payments on her case can be seen as both rewarding endeavour during the subsistence of the marriage and forming part of the immediate financial continuum in the period post-separation. She accepts that she should have no claim to any RSUs vesting after April 2016 (i.e. those awarded in February 2017 and thereafter).

Where the parties are apart is the proper construction of the RSU scheme rules and the extent to which there are performance requirements over and above remaining in post with the Bank or departing as a 'good leaver'.

Pre-Owned Assets

There is a further dispute between the parties as to the extent and value of the assets which each owned before the marriage. On the wife's case, she had assets of some £1.255 million when they married (£682,000 when they began to live together two years earlier). The husband asserts (without formal evidence) that he had approximately US$2 million (or just over £1 million on prevailing fx rates). The wife told me that he was studying at business school at the time and had no savings. Both parties accept that whatever assets each had were subsequently mingled over the course of their married lives and the point may carry little weight. Nonetheless the wife relies on her additional contribution of some £250,000 as an additional reason which militates against an unequal division of assets at the end of the marriage.

Post-Separation investment accruals

By way of a response to the husband's case that the post-separation gain in his underlying investments is the result of his personal investment decisions, the wife's case is that not only is there no evidence which supports an exceptional gain over and above a normal FTSE tracker, there is clear evidence that the post-separation bank accounts have not been managed by the husband but by the investment agents to whom the funds have been entrusted.

The Law

In terms of the law which I must apply in reaching my conclusions as to a fair division of the available resources, my starting point is section 25 of the Matrimonial Causes Act 1973. Its terms are well known and need no repetition here. I bear well in mind that my first consideration must be the interests of the two children. In this instance, not only have their parents reached agreement as to the manner in which they will divide their time between the parties' two homes, I am satisfied that there are sufficient resources in this case to ensure their future wellbeing in all practical and financial terms regardless of the manner in which the post-separation assets are divided. Both parties are devoted to their children and I have no concerns in the context of the financial landscape in relation to their future wellbeing.

My objective in exercising the discretionary powers given to me by the 1973 Act is to achieve an outcome which is fair to both parties having taken into account all the relevant circumstances of the case. The issue at the heart of this case is the application of the "sharing" principle or, perhaps more aptly described here, the "equal sharing" principle. Following Miller, it is now clear that the equal sharing principle will almost invariably apply to matrimonial property save only in circumstances where it is displaced by any other s 25 factors, including need. In this case, the question which has been posed by Mr Chamberlayne is where and how the line should be drawn between assets which can properly be described as "matrimonial" and those which are "non-matrimonial". The assets which lie at the centre of the current dispute all flow from income earned (and invested) by the husband since May 2016. On the basis of the decision in Waggott, Mr Chamberlayne's primary submission is that post-separation earnings must now be treated as falling outside any definition of "matrimonial property". He does not seek to say that such earnings, or the assets into which they can be traced, are not susceptible to the discretionary jurisdiction exercised through the section 25 "portal". However, if they are to be 'invaded' and shared in whatever proportions are deemed appropriate, there has to be a sound and principled reason for that step. In circumstances where, as here, he contends that the wife's needs will be amply met even if post-separation earnings are excluded from the ambit of her sharing claims, there is no justification for enlarging her entitlement above and beyond the point of separation. Waggott, he says, has removed the need to resort to arbitrary or pragmatically convenient approaches such as a 12 month approach to the sharing of bonuses, or a reducing "run off" approach, or even a pragmatic "rounding up" approach. Each of these solutions, deployed by different judges in previous cases, are unnecessary in the light of the clear statement of principle explained by Moylan LJ in Waggott.

Whilst recording his support for pragmatism where the goal was an agreed resolution of litigation, the learned judge in Waggott posed a simple question: do those earlier cases of Rossi, H v H and CR v CR^[1] support the proposition that an earning capacity is capable of being a matrimonial asset as a result of which the applicant spouse has an entitlement to share in its product (here, the post-separation earnings since the point of separation) ?

His Lordship's answer to that question insofar as it relates to sharing in relation to the products of an earning capacity comes in paragraph 122: "the clear answer is that it is not."

In my judgment that definitive answer quite clearly applies to an earning capacity in terms of its present and future potential to generate income, the product of which may well be savings, investments or any tangible accretion to future capital wealth. That much is clear from para 128 of his Lordship's judgment where, after a lengthy analysis of the authorities, he said this:

"In my view Miller and the subsequent decisions referred to above, in particular Jones and Scatliffe, do not support the extension of the sharing principle to an earning capacity. The sharing principle applies to matrimonial assets, being "the property of the parties generated during the marriage otherwise than by external donation" (Charman v Charman (No 4), para 66). An earning capacity is not property and, in the context advanced by Mr Turner, it results in the generation of property after the marriage."

In my view that last sentence is key. If an earning capacity is to be shared, as opposed to the tangible product of its exercise, and leaving aside any evidential difficulties in establishing whether or not such a capacity could be said to have been generated during the marriage otherwise than by the operation of factors external to the marriage, where and how does the court draw the line in terms of implementing a clean break as is required by s 25A of the 1973 Act ? In this context, the observations of Mostyn J in B v S (Financial Remedy: Marital Property Regime) [2012] 2 FLR 502 fall into sharp relief:

"… to allow consideration of the concept of sharing to intrude in the assessment of a periodical payments award seems to me to be based upon a doubtful principle, and is replete with problems of quantification to any sure standard… if the concept of sharing is going to uplift above the assessment of need a periodical payments award which will be paid from post-separation earnings, how does a judge set about doing it ? Is it a third ? Or 40% ? Or 20% ? There are not even any signposts along the road to a fair award."

These observations were made in the slightly different context of a final award which included ongoing income provision for the wife in the form of continuing periodical payments. Nevertheless, as Moylan LJ observed in Waggott at paras 123 to 124,

"123. Any extension of the sharing principle to post-separation earnings would fundamentally undermine the court's ability to effect a clean break. In principle, as accepted by Mr Turner, the entitlement to share would continue until the payer ceased working (subject to this being a reasonable decision), potentially a period of many years. If the court was to seek to effect a clean break this would, inevitably, require a court to capitalise its value which would conflict with what Wilson LJ said in Jones v Jones.

124. Looking at its impact more broadly, it would apply to every case in which one party had earnings which were greater than the other's, regardless of need. This could well be a very significant number of cases. Further, if that submission was correct, I cannot see how this would sit with Lady Hale's observation in Miller that, even confined to "(i)n general", "it can be assumed that the marital partnership does not stay alive for the purpose of sharing future resources unless this is justified by need or compensation" (para 144) or her observation as to the effect of "(t)oo strict an adherence to equal sharing" (para 142)."

The question then arises, are the post-separation earnings in this case "future resources" generated by an earning capacity in which the wife has no entitlement to share as a matter of principle once the marital partnership has come to an end ? There is no serious challenge in this case to the proximate date of the end of that partnership. Whether it was at the end of April 2016 when the wife's solicitors confirmed in correspondence her conclusion that the marriage had irretrievably broken down, or whether it was June when the husband physically moved out of the family home having made short term arrangements to rent an alternative property, this was in no sense a "limping" marriage. Its demise was advertised, acknowledged and implemented within a matter of weeks. Whatever regime was then put in place by the parties in relation to their mutual and ongoing contributions to their children's welfare and the financial support of the family, it was not an ongoing marital partnership. For this reason, and absent arguments about needs and compensation, I do not accept the wife's proposition that her ongoing contributions to the general welfare of the family matched those of the husband's and/or gave rise to any entitlement to an equal share in the husband's post-separation earnings. However, and it is an important caveat, that does not necessarily mean that those contributions were, or are, irrelevant as part and parcel of the over-arching circumstances of the case in terms of an assessment of needs or fairness of outcome. Apart from any other considerations, s 25(2)(f) identifies them as one of the factors which the court is required to consider.

That much is clear from paras 131 and 132 of Moylan LJ's judgment in Waggott :

"131. In my view it is clear from Miller and Charman alone that, as a matter of principle, the court applies the need principle when determining whether the sharing award is sufficient to meet that party's future needs. To repeat what I have said above (para 108), there must be a means of determining whether, and if so how, the sharing award does or does not meet the applicant's needs. There is no suggestion that the question of needs for these purposes is to be determined by reference to a different need principle, or more broadly, by means of a different approach. Indeed any other approach would be inconsistent with the observations made by both Lord Nicholls and Lady Hale, that there is no rule about where the court starts the exercise, and inconsistent with Charman (para 73) in which the sufficiency of the award by reference to the sharing principle is directly assessed by the award "suggested by the needs principle".

132. This does not mean that the manner in which the need principle is applied to the sharing award is inflexible, no more than the application of the need principle is itself inflexible. ….. Further, as Wilson LJ observed in Jones (para 27), an earning capacity can be "relevant to a fair distribution of the assets pursuant to the sharing principle". It can be taken into account when the court is deciding whether the capital should be amortised in full, in part or not at all and when deciding what assumed rate of return to apply. However, to repeat what Wilson LJ said in Jones:

"Even if, however, an earning capacity may also sometimes be relevant to a fair distribution of the assets pursuant to the sharing principle, it does not follow that the earning capacity should itself be treated as one of those assets, still less that an attempt should be made to capitalise it."

I shall set out my final conclusions in relation to the computational aspects of this case shortly. Before doing so, I return to the earlier judgment of Moylan LJ in Hart. In that case his Lordship explained the principles to be applied in a determination of where and how the line was to be drawn in the identification of matrimonial and non-matrimonial property.

In this context, the court has to make such factual decisions as the evidence enables it to make: para 91. In this context the normal rules of evidence apply. In relation to both pre-marital and post-marital property, the court may decide that the non-marital contribution is not sufficiently material or bears insufficient weight to justify a finding that any property is non-matrimonial: para 92.

Pausing there, it seems to me that there is no clear evidential basis in this case to make any adjustment or allowance for the fact that either the husband or the wife had assets in their own names prior to their decision to live together and marry. Whilst I am satisfied that the wife has been able to document the existence and value of her investments prior to the marriage, it is accepted that from the outset these assets were mingled with other family assets generated by the husband who has gifted to her substantial investments over the course of the marriage. I am not satisfied that there is a sufficiently clear evidential basis for a finding that he had assets worth US$2 million at the start of this relationship but I am prepared to accept that, whatever he did have, was applied towards the benefit of the family. Whilst neither party seeks a departure from equality of division on this basis alone, I can deal with that aspect of the case now in relatively short order.

What, then, of the value now represented by the cash, investments and the RSU awards which are the product of the husband's post-separation earnings ?

If the evidence establishes a clear dividing line between matrimonial and non-matrimonial property, the court is then in a position to apply that differentiation at the next, discretionary stage: see para 93 of Moylan LJ's judgment in Hart. However, if there is a "complicated continuum", it will often be neither proportionate nor feasible to draw a clear line between what is matrimonial property and what is not. This will often be the case where there is some form of blending or amalgamation of assets, or 'investment churn', which results in a blurring of the lines of demarcation between the two. Here, as Hart makes clear, the court should undertake a broad assessment based on the available evidence and leave the specific determination of how to divide the parties' wealth to the next stage of the exercise. It is a matter for the judge in each individual case to decide where on the spectrum any particular case lies: see para 94.

The third and final stage occurs when the court undertakes an holistic assessment of fairness by deploying all and any relevant factors identified in s 25 of the 1973 Act. This is a mandatory part of the process in reaching a fair outcome as between the parties regardless of whether or not the component elements of the global wealth available to a couple has been identified as matrimonial or non-matrimonial property. This final and overarching stage of the assessment of what is fair will not disturb any previous decisions as to what is matrimonial property and what is not. It does, however, operate as an essential cross-check whereby the court can test that the award it proposes to make is fair in the light of those s 25 factors: para 95.

In the context of this third stage, it may well be that the court decides that there is an element of non-matrimonial property within the global asset base but is unable to draw a clear bright line so as to identify its limits. In this event, a full 50% sharing entitlement may not be appropriate and the court must do its best to determine what lesser percentage may be fair in the circumstances of the particular case with which the court is dealing. At this stage, according to the guidance given in Hart, there is no particular mathematical or other specific methodology for determining or testing "fairness". The court must adopt a broad assessment of all the factors which influence "overall fairness" in terms of the outcome for both parties: para 96.

Into which category does this case fall ? In this context, I agree with the submission made by Mr Castle that even a finding in relation to a clear dividing line between matrimonial and non-matrimonial property will not absolve the court from moving onto the next discretionary stage. That is perfectly clear from para 93 of the judgment in Hart.

By the time we reached final submissions, there was little issue between the parties in terms of the substantive law post-Hart and Waggott. Mr Chamberlayne accepts that a straightforward mathematical calculation in relation to what is matrimonial and what is not can never provide the complete answer to any case. However he submits that, whilst the court plainly has a discretion to make an alternative award which is different from that produced by a formulaic calculation based on the maths, that award has to be based on a principled rationale. He submits that Miller tells us that there are only two outside sharing: compensation and need.

An issue of construction: the operation and consequences of the RSU scheme rules

An issue which continues to separate the parties in terms of their approach to what is matrimonial property and what is not flows from the proper construction of the RSU scheme rules put in place by the Bank which govern employees' entitlement to this particular benefit. It is accepted that the annual awards of RSUs are akin to a form of discretionary bonus and paid in lieu of the substantial cash bonuses which were 'outlawed' following the global financial crash in 2008.

The husband contends that part of the re-evaluation process which was undertaken globally within the banking sector following the events of 2008 involved structuring into compensation packages a de-escalation of risk. On his case, the scheme rules – as they apply to him – require a significant element of personal performance measured against specific targets set by the Bank in each of its different sectors. That performance on his part is continually measured throughout the period between the date of the award and the conversion of the RSUs into cash. As I have said, he has calculated the 'earn out' period in respect of each tranche of awards to be 56 months.

He must first earn the award by reaching performance targets set for a 12 month period in any one financial year. He must then continue to meet financial targets over the course of the next 20 months in order to ensure that particular tranche of awards formally vests. Finally, he must continue to perform for a further two full years until the final vesting and conversion of those awards into cash.

For these purposes I was given a schedule which contained a detailed breakdown of all RSUs received and still to vest over a run-in period which began with the award made in February 2013 and continued to February 2017. (The wife accepts there is no question of her entitlement extending beyond that date.) Over that period, and applying his 56 month formula as explained above, the husband has been able to calculate with precision what percentage of his annual awards in each of those five years can be properly characterised as 'matrimonial' in terms of having been earned during a period when the marriage subsisted. He has carried out the same exercise in relation to those RSUs which have yet to vest. Where awards have already vested he has used the exact share price and has factored in tax paid. In respect of the value to be attributed to awards which have yet to vest, he has used the current share price and fx rates. The calculations have been undertaken on the basis that the effort and performance which is required on his part to 'earn' full value in the RSU awards after May 2016 (the month following separation) make the product of his efforts non-matrimonial in character. This is the basis on which they have been excluded from Mr Chamberlayne's computation of the wife's sharing claim.

I can understand why this methodology has been adopted by the husband. The mathematical integrity of the process no doubt appeals to his instincts as a banker. It has an underlying rationale and a transparency in terms of calculation which inevitably appeal to his sense of what is fair in terms of his wife's entitlement at the end of this marriage. I am satisfied that this exercise has been carried out with meticulous care and there is no challenge to the accuracy of the figures which are now reflected in the detailed schedule which is before the court. On the basis of the husband's adopted methodology, the figures are clear.

The challenge to this approach which comes from Mr Castle has two limbs. First, he submits that, whatever date one adopts as the date of separation, a marriage and its denouement have to be seen as having some element of continuum which makes it impossible to achieve a fair result in relation to a particular category of assets by relying solely on the application of a mathematical formula. Were this a correct interpretation of English law, he submits that we would be moving rapidly towards the imposition on divorce of a matrimonial property regime without a corresponding approach at the start of marriage to matrimonial property rights. Secondly, he disputes the extent to which the husband's entitlement to the RSUs is performance-based. He points to the fact that none of the RSU awards made to the husband over his 15 or 16 year career with the Bank have been forfeited in the past.

The Bank's scheme rules

The Bank's scheme rules provide that the RSUs shall be "earned and payable" in five equal instalments over a five year period provided that an employee remains in post throughout. That entitlement is subject to the detailed rules about what is to happen if an employee leaves during the vesting period and prior to any of the annual payment dates. The reason for the termination of employment is key to the effect on "unearned" RSUs which "shall become earned and payable or be cance[l]led". If an employee dies whilst employment, any unearned units are deemed "immediately earned and payable". Different provisions govern an employee's disability and redundancy. If employment is terminated for cause (i.e. dismissal), all "unearned" RSUs are cancelled.

There is a separate clause in the Rules for "Performance-Based Cancellation". This provides as follows:

"In order appropriately to balance risk and reward, unpaid Restricted Stock Units …. may be cance[l]led if a loss occurs outside of the ordinary course of business. For a line of business, sub-line of business or division, a "loss" means a pre-tax loss for a fiscal year (as determined under U.S. generally accepted accounting principles in effect as of the close of such fiscal year). For an individual, a "loss" means that the aggregate profit and loss attributable to your activities is negative. A loss "in the ordinary course of business" means a loss resulting from a planned winding down of a business or legacy position, or a loss that is de minimis (e.g., a loss from a short-dated trading position that is within desk strategy and risk limits and which, aggregated with losses across all positions, is less than $1 million). A loss outside the ordinary course includes (without limitation) losses such as those resulting from complex or high-risk trading strategies, risk or compliance violations, deliberate or grossly negligent failures to perform your job duties, or any loss that materially impairs [the Bank's] solvency, liquidity, or capital distribution plans."

The Rules make it clear that such losses can have an impact on entitlement to unpaid RSUs both in terms of individual performance and, in the Global Banking and Market sector, to a "senior business leader within the applicable group". In either event, accountability for such losses falls to be determined by the Bank taking into account factors such as (i) the magnitude of the loss "including positive or negative variance from plan"; (ii) the degree of involvement including any "leadership role" held at the time of any loss; (iii) individual performance; and (iv) any other factors deemed appropriate. The Bank makes its final determination and will either take no action or cancel some or all of the RSU award. Its determinations are final and binding.

The husband's evidence was that his forecast targets were (and are) set on a rolling quarterly basis. These are the targets which inform the "plan" or benchmark for measuring his performance both as an individual and as a "senior business leader" within his Group. He told me that managing high risk trading and equity positions was the core of his function as Head of a significant product area within the global markets division. He regards his awards as remaining at risk throughout the five year period which he sees as essentially an "earn out" window.

I accept the husband's case that there is a genuine and significant element of performance which underpins the future value of his RSUs. I am not persuaded that all he has to do is to remain in post and avoid dismissal for cause in order to secure full value from these awards. He operates in an environment of managed commercial risk. He is clearly good at his job and is rewarded well for his efforts by the Bank. I do not accept that the absence of any historic forfeiture of his RSU awards is a sound basis for diluting the potential impact of non-performance or loss on his future entitlement to receive full value from them.

Mr Castle submits that the strict application of the husband's mathematical formula applied, as it is, from a linear point in time has the clear potential to produce an unfair result for the wife. By way of example, he points to receipts totalling US$1.2 million which were paid to him in mid-August 2016 (some three and a half months after separation). These sums represented annual staged payments from the 2013, 2014 and 2015 RSU awards. These receipts, he says, are sufficiently proximate to the end of the marriage to retain their "matrimonial" character. He argues that they should be regarded as part of the continuum of the marriage because they were earned in part whilst the parties were living together under the same roof.

I accept that there will inevitably be cases where it will be appropriate to avoid a defined cut-off, or point in time, after which all and any financial receipts become non-matrimonial in character. The potential for artificial or contrived calculations is all too obvious. In this case the presentation which is made on behalf of the husband employs an assumption that there is a correlation between the subsistence of the marriage with the point of separation and the value accrued in any given tranche of RSUs. The wife has not sought to challenge the fact that the marital partnership had ended by the time she served her divorce petition in May 2016. The matrimonial element of her entitlement to share in the value received by the husband in August 2016 has been factored into the husband's case. This is the basis on which he has made his calculations that, of the US$10.7 million received from RSUs awarded from 2013 to 2017 (which includes the US$1.2 million which fell in during August 2016), some US$6.48 million qualifies as matrimonial property whilst the balance of US$4.24 million does not. Thus, to the extent that value was earned during the subsistence of the marriage, this is already reflected in the schedule by way of a pro rata attribution of value to the matrimonial element 7of the relevant pre-separation awards.

Supplemental compensation allowance

The husband has always regarded the SCA as an accretion to his fixed annual salary. I have accepted this aspect of his case. The allowance is awarded at the start of the calendar year and is paid in instalments during the course of the same year. In 2017 he received US$1.71 million net (£1.26 million) and he expects to receive a similar sum for 2018 unless the Bank reduces this sum for any reason. It is clear from the analysis which counsel have agreed that he has received regular payments of US$426,650 in tranches through 2016, 2017 and 2018. On behalf of the wife Mr Castle contends that there are no specific performance targets attached to this element of the husband's compensation. The explanatory notes on the 2016 compensation statement refer to the SCA as "the Allowance for the 2016 performance year". He submits that the SCA payable in 2016 should be treated as a matrimonial asset because (i) it was awarded in large part specifically to reward endeavour during the marriage, and (ii) it is part of the immediate financial continuum which itself arises out of the endeavour during the marriage.

Mr Chamberlayne deducts all SCA payments from the "matrimonial" balance sheet save for the payment made in May 2016 which he accepts should be treated as part of the wife's entitlement to share. The value excluded (and earned since May 2016) is £2.53 million (or US$3.413 million). All SCA payments have been segregated into separate accounts since May 2016 and can be identified.

It seems to me that to accede to Mr Castle's request to treat these sums, or a portion of them, as matrimonial property simply because they continued to fall in as "part of the immediate financial continuum arising out of the endeavour during the marriage" is to ignore the process which received a judicial mandate in Hart. In terms of segregating the matrimonial and non-matrimonial property, the court is required to make such factual decisions as the evidence enables it to make. If the evidence establishes a clear dividing line between matrimonial and non-matrimonial property, "the court will obviously apply that differentiation at the next, discretionary stage": see paras 91 and 93 at pp 112-113.

In this case two facts are established on the evidence: (i) the marital partnership had come to an end by May 2016; and (ii) the value of the SCA payments received after its demise (themselves the product of the husband's earning capacity and part of his ongoing employment income) was US$3.413 million.

Inevitably I must examine carefully whether the exclusion of those receipts and the value of the RSUs from the overall computation of the assets which fall to be shared equally leaves in the wife's hands a fair award which not only meets her future needs but which takes into account all the circumstances of this particular case. However, where the evidence is sufficiently clear, I do not accept that, in terms of the date of receipt of funds, proximity to the effective end of the marriage has any determinative effect per se on a decision as to whether property received post-separation is matrimonial or non-matrimonial.

My conclusions in relation to computation

The asset base is largely agreed and can be distilled into the following abbreviated table:-

FMH (net of sale costs)	4,947,000
less mortgage	(1,877,854)
H's bank accounts*	2, 585,688	includes 50% jt account
W's bank accounts	206,186	includes 50% jt account
H's investments*	14,465,170	includes vested RSUs
W's investments	3,419,733
Loan to nanny	35,000	treated as W's asset
Less liabilities
H's stamp duty on purchase**	(525,750)
Tax on realised gains	(282,969)	H and W liability
Unpaid legal costs	(118,476)	H and W liability
Total liquid assets	22,853,728
Deferred compensation	3,099,868
Pensions	342,074	treated as cash; net of tax
TOTAL ASSETS	26,295,670

*The figures given in respect of cash bank balances and the value of the husband's investments include assets/property which he contends to be non-matrimonial.

** I have included the stamp duty which the husband will pay on the acquisition of a property similar in value to the former matrimonial home. If he does not purchase a home for himself within a period of 2 years, he has offered the wife an indemnity whereby he will account to her for 50% of that sum.

† I have omitted from the liabilities the figure of £198,000 which is agreed to be the sterling equivalent of the US tax which would be payable were such liability to be triggered by his reduction of the mortgage debt. It is agreed that this liability should be treated as a contingent deduction which, if payable, will either be shared or paid by the husband.

On this basis, the extraction route for which Mr Chamberlayne contends is as follows:

Total assets available for division 26,295,670

Deduct non-matrimonial elements:

awards made in 2018 (757,852) agreed non-matrimonial

SCA post-separation (p/s) (2,530,000)

RSUs received (1,679,983) pro rata post separation

RSUs still to vest (1,561,257) pro rata post separation

Adjust for:

Tax (non-matrimonial element) 24,941 agreed balancing credit

TOTAL DEDUCTIONS 6,504,151

On the basis of this analysis the value of the matrimonial property available for division on the basis of a full sharing entitlement is £19,791,519, or just under £20 million. On the basis of a 50:50 division, the wife would be entitled to £9,895,760 or just under £10 million. The husband's open offer of a 60:40 division is based upon a global asset base of £25,537,818 (i.e. the global asset base of £26,295,670 less the agreed figure for the 2018 compensation award in the sum of £757,852). His offer would therefore leave in the wife's hands a total of £10,215,127 or just over £10.2 million in round terms.

Having accepted that the husband's presentation in schedule form of the categorisation of matrimonial and non-matrimonial assets is a broadly accurate and sufficiently precise representation of where the limits of the matrimonial asset base can be drawn, I thus reach the stage where those figures have to be cross-checked against the much wider canvas of the section 25 factors, including all the circumstances of this particular case. This is the third and final stage of the Hart exercise.

Does the husband's proposal represent a fair outcome in all the circumstances of this case ?

Needs

With assets of £10.2 million, including the former matrimonial home, the wife's housing needs are clearly met. She wishes to retain that property for a number of reasons, not least because it is the children's home. The husband has agreed that she should keep it. She has undertaken to discharge the mortgage debt within a maximum period of 12 months. The request for a deferment period is based upon her wish to seek tax advice on whether the mortgage debt can be repaid from her matrimonial award without adverse tax consequences or whether she should replace that liability with a mortgage in her sole name. The effect of the husband's offer is that he will fund both the repayment of the existing mortgage and a balancing lump sum payment of c.£1.78 million to leave in her hands global wealth of c.£10.2 million.

She would be left with the following assets for investment purposes:

Bank accounts	205,726	excluding jt a/c
Investments	3,419,733
Nanny loan	35,000
Less liabilities	(245,577)
Pension	71,283
Balancing lump sum	1,781,962
TOTAL	5,268,127

Mr Chamberlayne accepts that the budget which the wife has put forward in respect of her future income needs (£157,000 net per annum) is a perfectly reasonable presentation despite the fact that the husband's figure in relation to the family's expenses whilst they lived together was slightly less. I accept that there were expenses which he had overlooked including the not insignificant cost of some holiday accommodation for the family in Australia and the United States. He himself has just budgeted over £60,000 to take the children on a summer holiday.

Mr Chamberlayne further submits on behalf of his client that her wealth could then be arranged, as she chose, to leave her with a house worth c.£5 million and a potential Duxbury fund of just over £5 million producing an assumed net annual sum for her income needs of c.£200,000 per annum for the rest of her life. That provides for some 'headroom' over and above her stated income needs. Were she later in life to release a further £1.5 million of equity by trading down to a smaller home, her potential Duxbury fund increases to £6.5 million or an equivalent income of £250,000 per annum without any step-down on retirement.

The final point which he makes on behalf of the husband is that she has a future earning capacity. He does not invite me to quantify that capacity at this stage, far less to factor it into a capitalised maintenance requirement. He makes the sound point that it may not be a sensible decision for her to structure her finances in the expectation that, from the age of 45 years, she will live on a reducing capital fund and he invites me to accept that the husband's proposal will mean she need never work again if she chooses that option.

I accept that this wife is likely to find employment in the future if that is what she wishes for herself. She is clearly a highly intelligent and capable woman who has worked in her sector of banking at a senior level in the past. However, she has been out of work for the best part of ten years. She has used this time to make a significant investment in rearing the children whose interests come first and foremost not only in terms of this court's approach but also in terms of what these parents want for their children. Both children appear to need a lot of help and support at the moment as they come to terms with their parents' separation. That will undoubtedly change in the future but they are still relatively young children. This couple is lucky enough to have the support of an excellent nanny but I accept that it is likely to be a few years before the wife feels able to consider a return to full-time employment, if that is the course she wishes to take. She will by then be approaching, if not in, her fifties. I find that she is very unlikely to earn at the level of her previous salary and I suspect, contrary to what the husband told me, that it would not be a simple route back into the world of banking in any event.

Whichever way one looks at the situation, she is unlikely to be in a position to make a significant or material contribution to her own income needs for the foreseeable future, despite her many attributes. That is simply a consequence of the decision which this couple took to have their children and to raise them at home with a full-time mother on hand.

Thus, on any view, the proposal which the husband makes will meet not only the wife's stated housing needs (including her wish to retain the family home on a mortgage free basis) but also her future income needs on a capitalised whole life basis. It ignores the value of any future earnings which she may generate from a return to some form of paid employment in the future.

It will be a matter for the wife to determine how to arrange her financial affairs in the future whatever the outcome of this case. I am proceeding on the basis that her income needs will be met without the need to release equity by moving into a smaller and less valuable property. That may well be what she decides to do once the children are independent. I bear in mind that the Kensington property is a substantial and valuable property in a prime sector of the central London housing market. That said, the parties agree that the former matrimonial home (or an equivalent property) meets their respective housing needs both now and in the future. Each wished to retain the family home. The husband now accepts that he will purchase a new home for himself and the children and that it will have an equivalent value. He will have no need to trade down in future unless that is what he chooses to do. No matter which way one approaches this case, his financial position and his ability to produce additional wealth going forward is immeasurably better than the wife's. He has already demonstrated an ability to support the entire family (and, going forward, himself and the children) from his salary alone. The forensic exercise which has been undertaken throughout the course of this hearing has only served to demonstrate the extent to which he has the potential to retrench in financial terms as his RSUs vest and are converted into cash on a rolling basis. I accept that there is an element of risk, albeit it that I find the magnitude of that risk is not such that I should discount by any significant factor the sums which are likely to fall in for his benefit in the future. He is, as I have said, clearly very good indeed at what he does. The Bank certainly regards him as a valuable asset and a key employee. He has performed extremely well through some challenging years in his sector and there is no past history of the Bank clawing back his awards. For these reasons, I can see no principled or fair justification for factoring into this wife's future resources an element of equity release. I am satisfied that a capital investment fund of just over £5.26 million will be more than sufficient to meet her income needs going forward.

In terms of the extraction of value for his client, Mr Castle invited me to deal with the RSUs on the basis that I could make contingent lump sum orders requiring the wife to reimburse the husband in the event of a future loss. I do not consider that is the way forward in this case. She will share equally in the RSUs so far as they can properly be regarded as matrimonial property, a fact which the husband has accepted and reflected in his composite schedule.

Standing back, as I do, I ask myself again whether the extraction route proposed by the husband is a fair outcome for this wife. In my judgment, it meets her needs going forward for the reasons I have given.

In this context, I bear well in mind that, whilst fairness has a broad horizon, the court cannot simply settle upon a figure for the wife which allows some measure of financial uplift to account for future contingencies unless there is some rational or numerical justification for that approach: see para 57 per Mostyn J in DR v GR (Financial Remedy: Variation of Overseas Trust) [2013] EWHC 1196 (Fam). That proposition has to be seen against the practical realities of life: the Duxbury figure is only ever a guideline and the analysis is a broad one. Income needs will inevitably fluctuate significantly in the future and the court has to be satisfied that any award is fair to both parties in the context of the income which it would be fair to allocate for a wife's ongoing needs over the course, as here, of over 40 years. That was an approach adopted by Moylan J (as he then was) in AR v AR [2011] EWHC 2717 (Fam).

As his Lordship was subsequently to remark in delivering the judgment of the Court of Appeal in Hart some seven years later,

"109. …I consider that much of the tension in the judgment between the ultimate award and the judge's other calculations arises from the fact that he felt compelled to seek to apply a formulaic approach.

……..

110. However, the main reason I have concluded that the judge's award cannot be successfully challenged, is that the judge independently conducted an overview of the case to ensure that his proposed award was fair. He expressly performed the alternative approach endorsed in the Jones case and which, as set out in Jones, he had to perform at some stage of the process he was seeking to undertake so as to test his other tentative conclusions or as a "cross-check" ….This approach required him to assess what weight to give to the husband's pre-marital wealth when assessing the extent to which the parties' current wealth reflected marital endeavour and the extent to which it did not. The judge plainly concluded that his proposed award gave proper weight to that factor. Equally, he plainly must have concluded that a higher award, as postulated by his other calculations, would not give proper weight to that factor and, accordingly, would not be fair."