The Potanina divorce: the highest-value divorce case in English legal history?

Natalia_Potanina

The Potanina divorce: the highest-value divorce case in English legal history?

The Potanina divorce highlights the issue that those who have divorced abroad can apply to get a better settlement in England. Partner Fiona Wood explains.

Last week the Court of Appeal overturned a decision of the High Court, therefore allowing Natalia Potanina to bring her divorce claim in England. Her husband, Vladimir Potanin is stated to be worth $20 billion and to have a controlling stake in Nornickel, one of the world’s largest producers of nickel and palladium.

Divorce in Russia

The couple married in Russia in 1983 and lived there for most of their marriage. They divorced in Russia in 2014. Natalia received a divorce settlement of $41.5 million from the Russian court but says that she should have received a far greater share of her husband’s fortune. She informed the English High Court that she had “made exhaustive efforts to obtain justice in Russia” but that the sum she was awarded “does not even begin to meet my reasonable needs”.

English law

Couples who have links to the UK but who have divorced overseas and believe they have been treated unfairly can apply for permission to bring their case to be heard by the English courts under Part III of the Matrimonial and Family Proceedings Act 1984. English law is far more generous to the financially weaker spouse, usually the wife, than the law of many other countries, making such an application an attractive option.

Divorce tourism

Natalia has had a house in England since late 2014. Her attempt to bring proceedings in the English courts was blocked by the High Court in 2019 on the basis that the couple had little connection with Britain. A judge said that if her claim went ahead “there is effectively no limit to divorce tourism”.

Court of Appeal

However, last week the Court of Appeal reversed that decision and granted Natalia permission to bring her case in the High Court in London. Lady Justice Eleanor King in her ruling last week noted that the 1984 Act was not just designed for families with “massive or even substantial wealth” to bring cases. She went on to say “No doubt to most people, whether affluent or poor, the sums received by the wife made her a rich woman. Everything is, however, relative. The wife’s settlement represents only a tiny proportion of the vast wealth of this family, all of which has been accumulated during this very long marriage”.

It is not yet known if Vladimir Potanina will appeal this decision to the Supreme Court. Also, if the High Court does adjudicate on their divorce settlement, we do not yet know how generous they will be. However, this case does highlight the fact that those who receive divorce settlements abroad can potentially have a second bite at the cherry and try to obtain a second divorce settlement in England if they have links here.  Furthermore, now that we are no longer part of the EU this claim is also now potentially available to EU nationals.

Enforcing English divorce orders against assets in other countries

It is, however, worth noting that obtaining a second divorce settlement in England can be a pyrrhic victory if the majority of the husband’s assets are outside of the UK. Enforcing English divorce orders against assets in other countries can be extremely difficult. Despite this, I am sure that there are many wealthy ex-wives around the world watching very closely what happens in the Potanina case.

 

If you are affected by any of the issued raised here, please get in touch today. We are here to help.

10 top tips for business owners facing divorce

top 10 tips for divorcing business people

10 top tips for business owners facing divorce

Divorce is never easy, but it can be more complicated when you’re a business owner. Partner Fiona Wood, who is particularly accomplished at dealing with divorce cases where there are substantial and complex assets, offers her advice.

1 Don’t panic! The divorce process is NOT designed to damage a business so that it is no longer viable. The income produced by the business will often be the business owner’s main source of income both before and after divorce. This income may also need to fund child maintenance payments and sometimes spousal maintenance payments after a divorce, so damaging the business would be counter- productive.

2 Your business, along with your and your spouse’s other assets, will be considered a relevant asset within the divorce proceedings. You will need to provide information relating to the business, even if you are not the sole owner. If there are other business owners you should inform them of your divorce, if you have not already done so.

3 Your business is likely to be valued by an independent accountant, instructed jointly by you and your spouse, within the divorce. They will look at the value of your shares, how much money, if any, you can raise through the business to assist with the divorce settlement and the sustainable income that can be taken from the company going forward.

4 It is the net value of your shareholding that will be taken into account, after notional costs of sale and tax have been deducted. Whilst you may not be selling your shareholding, your shares will be valued on the basis that you are selling them.

5 Valuing a business is an art not a science, so different accountants have different approaches, which results in some accountants providing more optimistic valuations than others. It is therefore important to take advice on which accountants would be most suitable for your situation.

6 If your spouse also has shares in the company, it is unlikely that you will both remain shareholders in the company after your divorce. A few divorcing couples agree to continue running their business together and to both remain shareholders after they divorce. However, in the majority of divorces one spouse transfers their shares to the other as part of the divorce settlement.

7 The date of separation may be relevant if one spouse is to transfer their shares in the company to the other. If shares are transferred from one spouse to another in the tax year of separation, the Capital Gains Tax liability that arises on the transfer is paid by the spouse who receives the shares as and when they sell the shares in the future. If the shares are transferred from one spouse to another after the tax year of separation, the spouse who is transferring the shares will have to pay any Capital Gains Tax liability that arises on the transfer shortly after the transfer.

8 Do not be tempted to transfer your shares in the company to a third party, in an attempt to reduce your spouse’s claims on divorce. Any disposals of assets that are at an undervalue can be set aside by a divorce judge, and if the disposal took place within the 3 years prior to the divorce the onus is on the spouse who “got rid” of the asset to prove that it was not at an undervalue.

9 Just because you have a business does not mean that your divorce settlement will end up being argued about in court. Once you have an appropriate valuation report a financial agreement can then be negotiated, without the need for a judge’s input.

10 Make sure that you obtain legal advice from an expert family solicitor who regularly deals with divorce cases where there are businesses.

If you are concerned about any of the issued raised here, please get in touch today. We are here to help.

Robert De Niro’s paying…

De Niro

Robert De Niro’s paying…

Robert De Niro and Grace Hightower are engaged in a tortuous divorce battle; recently the couple clashed in a virtual hearing over Ms Hightower’s spending habits. Partner Liz Cowell takes a closer look at the issues involved in the split.

The facts

Robert De Niro was married to his wife Grace Hightower in 1997.  Their relationship would be classified as a long marriage in our jurisdiction; this is despite the fact that they separated in 1999 and started divorce proceedings, because the divorce never went through, and they renewed their vows in 2004.

When the couple renewed those vows, they also entered into some sort of nuptial agreement.

The agreement would provide Ms Hightower with a $4.7m house and a further lump sum equivalent to approximately half a million dollars, plus an income of $1m per annum, providing that De Niro was earning at least $15m a year.

Now that the couple have separated again and divorced in 2018, Ms Hightower is seeking 50% of De Niro’s total wealth, which she estimates to be $500m.

Defending his position, De Niro claims that his ex-wife is a spendthrift and he has been forced to continue acting and taking part in films which he describes as “dreadful” to maintain the parties’ lifestyles.  He also claims that he has substantial indebtedness for unpaid taxes which he intends to pay off using the income earned from his next two films.

The matter has reached a preliminary stage in which the judge has pointed out to both parties that their expenses are extraordinary, which is an early indication that Ms Hightower’s demands to maintain her lifestyle spending circa $375,000.00 per month is unlikely to be supported by the court.

What would happen here?

Would Ms Hightower be bound by the nuptial settlement entered into when the parties renewed their vows?

In this jurisdiction there have been a series of decisions by the High Court that where the parties have given full disclosure of their financial position and have had proper legal advice, whilst not binding the court such an agreement will be used as evidence and will influence how the court approaches its duty of fairness.

From the information available in the media, it appears that Ms Hightower is now protesting that she was misled as to the extend of her husband’s wealth at the time of the agreement.  Given her status and financial acumen, such protestations would be easily rebutted if she was given full legal advice at the time, particularly as she had already been living with De Niro for several years and was unlikely at that stage to be ignorant of her husband’s earnings and wealth.

The matter of the extent to which the nuptial settlement should be considered would probably be dealt with at a preliminary hearing.

Division of assets

That said, after a long marriage the starting point for the division of assets is 50/50, taking into account pre-acquired wealth and after the deduction of each parties’ debts, which means that any financial settlement would be derived from the amount De Niro would have after his tax bills were paid.

It seems that De Niro’s legal team are complaining that he is being ordered to provide disclosure – however, in our jurisdiction disclosure is mandatory for all parties going back at least 12 months, and he would be required to provide the same, as would Ms Hightower.  Ms Hightower has been accused of hiding the purchase of expensive jewellery: this would have to be disclosed and valued.

Allegations

Sadly, it would seem that unpleasant allegations are being made about Ms Hightower who is accused of being a spendthrift, one who had started life as a waitress from a poor background.  It is implied that she married De Niro simply for his earning capacity.

Would this be relevant in our jurisdiction?

The answer to allegations about Ms Hightower’s background is that it would be utterly irrelevant, albeit the court would look at Mr De Niro’s pre-acquired wealth as well.

The allegations regarding her spending habits are relevant however; not because she is a spendthrift, but because the court needs to look at the parties’ resources, status quo and what are her reasonable needs.

Our courts would be minded of the fact that Mr De Niro is already 77 years old and cannot be expected to continue working indefinitely.

A challenge for the court brokering a financial settlement between the parties either here, or in the United States, is to try and achieve fairness and that is done here in England by applying a yardstick of equality. It is also mandatory upon the courts in England to achieve a fair, clean break where possible, and this can be done by dividing capital and working out how much income would be available from the capital to meet needs and if there was a shortfall, adding a further capital sum.

The court would be using the facts available to look at the nuptial settlement and maybe capitalise the maintenance payable, but given Mr De Niro’s age it is unlikely he would be expected to continue working for more than two or three years.

If Mr De Niro was before the English courts he would need to be more generous if he wanted settle matters, and he would be encouraged to stop making allegations about his wife, who is the mother of his child and to whom he has been married for more than 20 years. At the same time, Ms Hightower clearly needs to curtail her spending and put forward a reasonable proposal for settlement.

 

If you are are considering separation or divorce and require specialist legal advice, please get in touch today.  We are here to help you.

Do I have to pay tax on my divorce settlement?

do I have to pay tax on my divorce settlement

Do I have to pay tax on my divorce settlement?

Some people believe that as a divorce settlement takes place between a married couple tax is not payable, but that is not always correct. Partner Fiona Wood, who is particularly accomplished at dealing with divorce cases where there are substantial and complex assets, explains.

The type of assets that you and your spouse have and when you and your spouse separate will determine whether tax is payable and when it is payable.

How is tax factored into a divorce settlement?

When looking at the value of matrimonial assets, it is the net value that is relevant. Therefore if you have assets that will attract tax, usually Capital Gains Tax, when they are sold or transferred between spouses, the tax needs to be calculated and taken into account when calculating the total assets before you decide how they should be divided between the couple.

For example, if a couple jointly own a second property, a holiday home, which is worth £300,000, but if sold they would each have to pay Capital Gains Tax of £30,000, the value of the property taken into account within the divorce is £240,000.

Which assets attract tax?

The family home does not usually attract tax when it is sold or if transferred to one spouse, provided that it is the couple’s main residence, as it will qualify for Private Residence Relief in most cases.

Holiday homes or investment properties, if they have increased in value since they were purchased, are likely to result in the payment of Capital Gains Tax when they are sold or transferred to one spouse, as will some investments. Shares in private limited companies are also likely to attract Capital Gains Tax if sold or transferred to one spouse, although some tax reliefs may be available to reduce the tax payable.

With regard to payments of child maintenance and spousal maintenance, these are paid out of income that has already been taxed, so the recipient of these does not have to pay tax upon them.

Does  the date the assets are sold or transferred impact the tax payable?

If an asset is sold to fund a divorce settlement and tax is payable on its sale, it does not matter when it is sold, the tax will have to be paid. Given that we all have annual allowances for Capital Gains Tax there may be some advantage to assets being sold in different tax years, if a few assets are being sold within the divorce that attract tax.

Where an asset is transferred from one spouse to the other, if the transfer takes place in the tax year of separation, the total gain is retained by the spouse who is retaining the asset and they will pay the tax when they sell the asset at a later date. If the asset is transferred after the tax year of separation, the spouse that is transferring the asset will have made a disposal for Capital Gains Tax purposes and will have to declare this gain and pay the tax. In this scenario it is important that the spouse who is transferring the property has sufficient cash from which to pay their tax as part of the divorce settlement. When the transfer takes place does not reduce the tax payable, but it dictates when the tax has to be paid and which spouse has to pay the tax.

The date a couple separate can be very important from a cash flow perspective when looking at their financial settlement. Some couples agree to transfer properties and shares in companies before they have reached a financial settlement, so that the transfers take place in the tax year of separation, thus avoiding having to find funds to pay tax liabilities at that juncture. Transferring the assets before a financial settlement is agreed does not change the financial claims that each spouse has within the divorce.

If you are experiencing problems in your marriage and have assets that could attract a payment of tax if transferred to your spouse or sold to achieve a divorce settlement, you should take advice from a specialist family lawyer and an accountant, in order to see what the likely financial settlement will be if you divorce and what tax is likely to be payable as a result of this.

If you are concerned about any of the issued raised here, please get in touch today. We are here to help.

Is my spouse entitled to share my bonuses if we divorce?

divorce and money

Is my spouse entitled to share my bonuses if we divorce?

Many companies offer a bonus scheme to their employees; the financial sums received under these schemes by employees range enormously. For some, the bonuses they can receive are significant, and in some circumstances they can double their salary for the year. How will these bonuses be treated if a couple divorce? Partner Fiona Wood offers her advice.

Matrimonial assets

Bonuses that are acquired whilst the couple are together are usually considered matrimonial assets. This is the case if the bonus is received after separation but is for a financial period whilst the couple were together. In this scenario the bonus received will be put into the “matrimonial pot”, along with all the other matrimonial assets that are to be divided between the couple, either by agreement between them or if there is no agreement, as ordered by a judge.

If one spouse receives a bonus that relates to a period of work undertaken after the couple separated, this money will not automatically be ring-fenced and remain with the spouse who earned it. The parties’ financial needs have to be considered first when looking at what is a fair settlement. Unless there are significant matrimonial assets, a judge will not be able to ignore the bonus when looking at how the matrimonial assets should be divided, when considering the issue of need. Need is usually having money to enable you to buy somewhere suitable to live and money to meet your living expenses.

Bonuses earned in the future

What about bonuses earned in the future? Once the appropriate division of assets and pensions has been undertaken, you have to also consider whether it is appropriate for one spouse to pay spousal maintenance to the other spouse going forward. If spousal maintenance is not needed, as both spouses earn enough to meet their income needs, a clean break order will be made, preventing either spouse from making any financial claims against the other in the future. All bonuses received after the clean break will remain with the spouse who has earned them.

Whilst the law says that there should be a financial clean break between a couple if this is possible, in many cases one spouse cannot manage financially without spousal maintenance from the other going forward. In this scenario the amount paid as maintenance will depend upon the income that both spouses receive, taking into account their earing capacities, any other sources of income that they both have, and their reasonable income needs. If one spouse regularly receives large bonuses, a judge will not ignore these and can, if considered appropriate to meet reasonable need, order that a percentage of any net bonus received be paid to the other spouse, in addition to monthly payments, as part of the spousal maintenance payments.

It is worth noting that the Court of Appeal in the case of Waggott v Waggott [2018] stated that an earning capacity is not an asset that is capable of being shared on divorce. Therefore, one spouse is not entitled to half of the other’s income, even when an equal division of the assets and pensions are considered appropriate on divorce. Spousal maintenance should be calculated on a needs basis rather than on a sharing basis.

Child maintenance

With regard to child maintenance, this is governed by the Child Maintenance Service, whose calculation will take into account the payer’s previous year’s income when calculating the appropriate amount of child maintenance that should be paid. Bonus payments received will therefore be taken into account when calculating child maintenance. This can cause problems for some people who receive large bonuses some years but not in others. In this scenario they will have to be reassessed each year that their income changes, if they have not managed to agree the amount of child maintenance payable directly with their former spouse.

If you are concerned about the financial settlement that your will receive if you divorce,  please get in touch today. We are here to help you.

Does adultery make a difference to your divorce settlement?

adultery and divorce

Does adultery make a difference to your divorce settlement?

Sometimes a client comes into our offices, extremely upset as their marriage has broken down because their other half has found someone else and wants to start their life afresh with them. Sometimes that new client wants “revenge” and sees the possibility of punishing, financially, their soon-to-be-ex-spouse through the ensuing divorce.

By and large the court is not interested in why the marriage is ending

In fact, one of the most common assumptions around divorce is that there will be a financial impact if one partner has had an affair and left the marriage as a result. But this rarely makes any difference to the overall division of assets, because when it comes to money, by and large the court is not interested in why the marriage is ending, but rather what resources each party has available, and how they are to be divided fairly.

Does adultery count against me during my divorce?

No, it doesn’t.  It is one of the myths around divorce that the unfaithful party should be treated more harshly, but a marriage breaks down for many reasons and is rarely attributable only to one person’s actions.  There may be multiple problems already present in the relationship which has led one party to commit adultery, and judges understand this. In the eyes of the Court, determining how the matrimonial assets should be divided is based entirely on fairness.

In practice, this means that should you commit adultery and this is the cause of the irretrievable breakdown of the marriage, you are unlikely to receive a less favourable financial outcome because of this, nor will the person who did not commit adultery achieve a more favourable one.

The Court is under a duty to consider all the circumstances of the case and in particular the Section 25 Factors, and apply these to the facts of the particular case. The starting point when it comes to division of assets is 50/50 and the court is able to apply an element of discretion as to the award.  No two cases are identical.

The courts are not there to judge you and your marriage

It’s also worth bearing in mind that adultery in and of itself is not quite enough from a legal perspective to sue for divorce. If you want to divorce your spouse on the grounds of adultery, you must also state that you find it “intolerable” to continue living with your spouse.  Ask yourself if the adultery is the sole reason for that situation. It may only be the last, the very final, stage in the collapse of the marriage.

Finally, here’s something worth bearing in mind.  There is a six month time limit from finding out about the adultery – wait any longer than that to petition for divorce, and the family courts will take it as read that you didn’t find the adultery intolerable at all.  And despite television programmes and films encouraging us all to think you have to obtain proof of adultery and be able to name the other person, you don’t.  If your spouse won’t admit the adultery, then you can proceed on the basis of unreasonable behaviour instead.

Remember: no matter how betrayed, or how guilty, you feel, infidelity is not against the law and the courts are not there to judge you and your marriage.  They are there to try and reach as fair an outcome as possible and to ensure the welfare of any children you have with your soon-to-be-ex.  It’s different if truly appalling behaviour has taken place – domestic violence for example – but thankfully such extremes do not affect most divorcing couples.

If you are affected by any of the issues outlined here, please get in touch today. We are here to help.

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