|
As everyone reading this will be aware Mr. Justice Bennett, the High Court Judge hearing the financial proceedings relating to the McCartney divorce took the unusual step of authorising the release of his judgement. This is a lengthy and carefully reasoned document. Whilst those parts of the judgment relating to the parties’ needs, conduct and lifestyles have been widely reported there are also particular areas of interest for those who advise and represent successful artists.
Over recent years there has been a seismic shift in the way the family courts approach the division of the assets of the wealthy on divorce. That shift has been away from awards for the less wealthy spouse calculated on a needs basis towards a starting point of equal division of assets. That starting point has however been held to be more easily displaced in respect of assets brought into the marriage than in respect of assets generated during the course of the marriage – and particularly where a marriage is of short duration.
The Judge accepted the submission of Paul McCartney’s QC that, given the particular circumstances of this case, namely the enormous pre-marital wealth and the marriage’s brief duration, the central issue in determining the award was the level of Heather McCartney’s needs – the Judge declaring this to be a factor of “magnetic importance”.
However there was contested evidence before the Judge as to the value of Paul’s assets at various dates - evidence which was of course prepared and presented before the Judge had come to his final conclusion as to how the award should be calculated.
A particular issue that arises in divorces involving successful artists is how the continuing income streams from earlier work should be treated – and specifically those elements of the streams that arise from material generated prior to the marriage. In Paul’s case much of this material was of course generated many years before the marriage. The judgement gives some indications of how these issues should be approached – although caution is required as the judgement contains selective quotes from what were clearly complex and detailed expert accountancy reports.
It is apparent from this judgement that as part of the initial presentation of his case, Paul had presented a detailed expert’s report detailing his assets, including his business assets, at the date of the marriage in 2002 and at the date of separation in 2006.
Heather McCartney had, inevitably, also instructed accountants to investigate Paul’s affairs on her behalf. At a preliminary hearing however the Judge limited the enquires they could make – on the basis essentially that such enquires had to be limited in a case where the husband’s wealth was in the Judge’s words ‘vast’ and where he could already satisfy the award the wife was seeking.
Initially an issue had arisen as to the dates on which it was appropriate to value Paul’s assets. Heather’s QC (at that time she was still represented) submitted that it was appropriate for a valuation of the assets to be carried out as at March 2000 - which was the date Heather was alleging she and Paul had entered into a cohabitation which led seamlessly into marriage. Although this was resisted by Paul’s QC, the Judge accepted this information should be available to the Court and ordered the parties’ accountants to prepare a joint report or, if they were unable to agree, a report setting out the areas of disagreement.
Agreement was not reached and both parties’ accountants gave evidence at the final hearing concerning the 2000 valuations. The disagreement centred around the multiples to be applied to the relevant income streams to arrive at a notional capital value for those income streams – the two examples referred to in the judgement were the ‘net publishers share’ and ‘royalty income’. So far as one can glean from the selective extracts from the report in the judgement it would appear that the expert instructed by Paul had, with one exception, utilised identical multiples for the 2002 and 2006 calculations but a higher multiple for the 2000 calculations. The multiples were applied to a 5-year average of earnings. Heather's expert argued that the use of the different multiple had not been justified by evidence of a significant change in sentiment in relation to music industry assets over the relevant period.
However the Judge was clearly impressed by the approach of Paul’s expert:
‘Mr Wallis in my judgement convincingly answered those points. When he researched the sale of catalogues he looks at transactions around 2002 to 2006. It was clear to him that in March 2000 (the very top of the stock market) market sentiment was much stronger. Major music company shares e.g. EMI, Universal and Sony were trading at 60% higher then than in 2002. The prospects for a digital boom were thought to be good but by 2002 and 2006 the sale of CDs was declining, piracy was a real problem, and the rosy prospects of the digital boom had not materialised. He took the same multiples for 2002 and 2006 because the market had recovered somewhat to its 2002 level. He did research for 1999 but could find no relevant market transactions in the public domain.'
Having carefully analysed the expert evidence regarding the 2000 valuation the Judge in effect then ignored it, as a result of his finding that the relevant starting date for calculating the increase in assets during the course of the marital relationship was 2002 not 2000.
In a different case where the marriage is longer and the assets merely substantial as opposed to ‘vast’ then the issues surrounding the valuation of historic income streams at different dates and the extent to which it is fair to apply a presumption of equal division to such assets where they derive from creative activity prior to the marriage may however take centre stage, and be a critical factor in determining the eventual award. Howard Stacey
312
Simkins' early warning bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.
<< back to articles & bulletins
|