Case No. EWFC-89

1.This is my judgment on the claim by the applicant (“the wife”) against the respondent (“the husband”) for financial remedies following divorce. The background facts 1 2.The husband is now 63 and the wife is 54. Both are US citizens, although the husband is of Italian origin. The wife is the daughter of extremely rich parents and is the beneficiary of valuable trust funds. 3.The parties were married in the USA in June 1994. The wife presented her divorce petition in July 2019. Decree Nisi was pronounced in January 2020 but has not been made absolute. The parties continued to live with their children in West London until May 2021 when the husband moved into rented accommodation in Holland Park. They also spent a considerable amount of lockdown together as a family in a superb property in the Caribbean owned by one of the trusts. 4.There are five children of the family:i)Child 1 (25) is undertaking legal studies and has recently started work as a paralegal;ii)Child 2 (23), currently working as a scientist, is planning to start a Masters or PhD in September 2022;iii)Child 3 (22) is a student at University in the USA;iv)Child 4 (20), is also a student at the same University;v)Child 5 (12) has started boarding at an English private school for girls.5.The children’s primary home is in West London. This large 7 bedroom property was purchased by the couple in 2014, their first owned home in London, they having rented in Notting Hill for many years. It is agreed that the property will be sold: it is subject to a large mortgage with Barclays (£3.25m) and, whilst not secured, a loan of nearly £4m to one of the trusts. Both debts will be repaid on sale.6.The parties own a property in New York.This was the family home before the move to London in 2000 and has been rented out over the intervening years. The property is worth $2.5m and is subject to a mortgage debt of $537,750. The parties will also have US capital gains tax to pay on disposal. The parties are agreed that the property will be sold.7.The parties own a property in Italy. The husband wishes to retain the property. It has been valued at €1.36m by an Italian SJE, a value which is rather less than the amount spent on the property by the parties. The wife says that the property should be sold: she says that the location is one of the most sought after in Italy and whilst there may be issues with planning permission, it is likely that a purchaser will pay considerably more for the property than the SJE’s figure, itself based upon a hybrid assessment of agricultural and residential land values. There is no evidence at all to support the wife’s personal theories. I will be taking the SJE valuation.8.The husband has worked in the finance sector throughout his adult life, much of that spent in private equity. For many years he was a partner with a large American private equity business. It was with that business that the husband moved to London in 2000 to head up their London office. The husband left in 2010 and worked for himself until 2015, operating essentially as a consultant on a deal-by-deal basis. His long standing ambition was to start his own fund, and this was achieved in 2015 with the creation of X Co. The two funds 9.X Co was founded by the husband and a business partner. A description of the nature and structure of private equity funds such as those in issue in this case is given with great clarity by Coleridge J in B v B [2013] EWHC 1232 (Fam) and does not need to be repeated here. The two funds here follow that model. 10.For what it is worth, it is my view that carried interest (‘carry’) is neither exclusively a return on a capital investment (as Mr Webster QC would have it) nor an earned bonus (as contended for by Mr Brooks) but rather a hybrid resource with the characteristics of both.11.Fund 1 was established by the husband and his partner in October 2016. Its first close was in March 2017 and its final close was in March. €187 million has been committed by its investors of which €178 million has been invested in businesses. The term of the fund is eight years from first close with the possibility of two one-year extensions. I have assumed, based on the evidence I heard, that a single one-year extension will be taken.12.Fund 2 was established by the husband and his partner in October 2018. Its first close was in June 2019 and its final close was in December 2020. €323 million has been committed by its investors of which €151 million has been invested in businesses. The term of Fund 2 is stated to be 10 years from first close. However, the term of funds such as these is not set in stone. As indicated above, the term can be extended. Equally, the term can be abridged, sometimes considerably so, where investments are realised sooner than originally planned. Having regard to the evidence I heard, and given that Fund 2 is in the early phase of its existence, and in order to compare like with like, I propose to take the term of Fund 2 as nine years from its first close.13.The following points should be noted. i)During the life of the fund the fee charged by the management partnership, payable from investors’ money, is initially set at 2%, reducing to 1.75% as the investment phase ends. Mr Webster QC has calculated that the mean net of tax income drawn by the husband for the three years 2018, 2019 and 2020 was £476,000. The husband says that as Fund 1 comes to fruition the fees will inevitably reduce. He predicts that the management partnership will soon be running at a loss. ii)The hurdle rate is set at 8% p.a. compounded. Thus over a 9 year term the compounded hurdle factor is 1.089 = 2.iii)The husband expects to more than double the value of the investments. He told me that he had expressed the hope to the investors that a factor of 2.5 would be achieved for each fund. iv)If the husband and his business partner only achieve a doubling of the investments in the funds there will be no carry. The wife’s claim to share in the husband’s carry and co-investment in the two funds 14.For the purposes of my decision I shall calculate the marital acquest as at the date of trial. I note that Mr Justice Coleridge did so in B v B. In my opinion this should be the general rule unless there has been needless delay in bringing the case to trial. I gave my reasons for this view in my recent decision of E v L [2021] EWFC 60 at [71] – [73], which I do not repeat here. Shortly put, it is normally the right date because the economic features of the parties’ marital partnership will have remained alive and entangled up to that point. The fruits of the partnership will not have been divided and distributed. The share of one party in the partnership assets is likely to have been unilaterally traded with by the other. I accept that a different view might be taken in respect of a completely new asset brought into being during the interregnum between separation and trial. But that is not the case here. Here we are concerned with assets acquired pre-separation but worked on during the period up to trial.215.It is my decision that for each fund the marital, and therefore shareable, element of the carry should be calculated linearly over time. The calculation will be A ÷ B = C where A is the period (measured in months) from the establishment of the fund to October 2021 (the date of trial); B is the number of months from establishment to first close plus 108 months (i.e. 9 years from first close – see para 12 above); and C is the marital fraction of the husband’s carry, expressed as a percentage. The projected value of the husband’s carry is then multiplied by C to give the marital carry.16.My primary decision is that the marital carry in each fund shall be shared equally. On the facts of this case that is the decision which resonates with fairness.17.I divert at this point to dismiss, briefly but emphatically, a submission by Mr Webster QC that the wife should be entitled to share in carry generated by the husband after the date of trial by virtue of her “contributions to the family” in caring for the parties’ 12 year old daughter who is at boarding school. This argument crops up from time to time and is completely untenable. The concept of the sharing of the acquest is predicated on the parties being in an economic partnership. The decision of the judge at trial is to dissolve the partnership and to distribute fairly, which means normally equally, the partnership assets. The idea that a valid claim can be made to share assets which have already been divided and distributed, or to share earnings or profits which have been generated after the dissolution of the partnership, is completely unprincipled. It would be a good thing if this argument were finally to bite the dust.18.I revert to the two funds.19.Fund 1 was established in October 2016. Its first close was in March 2017. Thus A is 60; B is 5 + 108 = 113; and C is 53%. Fund 2 was established in October 2018. Its first close was in June 2019. Thus A is 36; B is 8 + 108 = 116; and C is 31%.20.I am satisfied that 53% of the husband’s carry in Fund 1, and 31% of the husband’s carry in Fund 2, fairly represents the marital element of each of them.21.I agree with the husband that if there is to be Wells sharing it should be as limited as much as possible both in its size and in its range. I recognise his great unhappiness that the wife should be a shadow carry partner