ES vs SS [No. 2]

This case concerned the division and management of matrimonial trust assets following the financial remedy proceedings between ES and SS.

TLDR:

• ES and SS disputed the division of matrimonial trust assets.
• The court had to determine the fate of The M Trust.
• The trust was ultimately ordered to be wound up with proceeds divided equally.

The applicant, ES, and the respondent, SS, were involved in financial remedy proceedings following their divorce. The main issue was the division and management of The M Trust, which was settled by ES at the instigation of SS. The trust's assets were deemed entirely matrimonial, and both parties had equal entitlement to them.

By the time of the final hearing, both parties agreed on their equal entitlement to the trust's assets. However, there were significant difficulties in valuing the net assets due to complex tax liabilities across different jurisdictions and the valuation of L Co, a non-financial investment (NFI) held within the trust.

ES wanted the trust wound up to sever ties with SS and his ventures, while SS preferred to keep the trust in existence for perceived tax advantages. The trust's letter of wishes indicated a division of the trust fund in the event of divorce, with half going to each party and the remainder to their children.

During the hearing, SS argued for maintaining the trust to avoid speculative exercises in valuing tax liabilities and L Co. The court initially intended to retain the trust for the children's benefit, with tax liabilities borne by the trust assets or shared between the parties if necessary.

However, the parties failed to agree on the order's terms, leading to further hearings. SS eventually proposed winding up the trust with assets applied for the children's benefit, while ES wanted an equal division of the proceeds, attributing the NFIs to SS.

The court considered various alternatives, including creating a bare trust, a new settlement, or distributing funds to the parents with an undertaking to gift them to the children. Each option had significant drawbacks, including tax consequences and practical issues.

The court concluded that winding up the trust and dividing the net proceeds equally was the simplest solution. This approach avoided endless tax arguments and ensured a fair division of assets. The NFIs were attributed to SS, reflecting his ventures and greater liquidity.

The court acknowledged the difficulty in calculating tax liabilities in advance and retained funds to meet these liabilities, ensuring equitable distribution. The decision aimed to prevent further disputes and simplify the division process.

The court's order provided a roadmap for winding up the trust, rejecting inflated valuations of L Co and emphasizing the need for practical, straightforward solutions. The parties were left to draft an order reflecting the court's determination, with minimal likelihood of cost orders for either party.

This case highlights the complexities of dividing matrimonial trust assets and the importance of practical solutions in financial remedy proceedings.

Legal representatives: Mr. N Yates KC, Mr. D Hagen KC, and Mr. B Wooldridge (instructed by Hubers Law LLP) for the Applicant Wife, Mr. H Oliver KC and Ms. J Palmer (instructed by Stewarts Law) for the Respondent Husband.

Judicial Panel: Sir Jonathan Cohen

Case Citation Reference: [2024] EWFC 59