Interesting Divorce case where expert report recommended joint custody and joint parenting where wife earned much more than husband and where wife had a company with net assets of €1.228 million 

This case looks at the concept of proper provision in Irish Divorce law in detail in ample resources [or big money cases such as this one] The Irish Family High Court only deals with Divorce or Judicial Separation cases where the assets are more than €3 million. 

In this case Judge Jordan of the Irish High Court in making his Order for Divorce 

-granted shared custody and shared parenting based on expert report which recommended this and directed that all childrens' costs to be shared equally.

-Refused husband's application to sell the family home and permitted the wife to buy the husband out of the family home for 50% of net value (Judge accepted contents which remained in house had a value and factored this into his decision, although value not specified by either husband or wife)

- granted lump sum to husband of 280k

-wife to retain sole ownership of the apartment abroad

- husband and wife to retain their other assets save as provided for above.

- equalised pensions and

- both sides paid their own costs.  

Judge Jordan stated at para 23 -

While this Court must afford equal recognition to the value of the contributions made by the applicant and by the respondent during the marriage, in their respective roles, this does not mandate an exercise of identifying and ensuring an equal division of the matrimonial assets.

Judge Jordan applied section 20(2) of the Divorce Act, 1996 to this case in deciding what was proper provision was in this case. 

(2) Without prejudice to the generality of subsection (1), in deciding whether to make such an order as aforesaid and in determining the provisions of such an order, the court shall, in particular, have regard to the following matters:

(a) the income, earning capacity, property and other financial resources which each of the spouses concerned has or is likely to have in the foreseeable future,

(b) the financial needs, obligations and responsibilities which each of the spouses has or is likely to have in the foreseeable future (whether in the case of the remarriage of the spouse or otherwise),

(c) the standard of living enjoyed by the family concerned before the proceedings were instituted or before the spouses commenced to live apart from one another, as the case may be,

(d) the age of each of the spouses, the duration of their marriage and the length of time during which the spouses lived with one another,

(e) any physical or mental disability of either of the spouses,

(f) the contributions which each of the spouses has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution made by each of them to the income, earning capacity, property and financial resources of the other spouse and any contribution made by either of them by looking after the home or caring for the family,

(g) the effect on the earning capacity of each of the spouses of the marital responsibilities assumed by each during the period when they lived with one another and, in particular, the degree to which the future earning capacity of a spouse is impaired by reason of that spouse having relinquished or foregone the opportunity of remunerative activity in order to look after the home or care for the family,

(h) any income or benefits to which either of the spouses is entitled by or under statute,

(i) the conduct of each of the spouses, if that conduct is such that in the opinion of the court it would in all the circumstances of the case be unjust to disregard it,

(j) the accommodation needs of either of the spouses,

(k) the value to each of the spouses of any benefit (for example, a benefit under a pension scheme) which by reason of the decree of divorce concerned, that spouse will forfeit the opportunity or possibility of acquiring,

(l) the rights of any person other than the spouses but including a person to whom either spouse is remarried.

Judge Jordan summed up the couples' assets in para 30:

As will be seen from the D v D schedule, the wife’s assets are significantly more valuable than the husband’s assets (after dividing the value of the family home equally between the parties). In this regard, the husband’s assets on his own figures comprise of total net assets of €1.6m approximately and pensions of €.6m approximately. The wife’s estimation of the value of the husband’s assets is in very close agreement with his. The wife’s assets on the husband’s figures are total net assets of €3.37m and pensions of €1.57m. The wife’s assets on the wife’s figures are total net assets of €2.76m and pensions worth €1.57m. This gives total matrimonial assets on the husband’s figures of €5m (total net assets) and pensions €2.18m. The total matrimonial assets on the wife’s figures are total net assets €4.34m and pensions of €2.18m. The Pension values have increased somewhat in the latest valuations to €.66m and €1.6m. The significant difference between the value of the assets relates to the tax treatment of the retained profits or accumulated assets in X Limited.

The wife’s current salary which she draws from the company is €180,000 per annum which is €8,325.75 net per month.

The husband’s income for the year ended 30th September, 2019 was €158,810 with investment income of €2,815.00 giving a net income of €89,240.00 or a monthly income of €7,437.00. There was a significant drop in income in 2020 due to the impact of the Covid-19 Pandemic. His income recovered in 2021 and the draft figures contained in his accountant’s report indicate that income received was within 10% or so of the income earned in 2019...

Overall however, when one looks at the income, the earning capacity, the property and the other financial resources which the applicant and the respondent have or are likely to have in the foreseeable future, one is driven to the conclusion that some provision requires to be made for the husband out of the wife’s assets in order that proper provision be made for him.

In this case Judge Jordan of the Irish High Court in making his Order for Divorce 

-granted shared custody and shared parenting based on expert report which recommended this and directed that all childrens' costs to be shared equally.

-Refused husband's application to sell the family home and permitted the wife to buy the husband out of the family home for 50% of net value (Judge accepted contents which remained in house had a value and factored this into his decision, although value not specified by either husband or wife)

- granted lump sum to husband of 280k

-wife to retain sole ownership of the apartment abroad

- husband and wife to retain their other assets save as provided for above.

- equalised pensions and

- both sides paid their own costs.  

Extract from S v D 

Jordan J. Irish High Court 1st November 2022 

[2022] IEHC 594 [2020 No. 107 M]

The company

The exit agreement which the wife negotiated with her former employers where she was in a senior position involves a termination agreement with her providing services to the business through the company known as X Limited. The agreement negotiated is apparently similar to that negotiated and entered into with other senior staff who retire. Under the agreement the wife retired and in return is to receive a specified sum for six years – beginning in 2017 and running until 2022 inclusive. X Limited was incorporated as the entity that was to receive these profits. The wife owns 100% of the company. She qualified for the arrangement due to her illness and was able to avail of the early retirement due to sickness provisions contained in her contract.

78. The company receives the funds arising from the exit arrangement and an annual salary is payable to the wife and has been drawn from these funds. It is stated that this will continue to be the case. The retained profits/net assets of the company as at 31st December, 2020 was €1,435,241.00. The estimated value of the net assets as at 31st August, 2021 is €1,832,320.00. If the wife withdraws this money from the company her accountant says that the funds would be subject to income tax. It is the after-income tax amount which the wife asserts is the value of the retained profits/net assets in the company.

79. The projected funds in the company as at 31st December, 2022 when the payments cease will be €2.3m according to the wife’s accountant. She says that this is sufficient to provide the wife with a continuing salary level of €164,286.00 for the following 14 years until she reaches retirement age.

80. The husband’s accountant’s report applies a capital gains tax rate to the funds in the company. Capital gains tax would be applicable in the event of a bona fide liquidation. If the company was to be liquidated the exit agreement would terminate 43 and no further payments would be made to the wife/the company. The wife says that it is her intention for the company to continue to provide an income for herself into the future given that the exit agreement income will cease in 2022. Her accountant says that capital gains tax is not the appropriate tax to apply in circumstances where no liquidation is envisaged.

81. Thus, the difference in value attributed by the wife’s accountants to the value of the shareholding and that attributed by the husband’s accountant depends on the actual taxation treatment which will apply to the extraction of the funds from the company.

82. In evidence the wife’s accountant asserted the view that the income tax rate would be payable on all the money which was extracted. The husband’s accountant was of the view that when the consulting arrangement with the previous employers ends the company could be wound up and that capital gains tax would be payable at the rate of 10% on the first million euro and 33% on the balance of the monies to be extracted. The husband’s accountant was of the view that entrepreneur relief (10% rate on the first one million) would be available if the company was wound up as it is a trading company.

83. There was agreement that if monies are extracted at the present time then the appropriate tax to apply is income tax. There was also agreement that if the company was wound up then the capital gains tax rate would be that applicable to the distribution of the assets. The wife’s accountant was not as optimistic as the husband’s accountant that entrepreneur relief would be available on the first million of assets. However, she did accept that there was nothing within the relevant Irish legislation which expressly excluded or prohibited the claim for such relief. She was concerned on 44 the equivalent taxation provisions in England and how the Revenue authorities in that jurisdiction had approached such claims.

84. On behalf of the husband it is asserted that the value of the wife’s interest in the company in the foreseeable future is the sum of €2.3m minus the deduction of tax at whatever rate the court considers is appropriate, having regard to the professional evidence which it has heard.

85. Insofar as the submissions are concerned, the court is of the view that: - (a) Having regard to the terms of the agreement it is correct to view any further payments to the company until the agreement ends as the wife’s income or almost all of her income between now and the end of the agreement. Meanwhile, the husband will also be earning his income. (b) In all these circumstances the court will adopt the above figure of €1,832,320 as of the 31st. August 2021 as the retained profits/assets in the company on which any division of assets should be based.

86. The exit agreement is clearly carefully thought out and structured from a tax point of view. On the evidence it is clear that the wife will have the option of liquidating the company and availing of the capital gains tax rate on the distribution of the assets in the company following the expiration of the agreement.

87. As a matter of probability, the court is satisfied that the wife will opt for the most tax efficient method of protecting the value of the retained profits/assets in the company when the agreement ends. It is probable that the company will be liquidated and that capital gains tax will be paid on the retained profits/assets.

88. Having heard the evidence of both accountants and of the parties the court is not in a position to say with certainty whether or not entrepreneurial relief will be claimed. However, the wife is cautious in her business dealings and is more likely to be 45 cautious in her approach to taxation when liquidating the company than not. In the context of the terms of the termination agreement involved and the nature of the services provided and work done by the wife for her previous employers pursuant to the agreement, or lack thereof, the court is of the view that claiming entrepreneurial relief would amount to an aggressive strategy in terms of the tax treatment involved and is not something which a risk averse person like the wife would contemplate. The court is satisfied that the correct approach is to allow for the deduction of tax on the figure for retained profits/net assets of €1,832,320.00 as of 31st August, 2021 at the rate of 33%. On that basis the value of the retained profits/assets for the purpose of a division of assets exercise is €1,832,320.00 less capital gains tax at 33% which is €1,228,000.00.

Decision

The Court is satisfied to grant a Decree of Divorce under Section 5(1) of the Act and pursuant to Article 41.3.2 of the Constitution.

The children 

As already stated, both children are much loved by and very attached to both parents. The report of X speaks for itself. There will be an order for joint custody of the children with a shared parenting regime in place and in accordance with the suggestions of X. There should be an element of flexibility built into the arrangements in circumstances where the father will require some flexibility of arrangements on occasions by reason of work commitments. In this regard, the evidence before the court suggests that the father intends to acquire and to have a home in proximity to the mother’s home so flexibility of arrangements ought not to be difficult. Furthermore, the father’s evidence is that his sister and her husband (both retired) are willing and able to assist him on occasion in relation to child care arrangements. This facility of family support will assist in providing any necessary flexibility in circumstances where the relationship between the children and their extended family is to be fostered and encouraged. Likewise, the arrangements should have an inbuilt flexibility for the mother. Again, the evidence is that she has family support available to assist and it is again important that the relationship between the children and the extended family on the mother’s side be fostered and encouraged. Agreed holiday arrangements ought to provide enough flexibility and opportunity for the children to meet relatives who reside some distance away. It is also expected that both parents will be able to agree on additional flexibility on some weekends if the children are “down the country” on a knock for knock basis.

91. The parents are to share equally the education, health, extra-curricular and ordinary costs of bringing up children. Each parent will obviously be responsible for looking after the children and their needs whilst in their care.

92. The court will direct both sides to reduce an agreement in relation to child care to writing in accordance with the suggestions of X and the court will, if necessary, decide on any issue in dispute in that regard (and will also grant liberty to apply as part of the court order). 93. In addition, the parties are encouraged to agree on a facilitator as the first port of call in the event that an issue arises in relation to childcare arrangements.

The Family Home 

The family home is in a good location and underwent a full renovation project in 2014 after it was purchased – which included a contemporary extension to the rear and an attic conversion. The substantial expenditure on the renovation project 47 is dealt with above. The valuer for the wife values the property at €1.9m and the valuer for the husband values the property at €2m.

95. The current mortgage on the property is circa €160,000.00. It is slightly less than that figure.

96. This Court determines the value of the property at circa €1.96m and determines the net value after the mortgage is paid off at €1.8m.

97. Arrangements to sell the house were at an advanced stage in mid-2021 at a price of €1.87m. This sale ultimately fell through in circumstances where the husband felt that they would do better by going to the market as opposed to proceeding with a sale to the purchasers who had made an off-market offer. Although a willing participant with her husband until the time he changed his mind, the wife decided, after he changed his mind, that the family home would be sold only if and when a judge might so direct (letter dated 6th July, 2021 from the wife’s solicitors to the husband’s solicitors).

98. The husband’s preference is that the house be sold and that the proceeds of sale be split equally between he and his wife. The husband is optimistic that the property would fetch €2m on the open market – and possibly more. The wife has now decided that she wishes to remain in the family home and she is prepared to pay the husband €900,000.00 for his interest in the family home and indemnify him in respect of the mortgage.

99. Insofar as a proposed sale of the family home is concerned, the court is of the view that: - (a) The family home was created as it currently exists at significant cost. It would be foolish to have the house sold on the open market when the professional advice is that the price likely to be achieved is not much more than the actual cost. 48 (b) A sale on the open market would involve disposal costs which should be avoided if possible. (c) A sale on the open market would have the effect of sending both parents out into the market where they would compete with one another (and others) for any houses available on the market. Indeed, there is a possibility that the parents would each endeavour to buy the family home – although it seems more likely that the wife would try to buy it than the husband (having regard to their age and available resources). (d) It is sensible that the two girls have the benefit of one familiar house. (e) It would be unfair to ignore the fact that the wife contributed most of the costs of acquisition and restoration of the family home. (f) On balance, the court will direct that the wife buy out the husband’s interest in the family home for the sum of €900,000.00. For the avoidance of doubt, she is also to be responsible for the mortgage on the property and is to indemnify her husband in that regard. The transaction and the payment of the sum of €900,000.00 by the wife to the husband is to be completed within six weeks of the date of this judgment.

100. An inventory of the contents of the family home is included in the papers.

The contents of the family home are to remain in it and belong to the wife save for: -

(1) The contents of the attic office which the husband is entitled to. (2) The husband’s personal belongings. (3) Any specific item or items listed on the inventory which is and can fairly be described as being of extra special sentimental value to the husband. For the avoidance of doubt, the court’s decision is that most of the contents listed on the inventory are to remain in the family home. The court is taking into consideration in fashioning the overall provision to be made for the husband the fact that the contents do have a value although no evidence was given as to the actual value.

Pension

By Agreement of the parties a Report on the Pensions, authored by a Consulting Actuary and dated 25th January, 2022, was provided to the Court on 28th January, 2022. The court considers it proper having regard to all of the circumstances that a pension adjustment order or orders are required in favour of the husband. The court considers it proper to have the pensions of both equalised. In this regard the wife’s pensions are now worth €1,600.949.00. The Pensions of the husband are now worth €659,998.00. 102. The court will make a pension adjustment order/orders directing that the Pensions of both parties be equalised. The Consulting Actuary states that this would be achieved by giving the husband a 29.4% share of the wife’s total pension funds which is about €470,476.00. Again, the court will grant liberty to apply so that the appropriate pension adjustment order(s) can be made in that regard if not ready for ruling now.

Lump sum

In order to buy out her husband’s interest in the family home the wife will have to arrange finance or use her savings and investments along with some drawings from the company and/or additional finance. However, her assets are substantial and her financial position is secure. The court considers that it is proper to make a lump sum payment order in favour of the husband having regard to the total assets in the wife’s hands after the orders referred to above. In this regard and having considered the evidence the court will direct that the wife pay to the husband a lump sum of €280,000 on or before the 31st day of January, 2024.

The wife is to retain sole ownership of the apartment abroad and the parties are to retain their other assets save as provided for above.

Legal costs

This Court is alert to the fact that both parties have incurred substantial legal costs. The court will, if necessary, hear submissions in relation to costs. However, it is the present intention of the court to direct that both parties bear their own costs and it will need to be persuaded that a different approach ought to be adopted.

106. It is the intention of the court to grant mutual blocking orders along with an exclusive right of residence to the wife in respect of the family home and the court will hear submissions in relation to any further consequential orders sought and decide in that regard in light of the submissions made in the event of a dispute. Any subsequent application to the court under a liberty to apply provision will be dealt with on its merits and may result in an order for costs being made in respect of that application against one of the parties if the court finds such an order appropriate.