In A v M, Mr Justice Mostyn was more sensitive to the husband’s opposition to such an arrangement, recognising “his great unhappiness that the wife should be a shadow carry partner in both funds”, and so “relocating” the wife’s interest in the second fund to give her a larger interest in the first fund.
In ES v SS, the fact that one of the investments sold during the proceedings for 10 times more than the value that had been attributed to it contributed to the judge taking a Wells approach, despite the husband “rail[ing] against” this outcome.
The Treasury and the divorce courts have adopted opposing characterisations of carried interest; in both cases the approach selected operates to the advantage of the fund manager. Labour’s proposed changes would arguably introduce more consistency.
On the other hand, it must be recognised that there are different considerations and motivations at play.
In the divorce courts the judges must achieve a fair settlement between the two individuals before them, with the valuation difficulties posing additional problems, whereas tax policy must consider far wider concerns – not only fairness, but also the broader economic consequences of changes to the tax regime.
It will be interesting to see whether a new governmental approach brings the two closer together.
Richard Kershaw is a family law partner at Hunters Law and Nicholas Yates KC is a matrimonial finance barrister at 1 Hare Court
