The recent case of A v M (No. 2) [2024] EWFC 214 offers significant insights into the complexities of financial remedy proceedings in divorce, especially when dealing with intricate financial structures such as private equity investments. This case, adjudicated by Sir Jonathan Cohen, sheds light on the challenges and intricacies involved in enforcing financial orders post-divorce, particularly when unforeseen circumstances arise.

Background: The Original Financial Remedy Order

The original financial remedy order, issued by Mostyn J in January 2022, dealt with the division of assets between a private equity professional, referred to as H, and his former spouse, W. The order required H to pay W specific lump sums based on percentages of his capital and income proceeds from his investments in a private equity firm, X Co.

The order was particularly complex due to the nature of H's investments, which were tied to two funds, Fund I and Fund II. The crux of the issue lay in the distribution of proceeds from Fund I, which was still active at the time of the divorce.

The Dispute: Continuation Fund Complications

The dispute in A v M (No. 2) arose when H's investment in Fund I was partially transferred to a Continuation Fund (CF), a common practice in private equity when a fund is ending but still holds assets that are not yet ready for sale. H received his share of the proceeds from the sale of some Fund I assets but was required to reinvest in the CF, which held the remaining assets.

W argued that she was entitled to share in H’s reinvestment in the CF, rather than being cashed out of the original Fund I investments. She contended that H’s failure to disclose the details of the CF deprived her of the opportunity to share in any future gains from these assets. This raised a critical question: Did the original financial remedy order entitle W to continue benefiting from H's investments in the new fund structure?

The Court's Interpretation: A Matter of Construction

The central issue in the case was the interpretation of the original order. Sir Jonathan Cohen had to decide whether the order gave W a right to share in the CF or whether H's obligation was limited to paying W based on his receipts from the original Fund I investments.

W's case was that the order should be interpreted to allow her to share in the CF, as the order's intent was to give her a fair share of H's wealth as it grew over time. On the other hand, H argued that the order only required him to pay W based on the proceeds he received from Fund I, not from any reinvestments.

Ultimately, the court upheld the original order's intent and found that H was not obligated to share his interests in the CF with W. The order was a contingent lump sum order, meaning W was entitled to a share of the proceeds from the original investments but not from any subsequent reinvestment decisions made by H.

5 Key Tips for Practitioners and Clients

1. Understanding Complex Financial Instruments: This case highlights the importance of understanding the nature of financial instruments involved in divorce settlements, particularly in high-net-worth cases involving private equity or other complex investments.
2. Clarity in Drafting Orders: The dispute underscores the need for clarity in drafting financial remedy orders. Practitioners must anticipate potential changes in the structure of investments and clearly define how such changes will affect the division of assets.
3. Ongoing Disclosure Obligations: H's breach of disclosure obligations was a critical issue. This case serves as a reminder that parties must comply with ongoing disclosure requirements to ensure transparency and fairness in post-divorce financial arrangements.
4. The Role of Continuation Funds: For those involved in private equity, the use of Continuation Funds is a significant factor to consider in financial remedy proceedings. The decision in this case may serve as a precedent for how courts handle similar situations in the future.
5. The Importance of Timely Legal Action: W's argument was weakened by the timing of her challenge. It is crucial for parties to act promptly if they believe that a financial remedy order is not being properly implemented.

In conclusion, A v M (No. 2) provides valuable lessons on the complexities of enforcing financial orders in divorce cases, especially in the context of private equity investments. Practitioners should take note of the nuances in this case to better navigate similar challenges in future cases.