Matthew Taylor, Partner at Stowe Family Law reflects on the recent Murdoch/Hall divorce as he explores the differences for high net worth individuals in coming to an agreement amongst themselves as opposed to going through the courts.
The divorce of Rupert Murdoch and Jerry Hall has resulted in predictable media attention, with speculation and interest surrounding not just the breakdown of the relationship itself, but also the mechanics of the separation. This week, further coverage revealed that Ms Hall withdrew her divorce petition prior to the parties announcing they had reached an out-of-court settlement.
As might be expected from a media mogul and former supermodel, in opting for a non-court based process, the parties have their finger firmly on the pulse of what is generally the favoured way for high net worth individuals (HNWIs) to resolve relationship breakdown.
For many HMWIs, particularly high-profile ones such as Mr Murdoch and Ms Hall, the prospect of washing the dirty linen of a relationship in public is unappealing. In a different legal sphere, one only has to look at the recent Johnny Depp and Amber Heard case to see how damaging court proceedings can be from a reputation-management perspective.
Because of this, more and more HNWIs opt instead for Alternative Dispute Resolution (ADR) methods, such as arbitration and private FDRs. These allow parties to reach settlements, whether by consent or imposed by an arbitrator, that are not made public.
In England and Wales, the financial remedy courts are currently undergoing something of a revolution in respect of transparency. Until recently, the general practice of the family courts was for judgments in financial remedy cases to be fully anonymised when published. However, senior members of the judiciary have made it clear in recent cases that the new default position is that anonymisation should be restricted to the identity of children.
This sea change in the way the courts deal with financial remedy cases provides high-profile parties with huge motivation to settle matters outside of court. But that is not the only reason. It is no secret that the court system is struggling, being overburdened with cases and suffering from years of underfunding.
A lack of judicial availability sees cases frequently adjourned at short notice, causing delay and increasing costs. By dealing with matters outside court, divorcing parties can avoid these issues and resolve issues in their own timeframe.
Of course, not all cases are suitable for ADR. It does not work in cases involving domestic abuse. It requires mutual trust and willingness to come to a resolution. Where there is a resistant or non-disclosing party, or allegations of domestic abuse, court proceedings will still be required to ensure justice can be done.
Reports following the Murdoch/Hall divorce have indicated that Ms Hall will receive Holmwood House – a Grade II listed Georgian country house and estate in Oxfordshire – as part of her settlement, along with a second property and lump sum rumoured to be in the £50-250m range.
While this is substantial, it only represents around 1% of Mr Murdoch’s reported $19.8bn net worth, with the bulk of his assets protected by the parties’ pre-nuptial agreement.
Pre-nuptial agreements are invaluable for HNWIs who establish their assets prior to marriage or expect to receive significant gifts and inheritance from wealthy parents during the marriage.
In England and Wales, while pre-nups cannot oust the jurisdiction of the court, they will usually be followed where both parties have taken independent legal advice, there has been full disclosure, and the pre-nup does not fail to meet the financial needs of both parties and any minor children.
As in Mr Murdoch’s case, a pre-nup can be an incredibly successful way to restrict a spouse’s financial claims on divorce, limiting such claims to their needs – which will be determined by numerous factors including the length of the marriage and standard of living during the relationship – rather than enabling a sharing claim to a greater proportion of assets.
In an alternative universe where Ms Hall and Mr Murdoch had been married for a longer period and there was no pre-nup, Ms Hall may have been able to make a sharing claim over Mr Murdoch’s entire fortune. This can create issues when that wealth is made up of a mixture of liquid and non-liquid assets, such as his holdings in 21st Century Fox, News Corp and various other media entities.
The court can take different approaches to dividing liquid and non-liquid assets. It retains the power to order a transfer of shares, although this can be an undesirable outcome in many cases and an impossibility in others where Shareholder Agreements can prevent or limit the ability for such orders to be implemented.
Commonly, settlements will involve one party retaining a greater proportion of non-liquid assets with the other receiving more liquid assets. The quid pro quo for this is that the value of non-liquid assets may be discounted, often heavily, to reflect the lack of flexibility and often the increased risk and volatility that such assets may attract when compared with the safety, not to mention the usability, of liquid assets such as properties or cash.
As the Murdoch/Hall case shows, for HNWIs settling out of court, and therefore the public eye, a private settlement is the preferred route, leaving any details purely as speculation in the media. As the family court in England and Wales becomes more transparent regarding financial settlements, we are likely to see more couples choosing to resolve their issues outside the court system to ensure they remain private.
Matthew Taylor is a Partner at national law firm Stowe Family Law