How can I prove my husbands hedge fund has capital value?

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11 May 2023

How can I prove my husband is downplaying his investments?- Emily Brand provides expert commentary in The Financial Times

Family & Divorce Partner, Emily Brand provides expert commentary in the Financial Times looking at the following scenario...

Q: I am filing for divorce from my husband of 10 years, who owns a hedge fund. He claims his fund has no capital value and that the sole financial consideration should be the profits distributed on an annual basis. What can I do to prove he is trying to downplay his assets?

A:  Emily Brand, partner and head of family, says that when a court in England considers the financial arrangements of a divorce it first tries to establish where the assets, income and liabilities of the couple come from. If an asset has been generated during the marriage by the parties’ own efforts, it will be considered a marital asset and as such may be subject to the “sharing” principle.

This generally means that the asset will be shared equally unless one party has a greater need or if any “value” can be found to originate from before the couple got married. Your husband’s interest in the hedge fund appears to be a marital asset, which means it is capable of being shared.

A business asset such as a hedge fund is a complex financial animal, however, often relying on the skills of the owner, who usually — with a team — manages the fund. If the fund performs well it could receive substantial performance fees. These fees will be distributed as profit to the owners of the hedge fund, including your husband.

Hedge fund investors have traditionally been able to redeem their investments automatically if the fund manager (which I assume your husband will be) retires or leaves the business. This is on the basis that the individual fund manager is seen as necessary to the fund’s successful performance. It may be on these grounds that your husband is arguing that the business has no capital value.

Regardless of your husband’s arguments, you can apply to the court for an expert to carry out a valuation of your husband’s interest in the fund. In calculating that value, the expert may examine whether any comparable hedge funds have been sold recently and for what price, and the anticipated future profits (as well as past profits) of the fund. If the court is persuaded there is a capital value, you may be entitled to a share in that and any direct investment your husband may have made during the marriage into the fund.

The income your husband generates after the divorce is not generally considered a marital asset. Therefore, your claims against your husband’s remuneration from the hedge fund could be limited to your needs only. This means that even if your husband’s income is substantial, your maintenance needs are likely to be assessed in line with the lifestyle you enjoyed during the marriage, regardless of whether this might leave your husband with a considerable surplus.

This article was first published in the Financial Times in May 2023.