Therefore, the wife was awarded half of the future carried interest payments in respect of a fund almost at the end of its life, she was entitled to only 20 per cent of the carry in a fund mid-way through its term, and received no interest in the carry in a fund which had only recently commenced.
The judge took an instinctive approach to the fair division of each fund, having received detailed submissions on the work required at different stages in a fund’s life.
However, in the next reported private equity divorce case, A v M [2021] EWFC 89, the judge, Mr Justice Mostyn, took a more mathematical approach.
A hybrid resource
As in B v B, each party had argued for a particular characterisation of carry. However, in this case the judge held “it is my view that carried interest (‘carry’) is neither exclusively a return on a capital investment (as [the wife’s barrister] would have it) nor an earned bonus (as contended for by [the husband’s barrister]) but rather a hybrid resource with the characteristics of both”.
Nevertheless, like Mr Justice Coleridge before him, Mr Justice Mostyn approached carry in much the same way as a bonus. He held that the proportion of the fund’s projected life that fell during the marriage should be calculated. That proportion of the husband’s carried interest receipts would be divided equally, and the wife would have no interest in the balance.
Late last year, a further private equity-type divorce came before the High Court, ES v SS [2023] EWFC 177 (in which the authors again acted for the wife).
Here, the situation was somewhat different, as there were a number of individual investments run on a carried-interest model but outside a fund structure, with the husband’s investment company identifying suitable investments for others to invest in, developing and managing the investment and then sharing the fruit of the sale proceeds for its endeavours.
The judge, Sir Jonathan Cohen, took an instinctive approach to the share the wife should receive, awarding her 50 per cent of receipts from a fund the existence of which was wholly within the marriage, and a range of between 20 per cent and 40 per cent for future receipts from the remaining investments, depending on how close to the end of the marriage the particular investment was made.
It can thus be seen that despite Mr Justice Mostyn characterising carried interest as a “hybrid” resource, neither he nor any of the other judges dealt with it on a hybrid basis on divorce – it has simply been treated as income, with only that proportion of the return referable to efforts during the marriage shared.
