How Family Courts Handle Private Equity in Divorce Cases

A V M (NO 2) [2024] EWFC 214

Background

In this complex case, MGB Law represented the Husband (H), a private equity fund founder and partner, in a financial remedy matter following his divorce. At the initial final hearing in 2021, A v M [2021] EWFC 89, Mr. Justice Mostyn ruled that the Wife (W) was entitled to a share of both the co-investment and carried interest due to H from his participation in two private equity funds. To expedite matters, W’s entitlement in Fund 2 was consolidated into her interest in Fund 1. Over the following two years, W was “cashed out” and received her full financial entitlement.

However, Fund 1 was terminated approximately two years earlier than originally anticipated. The final corporate assets in Fund 1 were transferred to a Continuation Fund, in which H maintained a vested interest, in line with standard private equity practices.

The New Proceedings

In 2024, W filed a fresh application, seeking a share in H’s interests in the Continuation Fund. H opposed this, arguing that the original order by Mostyn J was clear and had been fully executed. He contended that W had no grounds to re-litigate based on events that were unforeseen at the time of the 2021 hearing, particularly since W had already received her share.

Notably, W proposed to return a substantial portion of the payout she had received from Fund 1, seeking instead to be “invested” in the Continuation Fund. H argued that this was not feasible, as fund rules prevented her from becoming a direct investor in her own right. Instead, her attempt to leverage H’s vested interest in the Continuation Fund was, in effect, a variation of the original order—something H maintained was not permitted under a strict interpretation of Mostyn J’s ruling.

W countered that denying her application would undermine the “Wells sharing principles,” established in the landmark Wells v Wells case. She argued that such a refusal would unfairly privilege the legal owner of private equity interests (typically the husband) over the “shadow investor” (usually the wife).

The Court’s Decision

The matter was heard by Sir Jonathan Cohen in August 2024. He ruled that W’s application was not an attempt to set aside the original order and rejected her arguments. Sir Jonathan noted that Mostyn J’s order had been fully executed, and there was no reason to revisit it, especially given that the court was not asked to consider the Continuation Fund during the original proceedings.

In addition to rejecting W’s application, Sir Jonathan also refused her permission to appeal and awarded costs in H’s favour.

For further information on the decision, you can view the full judgment here: 
Financial Remedies Journal: A v M (No. 2) – Construing a Court Order After the Unforeseen Occurs