Why London is the Divorce Capital of the World

The divorce industry in Britain is worth more than £1 billion ($1.9 billion) a year and mega-bucks settlements abound.  Divorce rates are slightly down, yet the UK divorce industry is in rude health. One reason is the huge number of international super-rich who have chosen to live in politically stable London; another is the large number of divorce “tourists” attracted by the long-standing reputation of British judges for awarding generous settlements to the “financially weaker spouse” (usually the woman).

The last couple of years have seen the record £337 million pay-out by financier Sir Chris Hohn, while former Oasis singer Liam Gallagher was forced to hand over half of his £11 million fortune to his former wife Nicole Appleton after an £800,000 fight.

The richer halves of couples concealing their assets – or the poorer half claiming they are doing so – is an increasingly common phenomenon. Last summer came the latest installment in the long-running case of oil baron Michael Prest, who claimed he was £48 million in debt, though his estranged spouse Yasmin estimated his wealth at “tens if not hundreds of millions of pounds”. Appeal judges threatened Prest with a jail sentence for failing to pay £360,000 owed in maintenance. He is now appealing to the European Court of Human Rights.

Liam Gallagher was ordered to pay his ex-wife half of his fortune.

Liam Gallagher was ordered to pay his ex-wife half of his fortune.

Previously, there was the case of property tycoon Scot Young, who was jailed for six months over his refusal to pay his ex-wife Michelle and their two teenage daughters maintenance, claiming his £400 million fortune had evaporated, leaving him bankrupt. The saga ended tragically last year when Young died after falling from the roof of his £3 million central London penthouse, with the coroner refusing to rule his death a suicide.

According to Ayesha Vardag, who has acted for Pauline Chai and Michelle Young, hiding assets is so common that her firm, Vardags, established a “financial forensics team” to track them down. “Some people behave in ways that are positively crooked; others are just a little bit sharp,” she says. “They already have their wealth in complex structures and in accounts in places like Mauritius, to minimise the amount of tax they pay, and that can make it difficult for an untrained eye to track it down. One banker claimed his income had dropped from £600,000 a year to less than £150,000 before our team found his bonuses were simply being siphoned off to a trust in the Cayman Islands.”

Some clients, she says, become suddenly, uncharacteristically generous, donating money to obscure charitable trusts with cash later extracted “through complex mechanisms”, or “gifting” huge sums to a relative who then repays them without leaving a paper trail. Others try to hide their cash by buying items like antique rugs, paintings, yachts or ancient coins, or embark on a scorched earth policy, opting to simply spend all their money rather than share it.

He’s a fabulously wealthy fashion tycoon. She’s a former Miss Malaysia with an Imelda Marcos-scale shoe fetish.

They have homes in five countries, and after 43 years of marriage, share one big problem: They can’t agree on where to get divorced.

So for the past two years, Tan Sri Khoo Kay Peng and Pauline Chai have been slugging it out in the courts, spending millions of dollars in legal fees to decide where they’ll ultimately divide the hundreds of millions left in the bank: Malaysia or England.

 

But it’s not an unusual tangle for London. If Paris is the city of love, London has become the world capital of divorce – a global magnet for those who possess both astronomical sums of money and a burning contempt for their spouse.

divorce, separation, property settlement

Tan Sri Khoo Kay Peng and Pauline Chai are arguing about where they should get a divorce.

Depending on your perspective, the laws there are either notoriously or gloriously favourable to the non-breadwinner – traditionally, though not always, the wife. Regardless of who made the money, courts there generally stick to 50/50 settlements and lifetime alimony payments while showing zero tolerance for hide-the-asset shell games and only limited appreciation for prenups.

The laws have been that way for years – since a 2000 case involving two dairy farmers set a precedent for equal treatment of breadwinners and homemakers. But the difference now is the phenomenal sums involved as London has emerged as a playground for Russian oligarchs, Chinese moguls and gulf sheiks.

The wealthiest Brits are part of the phenomenon, as well: Late last month, a British hedge fund manager was ordered to pay his American-born wife $653 million – reportedly the largest settlement in English history.

If Peng and Chai settle their divorce in their home country, she’s likely to receive only a small fraction of a fortune estimated at a billion dollars or more. If they settle here, she could get half.

“Of the two parties to a marriage, it doesn’t matter who was the breadwinner and who was the homemaker,” said Vardag, explaining the rationale behind England’s approach to divorce. “They are equal partners in a marriage, and they are entitled equally to share in the fruits of that marriage.”

Chai, a 67-year-old mother of five, has argued that the case should be heard in England because her primary residence is the family’s estate outside London, where she keeps 700 pairs from her 1,000-strong shoe collection. An English court sided with her this fall and agreed to take the case.

But just weeks later, a Malaysian court sided with her husband – a major shareholder in the retailer Laura Ashley – and ruled the case should actually be heard there.

There’s no clear path for what happens next, but it won’t be pretty.

England’s unusually friendly treatment of the spouse who isn’t clearing big paychecks is, naturally, not terribly popular for the one who is.

Some have called for a shift to make England less of an outlier, perhaps by restricting the use of lifetime alimony payments. Many European countries – including Scotland, which has a separate legal system – offer alimony for only a few years. This is true for Australia too, where spousal maintenance is rarely awarded.

“It’s all getting a bit ridiculous,” said Camilla Baldwin, a high-end London divorce lawyer who has practiced for more than two decades. “It’s a major disincentive for mothers to get back to work.”

Already, there have been subtle shifts that have made England slightly less favorable to non-breadwinners than it used to be. In last month’s $653 million settlement between British financier Chris Hohn and his American-born wife, Jamie Cooper-Hohn, for instance, she received a third of the family fortune, not half, after he argued that he had made “a special contribution” to the marriage.

Prenuptial agreements, too, have become more popular in England – and more widely accepted by the courts. Judges now give pre-nups much greater credence than they used to.

We still believe that keeping divorce cases out of the court where possible is the best outcome. If you need advice about separation or divorce, contact us today for your FREE, 10-minute phone consultation.