Richard Kershaw discusses sharing carried interest in private equity divorces in Lawyer Monthly

Richard’s article was published in Lawyer Monthly, 28 January 2022, and can be seen here.

Richard Kershaw, Partner in our Family & Relationships department, reflects on the recent High Court decision in A v M [2021] EWFC 89, which provides only the second detailed judicial ruling on how carried interest in private equity should be treated on divorce.

Traditionally, English law supports equal sharing of marital assets, including those generated during the marriage, but excludes post-divorce earnings unless spousal maintenance is justified. Carried interest, a significant and often delayed form of remuneration for private equity partners, complicates this principle due to its long-term nature and payout structure.

In contrast to the more instinctive and discretionary approach taken in B v B [2013], Mr Justice Mostyn in A v M adopted a formulaic method. He calculated the marital portion of carried interest based on the proportion of a fund’s life that had elapsed by the date of trial, not separation. This led to a calculated division of 53% of Fund 1 and 31% of Fund 2 as marital assets.

However, to simplify future financial ties, the judge relocated the wife’s entitlement from Fund 2 to Fund 1, awarding her 48.53% of Fund 1’s carry. The judgment also firmly rejected the argument that ongoing childcare responsibilities should extend the wife’s entitlement to future earnings.

This ruling offers greater predictability in such cases and underscores the growing importance of nuptial agreements in managing complex financial arrangements like carried interest.

Read the full article on the Lawyer Monthly website [subscription required].