Why is London the divorce capital of the world? | Video

Ayesha Vardag, the lawyer who fought for pre-nuptial agreements to be recognised in the UK, tells European CEO why London is the favoured jurisdiction for top-tier business people to get divorced


London: it’s Europe’s capital city in terms of banking and finance, tourism, and now it seems, even divorce. Ayesha Vardag, founder and chairman of the UK’s largest independent family law firm, and the lawyer who won a Supreme Court battle to have pre-nuptial agreements recognised in the UK, explains why.

European CEO: Well Ayesha, if we can start with the size of the divorce industry in the UK; what figures are we looking at exactly?

Ayesha Vardag: It’s hard to calculate these things, but we think it’s probably about a billion pound industry, overall.

European CEO: Why is London internationally regarded as the divorce capital of the world?

Ayesha Vardag: There’s such a concentration of wealth, of economic activity, or dynamism and life here, that that brings an awful lot of people from all over the world here. They make their homes here, and then when they come to divorce in the normal course of things, their divorce goes through the English courts.

There’s usually one of the parties – if they’re living here – who wants their divorce here. Partly because it’s seen as an extremely fair, incorruptible court system. And partly because historically it’s been very generous.

Divorce is potentially a 50 percent tax on your entire wealth

European CEO: Well how do courts differ in different countries when it comes to financial settlements?

Ayesha Vardag: A lot of court systems through Europe will just do things on a very basic, needs basis. They won’t share out the capital that’s been built up during a marriage; they’ll just deal with one or other party’s needs. Sometimes barely even that.

Whereas here, we view marriage very much as a partnership, and what you build up during that partnership, absent any agreement to the contrary, gets divided up broadly equally.

European CEO: So divorce tourism: how does this work exactly, and does the UK actually make anything from it?

Ayesha Vardag: Divorce tourism is when people really are quite tactical, and try to forum-shop their way into one or other jurisdiction that’s going to suit them.

English law has always been one of our products, as it were, throughout the world.

In terms of any divorce that goes through here, whatever the basis of it, the treasury makes a vast amount of money from it, through all of the legal fees that go through to lawyers, to valuers, to accountants; Britain is very strong on its service industries, and those service industries benefit from cases going through our courts, or being negotiated or arbitrated here.

The treasury benefits immensely from this industry; it’s what’s keeping the courts actually going. And it’s the big cases going through here, generating a lot of tax revenue, that pays for the courts to run the small cases through.

European CEO: Well you rose to fame in 2010 when you won the Supreme Court victory and changed the law to make pre-nuptial agreements work in the UK. What impact has this ruling had?

Ayesha Vardag: A lot of couples that wouldn’t have married, because they were concerned about the huge impact that divorce could have on their fortunes, are able to marry.

Divorce is potentially a 50 percent tax on your entire wealth. Effectively you can now contract out of that. You can now agree, ‘Well, in the event that we divorce, we’ll arrange things between us in this way; we’ll agree now what we think is fair.’

In a lot of international cases, a settlement will involve bringing money onshore, that will then trigger a tax penalty

European CEO: When it comes to settlements, does the taxman get a piece of the action?

Ayesha Vardag: Not directly of a settlement, you’re not taxed on the settlement that you get. It’s seen as just carving up your assets. But of course in a lot of international cases, a settlement will involve bringing money onshore that will then trigger a tax penalty, because it’s coming into the jurisdiction, whereas previously it was kept out.

European CEO: How much does a country’s economy impact divorce rates?

Ayesha Vardag: The general indication is that the more developed an economy is, the higher the divorce rates. It’s the toll that modern society has on personal relationships.

But it’s also because when you have a developed economy, and both parties have the opportunity to go out and make themselves money, and look after themselves, nobody’s trapped.

European CEO: Well how often do you see divorce affecting Europe’s top-tier business people?

Ayesha Vardag: Increasingly for the top-tier business people, divorce hits often quite late in life. It’s often when they’ve reached the top of the tree, and they’ve spent long years of being kept away from the home because of the pressures on them. And at a certain point after the children have grown up and gone off to university. At that stage the couple find that they have very little in common.

They can transfer a shareholding, but put in place the sort of safeguards that a venture capitalist would have

European CEO: Well when someone in the c-suite has shares in a company, what happens to these in divorce? Especially when the shares might have sway in the company?

Ayesha Vardag: It’s one of the really thorny problems for the divorce courts.

The way that the courts generally try to deal with a situation like that is to take a payout from other assets.

They’ll try to keep their shareholdings intact, and look at what other assets are around property and other holdings, and distribute the award using those.

When they can’t, it becomes incredibly difficult, and problems of liquidity are one of the big issues that we face.

Generally what the court tries to do is to order staged payments in a series of lump sums so that it doesn’t affect liquidity too much.

They’re very reluctant to transfer a shareholding. And I think that’s a shame actually. I think that’s something that they need to look at, in order not to destabilise the company by requiring sale of equity; if they can transfer a shareholding, but put in place the sort of safeguards that a venture capitalist would have in relation to that shareholding.

It could be very workable. Shareholders don’t necessarily have to like each other; they don’t have to work together actively. It’s a question of being able to hive off that part of the value to the claiming spouse, and therefore not disturbing the overall shareholding in the company. And I think that’s something the courts are going to have to be much more creative about.