Wednesday, 8 July 2015

Handbags at Dawn: Finding the true value of luxury goods on divorce

One of the trickier aspects for many couples getting divorced is how to divide up their chattels, or personal belongings. There is often a sentimental value placed on items by one or both parties which does not necessarily correlate to their true value and, particularly in an acrimonious setting, a breakdown in trust and desire to see the other party punished can blow arguments over who gets to keep the family silver massively out of proportion. That said, litigating over such matters is rarely cost effective and carries a huge amount of uncertainty. Remember, the value of an item will be the net value not the purchase cost or the insurance value. As a result the case law on this issue is far from comprehensive despite disputes over chattels being relevant to almost every case in practice.

The few cases that do address the distribution of chattels do so at a very high level with the value usually being considered insignificant to the overall assets. In the recent case of Arbili v Arbili [2015] EWCA Civ 542 Macur LJ was quick to dismiss the husband’s argument that a mathematical error in calculating the value of the chattels was in any way supportive of his case to appeal the first instance decision citing the error to be of “negligible if any significance” (para 15). In addition, chattels tend to be divided into classes, the obvious ones being cars, jewellery and artwork although other often cited classes include antiques, guns, watches and wine.

In Evans v Evans [2013] EWHC 506 (Fam) Moylan J distinguished between those items to be distributed by value and those by class:

[…]I provisionally propose that the disputed items (wine, antiques, art, piano) should be divided equally by value between the parties leaving out of this account the other chattels divided as set out above. I have excluded the other chattels from this exercise because I do not consider it necessary in order to effect a fair division for the value of these other items to be included. In my judgment it is fair to divide them by reference to the nature of the asset such that, for example, the wife retains her jewellery and the husband retains his. In value terms this results in an imbalance between the parties, but this is insignificant in the context of the case as a whole.” (para 77)
This approach is more common in the big money cases that have the resources to litigate further than most. What then if the value of the chattels do constitute a significant proportion of the overall wealth and might even be relevant when considering the needs of the parties. This could arise where there has been a dramatic drop in the families’ resources following a previously high standard of living which included a large amount of luxury and investment purchases. In Evans v Evans, Moyan J seems to make a distinction between those items personal to the parties, such as jewellery and the wife’s furs which the parties were allowed to retain without reference to their value, and items which could be used for mutual enjoyment in the home, such as the wine or artwork.

Arguably, this is going to be a very case specific issue and what is fair is going to depend very much on the circumstances. For example, in S v S [2013] EWHC 506 (Fam) the husband’s car collection was not included in the asset schedule and, as such, Bodey J found that the wife’s jewellery, which the husband valued at £196,000 should also be excluded.  Yet when reviewing the asset schedule in JB v MB [2015] EWHC 1846 (Fam) Mr Cusworth QC found that “I have rightly included chattels as this rightly adds the value of H’s two Porsche motor cars”. (para 42)

Does this mean that the parties’ spending habits during the marriage are relevant? What if, for example, the husband preferred to purchase items of a less personal nature, such as artwork or cars, and the wife purchased couture fashion, shoes and handbags. Arguably, both a Picasso and a pair of Christian Louboutins will provide personal pleasure to the owner but is the Picasso’s investment value more obvious particularly as the shoes also have a practical purpose?

Regardless of the practical function of an item or the fact that it has been pre-owned some fashion objects do have a resale value which could make them less ‘personal’ and more ‘investment’ particularly if they have been well taken care of and come with the original packaging and provenance. There are now many online retailers specialising in selling preowned luxury fashion not to mention the major auction houses having dedicated sales.

Having done some extensive research (!) the items which appear to retain their value best are handbags with the most desirable brands being Hermès and Chanel. Indeed many such bags tend to increase in value, particularly if they are a limited edition with some Hermès Birkin bags re-selling for between £10,000 and £56,000. Christies auction house recently sold an Hermès Fuschia Crocodile Birkin in Hong Kong for £146,000 becoming the most expensive hand bag ever sold.

With prices like these a collection of high end handbags built up over the course of long marriage between a wealthy couple could easily rival or even exceed the value of a vintage car or art collection. So should we be looking beyond the obvious and taking into account both the nature of the parties spending during the marriage and the specific items purchased? This approach would have to be carefully balanced against the costs, both financial and emotional, of encouraging further arguments in situations where a swift resolution can be worth more than an accurately balanced asset schedule and, based on the case law to date, the Family Court is unlikely to have much tolerance for detailed discussions on such issues in financial proceedings. That said, a husband might feel somewhat aggrieved if his wife’s ‘personal items’ are excluded while his Porsche gets added to the asset schedule for distribution or is expected to be sold to meet the parties’ needs.