Treatment of Business Assets in a Divorce Settlement

Following a recent court decision businessmen and women may be able to protect assets from being included in a divorce settlement by holding them as property of their limited liability company.  

Individuals going through a divorce, in particular those in a better financial position than their partner, often attempt to separate personal assets from the matrimonial pool of assets in the hope of protecting them from being included in the divorce settlement. In some cases partners have attempted to disguise personal assets by holding them as property of a limited liability company, of which they are a shareholder.  This had been a grey area of law but a recent decision by the courts has clarified how assets which are held by a limited liability company are likely to be treated by a judge during divorce proceedings.

In the case of Petrodel Resources Ltd v Prest [2012] the divorcing couple came from affluent backgrounds and the husband had seen success in oil development and trade. This enabled the couple to live to a very high standard, occupying a number of high-end properties around the world. For tax reasons some of these properties had been acquired through several of the husband’s companies, of which he was the sole shareholder.

During divorce proceedings the judge declared that the houses held by the husband’s companies were effectively the husband’s property and should therefore form part of the matrimonial pool of assets. Therefore, as part of the divorce settlement, the judge ordered the husband to transfer several of the properties held by his companies to his wife.

An appeal was launched by the companies on the ground that the properties were company assets and the not personal assets of the husband. The Court of Appeal (CoA) judges presiding over the case recognised the need for the divorce courts to determine the true extent of assets owned by each party in a divorce and that the original decision did achieve justice for the wife. However, the appeal by the companies was allowed and the decision to transfer the properties to the wife was overturned.

The appeal judges held that the properties belonged to the companies and that the husband was not at liberty to deal with the assets of the companies as he wished, whether he was the sole shareholder or not. In delivering the judgement the judges highlighted that the distinction between the legal entities of a limited liability company and its shareholders applies as much in divorce and family proceedings as it does in any other legal proceedings.

Whilst the decision brings clarity to those going through or considering divorce proceedings, it is likely to benefit those that are already in an advantageous position compared with their partner. It is advised that individuals going through a separation where one of the parties is the sole or majority shareholder of a company should consult with a local divorce solicitor who has expertise in dealing with cases involving commercial interests.

Holmes & Hills Solicitors has a team of Family Law and Divorce lawyers experienced in providing expert advice and guidance to business owners across Essex and Suffolk, ensuring their interests are protected as they go through the process of separating from a partner.

Other articles of interest: Is a limited company protected from divorce?