In a previous article (Treatment of business assets in a divorce settlement) Helen Harris discussed a leading Court of Appeal decision in a divorce case which related to a dispute surrounding the inclusion of company assets in a divorce settlement. In this case the Court of Appeal judges decided property held by companies owned solely by the husband was not to be included within the divorce settlement. In a landmark decision, the Supreme Court has now overturned the Court of Appeal’s decision.
The case of Prest v Petrodel Resources Limited concerns financial proceedings following the divorce of a wealthy businessman from his wife. Much of this long drawn-out case centred on the treatment of seven residential properties held by companies owned solely by the husband. At the first hearing the judge ordered the husband to transfer these properties to the wife. However, the companies successfully appealed the decision arguing the court did not have the power to order the transfer of assets held by the companies in satisfaction of a judgment debt against the husband. The argument was based on the fundamental principle that the companies were separate legal entities and the ‘corporate veil’ could not be pierced unless there were legitimate grounds for doing so.
This decision was appealed by the wife in the Supreme Court.
In a unanimous judgement the Court held:
With regards to point 1, the Supreme Court found the properties had in fact been held by the companies since long before the marriage broke down so the ownership arrangement was not devised to protect the assets from the divorce. This did not therefore provide the court with grounds for piercing the ‘corporate veil’.
With regards to point 2 however, the companies failed to co-operate with requests to disclose how the purchase of each property was carried out and funded. It was therefore inferred that the companies’ failure to cooperate was intended to protect the properties and it was likely the husband had provided the purchase monies. The Court therefore held that proper disclosure would lead to the finding that the properties were held in trust for the husband, overturned the Court of Appeal’s decision and ordered that the properties be treated as within the husband’s control.
This is clearly an interesting case with ramifications for divorce proceedings involving disputes over personal assets held by companies. Business owners going through a divorce would be wise to pay close attention to the details.
Business owners going through a divorce will not be able to ring-fence assets from a divorce settlement by moving assets into the ownership of a company. Such obvious actions may give the court grounds to pierce the ‘corporate veil’ or to decide that the assets are held on trust by the business owner.
The court also made it clear these cases are highly fact specific. Regardless of the above decision, where a sole owner has personally funded the purchase of company assets this in itself does not discount the possibility that the company is the beneficial owner as it may be that the funds were genuinely provided as part of a loan or capital investment.
The case also highlights the importance of complying with court disclosure requirements. The companies’ failure (and thus the husband’s failure) to comply led the court to make inferences which ultimately led to the success of the wife’s appeal.
Further information on the business interests and divorce can be found in our article: Is a limited company protected from divorce?
Holmes & Hills Solicitors in Halstead has a team of expert Family Law lawyers advising clients across Essex and Suffolk on divorce and separation, including issues surrounding financial settlements and children.
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