Company assets and divorce – the picture emerges
10th January, 2014
A landmark case last year - Prest v Petrodel Resources Ltd – provided some guidance when it comes to whether company-owned assets can form part of divorce settlements.
Another recent case develops this guidance further and comes to some important conclusions.
As someone working with the finance and assets of private individuals, we thought you may be interested in the following summary.
The case deals with whether company assets can be attacked on behalf of a spouse on divorce so is relevant to those operating corporate structures.
What happened in the case?
The High Court case of M v M dealt with two Russian nationals in a 17-year marriage who had lived in the UK since 2005.
The marital assets were held in a network of complex off-shore corporate structures, created by the husband. The assets which the wife had traced at the time of the hearing included, in broad terms, £14m of properties in England, £1.4m of residential property in Russia and £92m of commercial property in Russia. The case therefore concerned a total of ascertainable assets worth over £107m, all of which the judge found were acquired during the marriage.
What did the court say?
The husband failed to engage with the proceedings and did not attend the final hearing. The Judge held that he was in contempt of court “many times over” for his breach of court orders and repeated failures to disclose his assets. As a consequence, the court drew adverse inferences against the husband.
The wife claimed that various properties, the legal titles of which were held within various company structures, were in fact held by way of a resulting and/or constructive trust for the husband.
The court had to decide whether the husband’s intention had been to retain the beneficial interest in the English properties, making him entitled to them, or whether the companies were in fact the true legal and beneficial owners of the properties.
The defence, on behalf of the companies, was that the properties were in the names of the various companies as part of a planned tax-mitigation scheme, which necessitated both the beneficial (as well as the legal) interest in the properties being held by the Companies.
What did the judge say?
The judge rejected this defence and found that the husband’s actions in relation to the properties were at all times those of a beneficial owner and no evidence had been produced to contradict this view. It was found that the husband kept “absolute control over his empire”. As the Supreme Court did in Prest, the Judge found that the English properties were held on resulting trust by the companies for the husband. It was ordered that the properties be transferred to the wife.
What does this mean for other divorces?
The case affirms the principles laid down by the Supreme Court in Prest in several key areas, namely:
- A spouse’s failure to provide full and frank disclosure will lead to the courts adopting a robust approach and drawing adverse inferences against them.
- The court will look carefully at the circumstances surrounding the purchase of properties held within a corporate structure to determine whether a spouse is in fact the beneficial owner rather than the company.
The sums of money involved were huge, but the issue of whether a company-owned property is in fact owned by a spouse is one that will arise in more modest cases.
In summary, assets held in a corporate structure are not necessarily protected on divorce.
What does this mean for business owners?
In divorce cases, we often represent clients who own businesses and, in turn, those businesses own property.
Following this decision, it is even more important for your clients to understand that on divorce the courts will scrutinise very carefully the purchase of these company-owned properties. It is very important to ensure that business owners work with a range of advisors including family, private client and company lawyers to ensure the best possible planning is done.
How can I find out more?
For further details on the implications of this case or on any aspect of family law, please contact one of our specialist divorce solicitors.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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