Are company assets safe during a divorce?

According to the Supreme Court the answer is maybe not.

On 12 June 2013 in the case of Prest v Petrodel Resources Limited and others the Supreme Court overturned the Court of Appeal’s decision and found in favour of Mrs Prest. It ruled that the assets of a number of companies belonging to the Petrodel Group, which were wholly owned and controlled by Michael Prest, were in fact held on trust for him and so could form part of the divorce settlement.

The assets in question were seven residential properties which the parties had bought both prior to and during the marriage. Over the years these were transferred to the Petrodel Group and at the time of the parties’ divorce the group companies were the beneficial owners of all seven properties. The companies claimed that they were therefore not Mr Prest’s to transfer to his wife as part of the divorce settlement, as ordered by Justice Moylan.  The Court of Appeal agreed and overturned his order on appeal by the companies.

Mrs Prest went to the Supreme Court and successfully argued that these specific properties were in fact held by the companies on trust for Mr Prest. Whilst the court did not say that all assets owned by a company are intrinsically held on trust for an individual (since a limited company is a separate legal entity), it did say that where a party to a divorce does not fully disclose their financial position in a full and frank way and is seen by the court to be evasive, and where the company is to all intents and purposes run by one person, its assets could be deemed to be held on trust for that individual.

Although this ruling does not undermine the limited liability status of companies, it does mean that shareholders cannot always hide behind their corporate structure, and that business people cannot be confident of keeping their business assets out of divorce settlements in the future.

Since qualifying in 2000 as a Fellow of the Chartered Institute of Legal Executives, Jonathan has worked exclusively in the field of matrimonial and family law and is accredited as a specialist by Resolution. He advises clients in connection with all family and divorce matters, including divorce and separation, nullity, civil partnerships, children, pre-nuptial/civil partnership and post-nuptial/civil partnership agreements, cohabitation and financial issues arising ancillary to separation and divorce.

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