Member Article

Divorce ruling could threaten company assets, lawyers warn

A fundamental part of the legal structure governing ownership of companies could be de-stabilised by a ruling in a divorce case being made by the Supreme Court today, lawyers at Manchester-based JMW Solicitors have warned.

If the court rules against the husband in the case, it will set a precedent that allows divorce courts to attack limited companies by considering them ‘up for grabs’ in settlements, placing divorce proceedings at odds with all other areas of law.

The case (Prest vs Petrodel) involves Yasmin Prest, the wife of an oil tycoon who is arguing that a number of London-based property assets held by the company her husband owns are effectively his property and therefore should be taken into account when their divorce settlement is decided.

The case first hit the headlines in 2011, when a High Court divorce Judge ordered Mr Prest to transfer to his wife 17 properties with a value of about £17.5 million. The complication was that the properties were not legally owned by Mr Prest but by a Nigerian oil company – Petrodel Resources.

However, the company was co-founded by Mr Prest and he had complete control over its finances, using them for his and the family’s benefit – so the judge ruled that Mrs Prest had a claim to a significant portion of its value.

James Brown, partner and family law expert at JMW Solicitors, said: “It is not uncommon for the wealthy to buy properties through companies so, whichever way the Supreme Court rules today, the outcome will have huge implications for businesses owners and wealthy divorcees across the UK.

“If the court finds in Mrs Prest’s favour it will have ramifications for how company assets can be protected in future. The purpose of limited companies is to encourage entrepreneurship – if a business has debts and goes under, those debts remain with the company and not with the founder. This has been the case since the 19th century, so it’s valid to ask why a family court should be entitled to dismiss this legal structure which is so vital for a successful business community?

“On the other hand, Mrs Prest also has a strong argument, as complete protection of corporate property would allow any wealthy individual with a competent legal advisor easily to organise their affairs to severely restrict their spouse’s entitlement in a divorce. As long as no-one can establish a link between the two, they will be in the clear – even if they control the company and take financial benefit from it.

“Many family lawyers have argued that this effectively amounts to a ‘cheat’s charter’.

“If this is the case, – along with a pre-nup – the most powerful tool in a wealthy individual’s armoury to protect their assets should their marriage break down is to keep them in certain limited company structures.”

This was posted in Bdaily's Members' News section by Ground Six .