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Family Blog - Supreme Court decision in Petrodel Resources Ltd and others v Prest

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Petrodel Resources Ltd and others v Prest UKSC 2013

Supreme Court ruling brings clarity to treatment of family and business assets in divorce cases

In a landmark ruling, the Supreme Court has addressed the conflict between commercial and family courts, and set out under what circumstances business assets will be within the reach of the Family Courts.

In Petrodel Resources Ltd and others v Prest UKSC 2013 judges ruled, after 5 years of legal wrangling and appeals, that company assets can be taken into consideration in financial divorce proceedings.

This high-profile case is already familiar to some – Mr Prest (worth an estimated £37.5 million) had previously argued that most of ‘his’ assets were owned by various corporate entities, and not by him personally. As a consequence he contended, they were out of reach of the Family courts (and, more importantly, his former wife).

The Matrimonial Causes Act 1973 states that any assets to which a party is ‘entitled’ can be used in financial proceedings. Historically, however, Family lawyers have had difficulty in extending this interpretation to include assets held by a spouse’s company.

The Supreme Court has rejected the argument in this case. Lord Sumption in delivering the Court’s unanimous Judgment says “Family Judges are entitled to draw on their experience and to take notice of the inherent probabilities in deciding what an uncommunicative economically dominant spouse is likely to be concealing. Where the matrimonial home is held in the name of a Company, it can frequently be inferred that the property is held on trust for the spouse who owns and controls the company”.

This comes as a stark warning to those spouses tempted to place assets into corporate structures for wealth protection reasons as they may not now provide protection in the case of divorce. The ruling confirms that, in certain circumstances, company assets (of which a divorcee has a controlling interest) may be taken into account.

Today’s decision has divided opinion amongst lawyers. Whilst many will view this as a victory for common sense and pragmatism, others fear it will open the floodgates to ‘smash and grab’ financial claims.

On the facts of this case, the Court has found that the Husband did, during the course of the marriage, have control of, and deal with the company assets as if they were his own. He had claimed that at the time of the divorce the offshore companies, which owned several valuable London properties, were entirely independent from him. In reality, the companies were engaged in the oil business with the Husband funding the property purchases. The Court could not tolerate the Husband’s evasive approach to disclosure and transparency and have decided that the Court could Order a transfer of the properties to the Wife.

The justification for today’s decision is that the Husband, rather than his companies, had originally provided the funds for the properties to be bought. Consequently, applying trust law principles, the companies held the properties in trust for him, and he was therefore ‘entitled’ to them. The Court could therefore transfer the properties to the Wife.

Already dubbed the ‘gold-digger’s charter’ by the media, this decision is set to replace the now defunct ‘cheat’s charter’ and reinforce England’s status as the ‘divorce capital of the world’ for wives.

Finally, it should be noted that this ruling does not create a ‘free for all’ for spouses of business owners. It is only in exceptional circumstances, such as Prest, that corporate assets will be within the reach of the Family courts.

For specific advice on these and other issues, please contact a member of the family and matrimonial team.

© TWM Solicitors LLP 2013 - All Rights Reserved. Information contained in this article and on our website does not constitute legal advice and is provided for information purposes only. Recipients should not act upon it, but should seek legal advice relevant to their own situation.