Piercing the corporate veil in divorce financial remedy proceedings

Placing assets into corporate structures for wealth protection reasons may not protect such wealth against matrimonial financial claims.

Since the Supreme Court’s recent ruling on the Prest v Petrodel case, there has been much commentary on the court’s decision that it had the power to order the transfer of a husband’s 7 properties to his wife, given that the properties were legally held by the husband’s limited companies, not by the husband himself.

Essentially, the court declared that the properties in question were assets to which the husband was “entitled, either in possession or in reversion” and established that there were circumstances under which the corporate veil could be pierced.

Interestingly, the court specifically stated that in this case it was not piercing the corporate veil and that family courts cannot simply give company assets to wives just because the sole owner and controller of the company is the husband.  It was considered that there was no ‘impropriety’ on the part of the husband sufficient to ‘pierce the corporate veil’ and that to pierce the veil was unnecessary if the properties were held in trust for him.  Because it considered that the properties were held in trust, the court could and was entitled to order the properties to be transferred to the wife in order to achieve a fair divorce settlement.

Evidence or inference that the financially stronger spouse may have been uncooperative in the divorce process, and may have been concealing wealth, will therefore play its part in how such company asset arrangements will be treated on divorce.  Here, the circumstances in which the properties came to be vested in the companies were the key factors.

As such, placing assets into corporate structures for wealth protection reasons may not now protect such wealth against matrimonial financial claims.  A one-man company may be specifically open to a divorce claim.

For further information and advice, please contact our Family and Divorce team at: family@blasermills.co.uk