Much has been made about London's place as the so-called 'divorce capital of the world' as a result of its seemingly generous approach to financial claims by less wealthy spouses against their high-earning or otherwise wealthy husbands or wives.
This reputation (deserved or otherwise), and far more importantly, the ability of one spouse to enforce legitimate financial claims against the other, appeared to be in jeopardy following last year's Court of Appeal decision in Petrodel v Prest. In that hearing, the court refused to pierce the corporate veil of a number of UK property-owning offshore companies which were solely owned by the husband. The judge at first instance had previously done so on the basis that, although there had been no conduct in relation to the companies which was in some relevant respect improper, which might justify disregarding the separate legal personality of the companies, in relation to claims for ancillary relief, there was a wider jurisdiction to pierce the corporate veil available under s24 of the Matrimonial Causes Act (MCA).
In a majority verdict, the Court of Appeal agreed with the companies that there was no such jurisdiction and criticised the Family Division's practise of treating assets of companies substantially owned by one party as available for distribution under s24 MCA.
Hearing the wife's appeal, the Supreme Court concurred with the Court of Appeal's view that the corporate veil may only be pierced in cases where a person seeks to evade or frustrate the enforcement of an existing legal obligation, liability or restriction by interposing a company under his control. There is no separate principle of family law which differs from the general law.
The court found, however, that in the circumstances of the case, the properties held by the companies were, in fact, beneficially owned by the controller of the companies, the husband. On this basis, the court was able to order their transfer to the wife.
The decision has been met with relief by both family lawyers and corporate lawyers. Family lawyers' concerns that the decision of the Court of Appeal was effectively a "cheat's charter" have been allayed because individuals who interpose companies to hold assets which in reality they treat as their own will be unable to do so in order to frustrate the financial claims of their spouses. Corporate lawyers, meanwhile, are relieved to have Supreme Court confirmation that where companies are properly run and their assets held for their own benefit, they will continue to remain secure from the long arm of the family courts.
Comment
For wealthy individuals seeking to protect their assets from the risks of divorce, this decision confirms the need for careful and thorough planning. It also reinforces the message that, in the unfortunate event of divorce, parties must be open about their assets and not seek to frustrate the court's legitimate efforts to obtain a clear picture of the nature and scope of the matrimonial property available for division. Careful separation of matrimonial and non-matrimonial property and, where appropriate, a well-drafted pre- or post-nuptial agreement will be increasingly important aspects of a wealthy individual's estate planning strategy.
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