Family Law

The spouse who fails to make full and frank disclosure of his assets and/or tries to shield assets from claims by a spouse by transferring them to a third party, is no stranger to the divorce courts.  Over time, Family Judges have attempted to redress any resulting unfairness by adopting what might be described as a ‘broad brush and pragmatic approach'. 

Examples of this were a) the previously permitted exercise of ‘self help' in terms of reading, copying and relying on documents belonging to the recalcitrant discloser (since disallowed following the decision in Imerman) and b) a willingness to take the wide view on what amounted to an ‘entitlement' to property under s24(1)(a) Matrimonial Causes Act, particularly when companies and/or trusts are involved.

The recent Court of Appeal decision in Prest v Prest and Others reminds us that the less strict approach which Family Judges have been minded to adopt is not supported by their Chancery brethren.  In Prest, Patten and Rimer LJs (Thorpe LJ dissenting) allowed an appeal against a decision of Moylan J in which he found that assets held by companies, in which the husband was the only shareholder and over which he had had complete control, were essentially assets to which he was ‘entitled' and therefore subject to an Order for transfer under the Matrimonial Causes Act.  Moylan J had already found that Mr Prest was "..a wholly unreliable witness...deliberately evasive..." and his evidence could not be relied on .."unless corroborated by other reliable evidence".  It was against this backcloth that he sought to find a way to do justice to Mrs Prest.  Mr Prest was ordered, amongst other things, to transfer, or cause to be transferred to Mrs Prest various properties owned by his companies and some company shares.

The effective appeal was not by Mr Prest, who had been struck out for failure to comply with conditions of orders of the court, but by three companies in his control. Rimer LJ carried out a careful and detailed analysis of the law, with the following conclusions:

• Property can only be subject to an order under s24(1)(a) Matrimonial Causes Act if one of the parties is beneficially entitled to it. The Court's inquiry as to beneficial ownership is the same as in any case not connected with the s24 jurisdiction.
• A limited company is a separate legal entity. This is so, whether or not one person controls all of the shares and has effective control of the company.
• Accordingly, property owned by the company belongs beneficially to the company and not to its shareholders. Whether or not a shareholder has total control and can appear to procure the transfer of property to himself from the company, this does not make him beneficially entitled to that property (nor would it make such a transfer lawful).
• In the absence of impropriety - misuse of the corporate structure for the purpose of concealing wrongdoing - the corporate veil cannot be pierced. 

On the face of it, this decision comes to the aid of a spouse who seeks to use a corporate structure to hold assets, which might otherwise be susceptible to a s24 Order.  Is this fair?  Whilst the aggrieved wife would no doubt say no, there is, of course, no obligation to organise one's affairs during a marriage in order to facilitate the claims of one's spouse in the event of a divorce.  Mrs Prest has now obtained leave to appeal to the Supreme Court, so we shall have to await a further decision before the position is clear.

Brenda Long is a partner with the Family department at Blandy & Blandy Solicitors in Reading.

The views expressed by contributing authors are not necessarily those of Family Law or Jordan Publishing and should not be considered as legal advice