One of the most difficult aspects of divorce is often the negotiation of the financial settlement: this can be particularly thorny when there are substantial sums involved. Often, assets are held indirectly, in companies or trusts, which can add to the complexity.
When assets are held in the form of a company, there is the additional problem that, in law, a company is a ‘legal person’ distinct from its owners. Accordingly, the normal legal practice is to look at the company as an individual entity quite separate from its shareholders. An exception to this rule is only made when it is considered that there is some impropriety in the company that warrants ‘lifting the veil of incorporation’.
Recently, the Court of Appeal heard a case involving the division of substantial family wealth between a divorced couple. The assets were owned largely by the ex-husband in the form of shares in companies. The family court pierced the corporate veil in regarding the corporate assets as available to him for the purpose of enabling him to make a financial settlement on his ex-wife. He and the companies involved appealed.
The Court of Appeal accepted the argument that assets owned by a company cannot be regarded as being under the direct control of the shareholders. A company is not the ‘alter ego’ of its owners. Patten LJ commented, “…couples who choose to vest assets beneficially in a company for…conventional reasons…cannot ignore the legal consequences.”
As it stands, this decision would mean that the ability to gain access to assets for the provision of divorce settlements in similar cases could prove to be very difficult, unless there is demonstrable impropriety in the company. Accepting shares in a company rather than the underlying assets could present unanticipated risks.
However, an appeal against this decision is currently being heard in the Supreme Court.
Contact us for advice on negotiating the financial aspects of family break-up.