Divorce down, but family business in lockdown when it comes to settlements

Official figures released in December 2012 show that the number of divorces dropped by 1.7%* in the previous year, but Hampshire based law firm Warner Goodman LLP highlight that divorce statistics continue to peak in the period following Christmas, with the second week in January notoriously the busiest month for couples taking the decision to part.

And following a recent landmark judgement in the Court of Appeal, lawyers are warning that divorcing couples will find it tougher to separate any family assets held in companies and are predicting an increase in protection of family wealth through corporate structures.

The controversial judgement was delivered late last year in the case of Petrodel Resources Ltd & Ors v Prest & Ors, and although the case involved a super-rich international oil trader, the ruling is expected to have an impact on any spouse trying to get a share of a family-owned business.

Until the decision of the Court of Appeal in the Petrodel case, the family courts have approached company-held assets as part of the overall pie to be divided under divorce, in the interests of justice.  That was the approach taken by the High Court in earlier Court hearings for the Petrodel case itself, awarding the ex-wife a share in her ex-husband’s corporate assets.

The assets involved 14 properties in various countries, held by a number of companies, including Petrodel Resources, a Nigerian oil company which was co-founded by the ex-husband, Mr Prest. At the High Court hearing in 2011, Mr Justice Moylan ruled that the properties were effectively Mr Prest’s assets and ordered him to transfer the properties to his ex-wife as part of the settlement process.

But appealing against the ruling drew a controversial success for Mr Prest, when Court of Appeal judges Lord Justices Patten and Rimer found in favour of his company Petrodel, saying that the High Court had been wrong to find that Mr Prest’s sole ownership of the property-owning companies made him entitled to freely dispose of their assets.

The ruling means that future financial proceedings arising out of divorce cannot expect settlements to draw on company-held property. In practice, this means that if one party ties up their assets within the structure of a legitimate limited company, they may be able to avoid their financial obligations on divorce.

However, one of the appeal court judges dissented.  Lord Justice Thorpe, who has a family law background, said that the fundamental principle was entitlement to assets, as defined by the Matrimonial Causes Act 1973. He said that allowing Mr Prest to shield the companies’ properties from the settlement would defeat “the Family Division judge’s overriding duty to achieve a fair result.”

“It’s a controversial decision,” said family law expert Samantha Miles, of Warner Goodman LLP.

“It’s been widely criticised, because it opens the door to spouses escaping substantial divorce settlements, and will not just affect the very wealthy, such as Mr Prest.”

Samantha added: “Knowing how to handle family business assets in any new divorce proceedings is made all the more complicated as the ex-wife in this case has been given leave to appeal against the ruling and that will be heard in the Supreme Court in March 2013, so we may yet have this over-turned.”

* Office for National Statistics : Divorces in Englandand Wales– 2011         
The number of divorces in England and Wales in 2011 was 117,558, a decrease of 1.7% since 2010, when there were 119,589 divorces.

ENDS

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