Hidden assets and inheritance

On 8 December 2014, Scot Young, property tycoon and one half of a couple who had been involved in one of the most complex and long-running divorce cases in British history, fell to his death at his home in Marylebone. The exact circumstances of his last moments remain unclear and a full and thorough investigation must now be carried out. However this sudden and unexpected change in circumstance will also undoubtedly impact the settlement still owed to his former wife, despite the divorce proceedings having concluded in 2013.

Speaking of her recent experiences on hearing of the death of her former husband and the father of her two children, Michelle Young stated that she and her family "have been to hell and back". Unfortunately her husband's death will not be the end of her ordeal. The tragedy will have legal and financial, as well as clear emotional implications for the Young family.

On 26 November 2006, and only six months before starting divorce proceedings, Mrs Young received a call alerting her to her husband's impending bankruptcy. Having allegedly lost millions on a disastrous Russian investment, Mr Young claimed that he was unable to pay anything to Mrs Young in terms of a financial settlement. With cases simultaneously working through the bankruptcy and family courts, the layers of bureaucracy, secrecy and acrimony were only set to increase.

Mrs Young based her case on her husband having had assets worth "many hundreds of millions of pounds", while Mr Young based his case on being insolvent with liabilities of £28m. Mr Young declared himself bankrupt after the commencement of divorce proceedings and his bankruptcy was not discharged at the time of making the final financial order on divorce. This prevented the judge from making property adjustment orders against Mr Young (orders transferring property to Mrs Young) as assets owned at the time of the bankruptcy were vested in his trustees, leaving the court with the power to make a lump sum order against him. In 2013, after 26 separate hearings over seven years, Mr Justice Moor ruled that Mrs Young was owed £20m - a figure much less than she had fought for, despite being owed a full 50 per cent of her husband's supposed wealth.

However, this ruling did nothing to alter the fact that Mr Young was an undischarged bankrupt and therefore had no assets with which to pay the debt. That remained the case at the time of his death. Mr Young was jailed for six months in 2013 for contempt of court during his high-profile matrimonial row when he failed to comply with court orders that he make financial disclosure. Mrs Young accused him of hiding away more than £400m. Since the judge's finding in 2013 that he had indeed hidden assets and that Mrs Young was owed a settlement of £20m, Mrs Young's lawyers and her former husband's trustees in bankruptcy have been searching for the assets many believe are hidden offshore, but to no avail.

Mr Young's death at the end of last year has added a further layer of conspiracy and complexity to an already difficult legal situation. The exact repercussions of Mr Young's death on both his bankruptcy and divorce proceedings will depend on a number of variables, yet to be confirmed, including whether or not he had a will and how well he documented his affairs.

As Mr Young is no longer able to defend his affairs or hide his assets (if this is, indeed, the case) some may assume it would now be easier for his former wife to find his supposed fortune. Dealing directly with executors will indeed simplify the day to day running of the case, but the legal access granted to Mrs Young's lawyers and the trustees in bankruptcy will not change. As the trustees can override litigation privilege, they already enjoy "full and frank financial disclosure" (i.e. access to documents, emails and bank accounts), so the removal of Mr Young as an 'obstacle' in the ongoing search is unlikely to uncover additional secrets - certainly not in the short term. Mrs Young is still owed her £20m settlement, but now by Mr Young's estate as the old matrimonial litigation automatically terminated upon his death.

In fact it has now emerged that Michelle Young is seeking 'a fresh pair of eyes' to search for the fortune she believes Scot Young kept from her during the divorce. A High Court judge has said that Michelle Young is entitled to apply for a creditors' meeting to press for the appointment of new bankruptcy trustees to carry out the search. However first she must pay outstanding costs, including those owed to the current joint trustees.

The judge said Mrs Young wanted the trustees replaced because they had identified none of the late Mr Young's assets, and she was her husband's largest creditor. Judge Hochhauser stated: "Whilst I accept that, in all the circumstances, it is understandable that to date there has been no identification of assets belonging to the bankrupt, and I wholly reject any suggestion of reluctance or intransigence on the part of the joint trustees to identify or recover assets, Ms Young is entitled to invite the other creditors to consider replacing the joint trustees with a 'fresh pair of eyes'."

The legal personal representatives may also have a difficult task in trying to quantify Mr Young's estate. If someone dies in circumstances such as these, it seems unlikely that they will have left their estate in order, and if no will is left behind, this could lead to a further raft of problems for the family. In most cases, those who inherit are the direct descendants of the deceased, if the deceased does not have a living spouse. It therefore seems likely that Mr Young's estate will pass to his daughters, meaning that his children, who are just at the start of their adult lives, and who have already been through so much, may be the inheritors of what some would call a poisoned chalice. This will not be helped by the fact that if there are any assets, they are likely to be overseas, which makes administration and access far more complicated.

If Mr Young only left debts, or his assets are wiped out by money owing, then his estate will be insolvent. While the beneficiaries do not inherit the debts and are under no duty to settle them, the legal personal representatives must follow the statutory order of payment of debts and need to be careful not to become personally liable.

It seems unlikely that the death of Mr Young will be the end of Mrs Young's struggle to discover what happened to her husband's assets. This tragedy reveals that for spouses whose partners choose to hide their wealth from their partner during the divorce process their problems can continue, even after the death of their former spouse.

Deborah Jeff is a partner and head of the family department at Seddons, and James Ward is a partner in the Private Client Services Team at the firm

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