Workshop: Protecting company and family assets in divorce proceedings

In recent years, the Family Division has developed a practice departing from the case of Salomon v Salomon & Co [1897] AC 22, which established that a limited company has a separate legal identity. This allows the assets of a family company to be treated as resources of the family, which can be re-allocated on a divorce or dissolution of a civil partnership.

This practice of 'piercing the veil' of incorporation has been permitted in the Family Division in order to stop one party hiding assets from the other, or putting them beyond the reach of the other, in order to protect the weaker financial party. The effect is to transfer assets from a company, with implications to liquidators and creditors of the company, alike.

The Supreme Court reviewed the '¨practice in Prest v Petrodel Resources Ltd [2013] UKSC 34, said that this practice is wrong and that the corporate veil can only be pierced where there is "impropriety" which must be "linked to the use of the company structure to avoid or conceal liability". There must also be both control of the company and impropriety by the wrongdoer. It is not sufficient that where one party holds his assets in a company and that puts it beyond the reach of a spouse, to justify the court's intervention.

So what methods are available to say, the wife, on a divorce to ensure that assets held by her husband in a company are taken into account on a divorce?

Section 24 Matrimonial Causes Act 1973 treats shareholdings as matrimonial property. Rule 9 of the Family Procedure Rules 2010 (FPR) require disclosure of all assets, by way of full and frank financial disclosure, by completing Form E and the disclosure of two years of accounts. If there is a failure by a spouse, then further questions by means of a questionnaire can be raised on the First Appointment.

The value of the company must be '¨taken into account and the court can order that expert forensic accountants be instructed on a 'single joint expert' basis to value the underlying assets, advise how monies can be got out of the company and any tax implications.

If a spouse is being particularly uncooperative, permission can be sought from the court under FPR part 9.26B and part 18 for the appropriate officers of the company to be joined as a party to the proceedings. Such an application should be made in good time and before the substantive hearing.

Again, under FPR part 21.2, orders for specific disclosure can be sought.

In Prest, the Supreme Court found that the husband had an equitable interest in the underlying properties held by the companies on a trust basis and transferred them to the wife. The court can, if one party transferred the assets into the company after the marriage, treat it as a post nuptial settlement and vary the settlement.

Alternatively, the court can order the transfer of shares in the company to the spouse to the required value or can offset the company value with the allocation of other assets by way of compensation. Whatever else, family lawyers will have to comply with the strict law, in future.