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Matrimonial Assets: The Implications of Petrodel v Prest for Future Financial Remedy Proceedings

Tuesday, 5 March 2013

The Supreme Court is today hearing the appeal following a landmark ruling by the Court of Appeal in October 2012 that an oil tycoon need not hand over to his wife £17.5m in assets held by his companies as part of their divorce settlement. The appeal has dramatic and far reaching implications for family law practice and financial remedy proceedings in high net worth divorce cases.

Petrodel Resources Ltd & Ors v Prest & Ors [2012]

In Petrodel Resources Ltd & Ors v Prest & Ors [2012], the judge said that married couples who vest assets in a company for wealth protection cannot ignore the legal consequences of their actions in less happy times. However, the court allowed an appeal by the companies owned and controlled by Mr Prest against the High Court order requiring them to transfer assets to his wife.

Separate Legal Personalities

The Court of Appeal affirmed the distinction between the separate legal personalities of a company and its corporations: a company owns assets in its own right and cannot be stripped of these to satisfy the personal debts of the directors or shareholders. Therefore the husband was not ‘entitled’ to the properties held by the companies and they could not be transferred to the wife.

Implications for Future Financial Remedy Proceedings

· The decision highlights the increasing complexity of financial remedy proceedings in cases involving high net worth assets when such matrimonial assets are managed by a range of corporate schemes and structures. Clearly company law is as pertinent to such decisions as is family law.

· Legitimate asset protection, wealth management and tax avoidance schemes involving company structures used by couples set these assets outside the scope of Family Court financial remedy proceedings.

· However, if the spouse in a divorce case can demonstrate that the financially stronger party transferred property to a company to deliberately avoid their claims, the court may look through the corporate veil and make orders against the property of the company.

· The decision limits the powers of the Family Court to consider the actual reality of the financial affairs of divorcing couples. This is despite the apparent paradox in the Appeal Court decision that the husband had, and would continue to have, unrestricted access to the wealth of the Petrodel Group even though he was not personally ‘entitled’ to it.

· The decision appears to favour ‘devious men who want to avoid making fair provision for their wives’ in the words of Mrs Prest’s lawyers. The decision of the Court of Appeal has been condemned as a “cheat’s charter”. Conversely, it could act as a wake-up call for economically weaker spouses to review matrimonial assets and their management and take professional advice at any stage in their marriage as to how best to protect their interests.

Appeal to the Supreme Court

Mrs Prest’s appeal to the Supreme Court is to be heard today. The decision is likely to carry significant weight when it comes to balancing family law with company law in future divorce cases.

If you would like to discuss the implications of this case or you need advice in relation to other family law issues, Rollingsons has experienced solicitors who can advise you; please contact Jeetesh Patel via email jpatel@rollingsons.co.uk or by telephone on 0207 611 4848.

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