What happens to business assets on a divorce?

If you and your husband are divorcing and he has significant assets and money within his company, can these be taken into account as part of the financial negotiations?

If you’ve heard the outcome of the recent case Petrodel v Prest you may be inclined to think that they will automatically be included. However, this isn’t in fact the case.

In this specific case the husband (Michael Petrodel) held properties within his company Petrodel Resources. There were 14 properties in total, 7 of which were in the UK. His estranged wife (Yasmin Prest) wanted these assets taken into account as part of the divorce.

The Court of Appeal had ruled in Mr Petrodel’s favour but this was overturned by The Supreme Court, which is the highest court in the UK.

Although the Supreme Court  did rule in favour of the wife it doesn’t mean that busies assets will in future automatically be part of the settlement negotiations.

Typically assets held by a company are protected from divorce since a company is a separate legal entity to an individual. As a result they are not part of the divorce settlement. However the ruling of Petrodel v Prest has highlighted 2 instances where they will be taken into account.

The first is if the company is set up to evade a pre-existing legal responsibility. In other words if the party tries to evade their legal responsibility by transferring assets to a company the court can order that these assets are included  within the divorce negotiations. This is known as “piercing the corporate veil”.

The second exception is where the company asset is “held on trust” for the husband or wife. In the case of Petrodel v Prest the husband transferred the properties from his name to the company. The Court ordered that the properties could be taken into account since the husband was still the beneficial owner. Although the properties were held in the company’s name they were held for the husband’s benefit.

So do not automatically assume that your husband’s business assets will be included in your financial negotiations on your divorce. This will only be the case if the circumstances of your situation meet either of the above criteria.

If you are going through divorce and need a recommendation to a family lawyer please do call me on 01932 698150. I have a network of family lawyers who I can recommend to you.

photo credit: Flickr/Dr John Bullas