High Court judge Sir Paul Coleridge has called on the government to legislate to give courts “urgently needed powers to deal effectively with single asset private company assets” in light of the “explosion” in the use of private companies to protect assets from divorce claims.

Coleridge’s comments made at a conference address earlier this month follow hot on the heels of the Supreme Court judgment in Prest v Petrodel in June of this year. The Supreme Court held that the assets of companies of which the husband was the sole shareholder could be transferred to the wife because, on the facts, they were held by the company on trust for the husband. The very fact, said Sir Paul, that the Supreme Court had to “resort to complex trust law” was “the clearest possible indication that the legislation is not doing its job.”

The Matrimonial Causes Act 1973 which governs financial provision on divorce is, he argued, in urgent need of revision in order to properly deal with the modern social and financial developments faced by the Family court, particularly in the context of “big money” divorce cases. But the task of creating a statutory solution is unlikely to be straightforward. The Supreme Court in Prest went to great lengths to affirm the fundamental principle that a company’s assets belong to the company, which has a separate legal personality, and not to its shareholders; the key question of whether assets owned by a company are held for the benefit of the company controller was a highly fact specific issue

The question of whether Parliament will step in to fill the gap as Coleridge demands remains to be seen. In the meantime, family practitioners and individuals contemplating marriage must be alive to the fact that the principles currently governing the treatment of company assets upon a divorce may lead to an uncertain outcome and be aware that the use of the private company may not shield assets from an assault upon a divorce. The best tool at the disposal of an individual who wants to structure their wealth in order to ring fence and protect their assets from a divorce is the pre-nuptial agreement which since 2010 is now, in Coleridge’s words “a regular part of the fabric of family life and law.”