In October, the Court of Appeal re-affirmed in Petrodel v Prest that the family court must recognise that companies are separate legal entities and distinct from their owners.
The court had not been entitled to make orders directly against company assets without evidence of impropriety, even though the wife was unlikely to be able to enforce her award through other means.
The case concerned the divorce of Michael Prest, described in the press as an "oil tycoon" and "one of Britain's most successful black businessmen". At the original hearing, the judge had found Mr Prest to be worth at least £37m; his assets held almost entirely through a number of offshore companies (the Petrodel Group). The Group and its companies were entirely under Mr Prest's control and he could and did move assets between them as he saw fit.
Fearing that Mr Prest would simply restructure his asset holdings to frustrate the court award, the judge ordered that a number of London properties, owned by Group companies, should be transferred to Mrs Prest.
The Court of Appeal overturned the order for the transfer of the London properties on the basis that it has long been the law that a company is a separate legal entity from its owners even where, as here, it is a "one-man company". The properties belonged to the companies and the court was not entitled to make orders directly against company assets except in limited circumstances that had not been demonstrated in this case. The Petrodel companies were legal entities in their own right and it was not within the judge's power to treat the company's assets as Mr Prest's own.
Family court judgments frequently refer to the court's extensive experience of dealing with complicated asset structures and its broad discretion in assessing a party's assets. Judges deal robustly with those who try to put their assets out of reach of the court or who try to hide the extent of their wealth. It is true that, in the majority of cases, the inability of the court to "pierce the corporate veil" causes little difficulty and, for the most part, the court is still able achieve a division of assets by other means, such as the transfer of shares.
Nevertheless, the Petrodel case is a stark reminder that the court's powers are not unrestricted. Although the judge's original order for £17.5m still stands, the Group's structure means Mrs Prest will struggle to enforce the order and may never receive a large part of her award. Lord Justice Thorpe, in his dissenting judgment, complained that the decision presented "an open road and a fast car" to wealthy people who wished to escape the justice of the family courts.
This case underlines the fact that aggressive asset protection measures can, in the right circumstances, help protect wealth not only from creditors but even from one's spouse, particularly where that wealth is generated or held overseas. Conversely, spouses of wealthy individuals are warned that "married couples who choose to vest assets beneficially in a company for … conventional reasons including wealth protection and the avoidance of tax cannot ignore the legal consequences of their actions in less happy times."
The Court of Appeal has recently given Mrs Prest permission to appeal to the Supreme Court against its decision.