Prest v Petrodel: Spouses Cannot Hide Wealth In Companies To Avoid Losing It Upon Divorce

On the 12 June 2013 the Supreme Court laid down a marker by unanimously allowing an appeal by Yasmin Prest and allowing her to get her hands on assets held by her ex-husband in numerous companies in his name. The thinking behind this decision appears to try and re-balance the power held by both parties upon a divorce. Whilst it is true that any person can put their wealth into companies to protect themselves, the Supreme Court felt that this gave too much power to the economically powerful.

The ruling, on first glance, would seem to allow the courts to pierce the corporate veil in these circumstances, a decision favoured by those who wish the courts to deliver justice, rather than enforce the law. It contradicts long-standing principles that a company is independent of its shareholders and that ownership of a company will not allow for assets to be obtained in legal proceedings, unless in cases of fraudulent or dishonest use of the company. Contrast this with family law principles whereby courts take a strict view on spouses who own and control companies, with no third party interests, especially where these companies have been used to help fund a wealthy family lifestyle.

The significant assets of Michael Prest's in question were a number of properties which were owned by companies which in turn were owned by Mr Prest and he in fact had sole control over these companies. Section 24(1)(a) of the Matrimonial Causes Act 1973 states the court may order a party to the marriage to transfer to the other party "property to which the first-mentioned party is entitled, either in possession or in reversion". Mr Prest argued that as he didn't own the properties, the companies did, he was not entitled to them and so did not have to transfer them to his former wife under the Matrimonial Causes Act.

However, it was held that as Mr Prest had provided the original funding for the properties and not the companies, in applying general trust law principles, the properties were held on trust for Mr Prest by the companies. Therefore, he was entitled to them for the purposes of section 24(1)(a) and so they could then be transferred to Mrs Prest as part of the divorce settlement.

It should be noted that whilst...