Even if you have no more than a passing interest in divorce law, you are probably aware of Mr and Mrs Prest, and this week’s Supreme Court ruling concerning the oil tycoon husband’s various luxury properties, and whether they should be included in the divorce settlement (Prest vs Prestodel Resources Ltd & Others).
As a divorce lawyer specialising in complex financial settlements I have acted for and against a number of wealthy individuals whose assets are overseas. The media description of Mr Prest as a ‘tycoon’ conjures up a certain image; it is common for the assets of such an individual to be vested in a company which is registered in a ‘tax haven’ such as the Caribbean, as in Mr Prest’s case. Often that company’s shares will also be owned by professional trustees, themselves based off-shore, rather than directly by the individual (who is merely a beneficiary), thus creating a further layer of protection.
The financial structure designed to defeat higher UK taxation can also be used within divorce settlements to protect (usually the husband’s) assets from his wife’s financial claim. Family solicitors will argue on behalf of a wealthy husband that, as their client does not technically own the asset, it should not form part of the pot to be divided on divorce. A neat trick you might think. I have been involved in complex high court proceedings whereby the trustees have been ordered to become parties to the proceedings, in order that the court can gain access to overseas assets which would otherwise be beyond the court’s reach.
When Mr and Mrs Prest’s financial dispute came initially before the High Court the judges ruled that seven of the properties in the Caribbean and Nigeria could be counted as belonging to Mr Prest, even though they were owned by off-shore companies, and he was ordered to transfer them to his wife.
Mr Prest appealed on the basis that, as he did not legally own the properties, he was simply unable to comply with the order. The Court of Appeal agreed on the basis that the ‘corporate veil’ had effectively been lifted by the original order: in other words the court had failed to identify the company as a separate legal ‘person’ whose assets were not under Mr Prest’s control, this being a fundamental premise of company law. It is only in exceptional circumstances that the court will consider allowing the corporate veil to be ‘pierced’, including where there has been ‘impropriety’, but there has not been a successful application to date.
Unfortunately for Mr Prest, as the judges’ views were divided, the Court of Appeal allowed Mrs Prest to appeal to the Supreme Court. The seven law lords decided that in this case, the properties were essentially held on trust for the husband, and accordingly he was in a position to transfer them to Mrs Prest. Accordingly, Mrs Prest won her appeal, but the issue over the ‘corporate veil’ was effectively by-passed (for further discussion on this aspect of the judgment I recommend John Wilson QC’s detailed Family Law Week article).
Vice-chair of national family law organisation Resolution Jo Edwards has issued a statement commenting on the interface between corporate law and family law, and warned that within the judgment, and despite the decision reached, there is authority for a wealthy spouse to ‘tie up their assets in a business to protect themselves in the event of marital breakdown’. It was only due to the particular circumstances of this case, including Mr Prest’s conduct (which Lord Sumption in his judgment described as ‘characterised by persistent obstruction, obfuscation and deceit’) and the fact that the parties had four children under the age of 17, that the Supreme Court was able to find ways to ‘uphold the justice in the case’. In other words, the right destination via a particularly scenic route.
Mr Prest estimated his wealth at £48m; Mrs Prest’s estimate was several hundreds of million. Clearly the courts do not routinely deal with this level of wealth, and it is only the privileged few who can afford to take the case all the way to the Supreme Court. However the emerging consensus appears to be that it is encouraging news for the underdog in complex and high net worth divorce settlements.
If these issues affect you, or you would like legal advice on a family matter, contact us for a free initial consultation at on 0845 873 6500 or at firstname.lastname@example.org