Member Article

Are your company's assets safe in divorce?

One of the most complex aspects of divorce is the financial agreement, but until now one party’s shares in a company have been of interest only for their value.

However, this could now change in a limited number of cases. This month, the case of Mr and Mrs Prest raised the potential for a divorcing spouse to claim property belonging to a company of which the other party is a shareholder.

Often one party is a shareholder in a company. However, the situation can become more complex where the company has been used as a vehicle to hold property that originated from the shareholder.

Jennifer Goldstein, head of Samuel Phillips Law Firm’s Family Law division, said: “A company is considered a separate legal entity, and therefore the property belongs to the company, rather than the person. However, in a recent case the Supreme Court said if it becomes apparent the ‘assets of the company’ are in reality the ‘assets of the shareholder’, then there is the possibility those assets could be transferred to the spouse.

“This will only happen under certain circumstances, one of which is that the arrangement between shareholder and the company is effectively that the assets are held on trust for the shareholder by the company.”

In the case in question, long before the break-up of the marriage, the husband had arranged for properties to be transferred into companies of which he was a shareholder, meaning that, in this case, the companies were basically holding the properties on behalf of the husband.

Jennifer concluded: “In this case, neither the husband nor the company were able to provide significant evidence to show that there was a clear distinction between property owned by the husband and property owned by the company. All the evidence pointed to the fact that these properties were still within the husband’s grasp. They could, therefore, be transferred to the wife.

“Division of financial assets in divorce is case-specific, and the court was very clear that in the majority of cases the original position in relation to the separate ownership of assets held in a company will continue to apply.

“Dividing a divorcing couple’s financial assets is often complex. It is vital that each party seeks expert legal help so that they are fully aware of the options available to them.”

Samuel Phillips Law Firm offers a comprehensive range of legal services to business and private clients. For further information in relation to the financial aspects of divorce, including any issues relating to businesses or pension arrangement, please contact Jennifer Goldstein or Elizabeth A Gallagher on 0191 232 8451.

This was posted in Bdaily's Members' News section by Emma Hignett, i2i Business Solutions .