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Piercing the corporate veil in divorce

Prest v Petrodel: Piercing the corporate veil in divorce (not)


Plate sin with gold,
And the strong lance of justice hurtless breaks;
Arm it in rags, a Pygmy’s straw doth pierce it.
King Lear, 4.6.170

Piercing the corporate veil in divorce

If you are considering piercing the corporate veil in divorce proceedings, you will need more than a Pygmy’s straw.  The Supreme Court has delivered an important judgment today for family lawyers.  It is the usual heady, divorce cocktail of naughty husbands, big, big money; opaque companies; and imploring wives.  Spoiler alert: justice and fairness win out in the end.

My previous post about this case  Prest (Appellant) v Petrodel Resources Limited & Others (Respondents) [2013] UKSC 34 carried a lovely quote from the Court of Appeal judge who feared that husbands with assets sheltered by company status would be given “an open road and a fast car” to defeat the reasonable claims of their wives on divorce.  The case had alarmed many family lawyers who fear that some spouses will hide certain assets – assets that should form part of the matrimonial pot for division – within company structures.  In other words, the family assets would lie behind the corporate veil and the law would be reluctant to allow the piercing of the corporate veil in divorce.

In this particular case, the husband, Mr Prest, owned the companies and when the High Court first dealt with the case, the Judge ordered some of the company properties and shares to be transferred to the wife, Mrs Prest.  The husband appealed to the Court of Appeal and argued that the orders should not have been made since the court had failed to distinguish between the husband as an individual and the companies of which he was the sole shareholder.   The husband reminded the Court of the long established legal principle that a company has a ‘legal personality’ which is independent of its shareholders.  The shareholders of a company have no interest in or entitlement to the company’s assets.  Therefore, the High Court had made a fundamental mistake when it ordered that the husband was entitled to the properties and shares in his companies and could therefore simply be ordered to transfer them to his wife.

The Court of Appeal agreed with the husband.  Cue: gnashing of teeth from family lawyers who labelled it a ‘cheat’s charter’.  There was to be no piercing of the corporate veil in divorce. The wife appealed and The Supreme Court has now considered the matter: the judgment was released today (12th June, 2013).

Scores on the door

The family court does have the power to order that “a party to the marriage shall transfer to the other party… such property as may be so specified, being property to which the first-mentioned party is entitled…”  As the Supreme Court acknowledged today, the ability of the court to exercise such a power of property transfer requires “a considerable measure of candour by the parties in disclosing their financial affairs”.  Unfortunately for the wife, the court described the husband’s conduct of the proceedings as being characterised by “persistent obstruction, obfuscation and deceit.”

The Supreme Court, like the High Court and the Court of Appeal, before it,  has decided that the piercing of the corporate veil in divorce proceedings will only be tolerated in exceptional circumstances, which would normally involve the husband acting improperly.  Now, there may be a few of you out there scratching your heads and thinking “surely, persistent obstruction, obfuscation and deceit amounts to improper behaviour?” Well, it is certainly improper, but the Supreme Court found little evidence that the companies were set up to frustrate the wife’s matrimonial claims.  Instead, the Supreme Court found that the companies were set up as a form of wealth preservation and tax mitigation.  Additionally, the court concluded that there were remedies available to the wife, such as the transfer of the properties owned by the companies, that would, and should, allow the court to stop short of piercing the corporate veil.

The Supreme Court was clear that the family court enjoyed no special rights, in attempting to provide justice and fairness to spouses, above any other court division.  As Lord Sumption, providing the leading judgment,  states:

Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere. 

But, the Supreme Court still came to the wife’s rescue by finding that the seven properties were owned “beneficially’ by the husband even though not in his personal name.  This meant that the court, using its family jurisdiction, could transfer the properties to the wife and did not need to think about using a lance, or a Pygmy’s straw to pierce the corporate veil.

Interestingly, the Supreme Court emphasised the existence, and usefulness of, the family court’s ability to draw adverse inferences from the husband’s failure to make proper disclosure of his finances.  In effect, the court could speculate as to why the husband might be trying to hide the reality of his financial affairs which is not a function you will find in civil (non-family) litigation.

Despite the pragmatic outcome of this case, the Supreme Court went on, Lord Neuberger in particular, to consider whether the piercing of the corporate veil, could be said to exist as a doctrine.  Lord Neuberger said it did exist.  But in what circumstances should it be deployed by the courts? Lord Neuberger declares:

The doctrine should only be invoked where “a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control”.

I welcome this judgment.  Like other commentators, I am pleasantly surprised at the fairness of the outcome.  However, I do not share the general gush of enthusiasm exhibited by some.  I do not see this decision as groundbreaking or even great news for wives in general.  This judicial approach could be summed up as: let’s exhaust all the other options first.  If everything else fails, we’ll blow the dust off the doctrine and give it a spin but only if the husband is a lying git of the highest order.  And you have the dosh to stay the legal course.

Last word

James Turner divorce finance toolkit Prest Petrodel

James Turner QC

The last word on the topic of piercing the corporate veil in divorce I leave to James Turner QC.  I asked James today for an off the cuff response to the judgment and, despite being extremely busy, as usual, he graced me with a sensible, and level response.

“This is an unexpected result, but it is pleasing to see that the courts are doing what they can to prevent a divorcing spouse from avoiding true justice.  However, it may create problems in future cases when deciding whether or not to join companies and trustees as parties, with the consequential expense of such a course”.

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Are company assets now beyond the reach of the Family Court?

How does the family court deal with a divorce financial settlement when one of the spouses, usually the husband, is suspected to be in control of valuable assets that are held by his companies?  If a family court decides, for instance, that it wants to make an award of £500,000 to a divorcing wife, but £400,000 of that sum is locked up in a company, how can the court get its wish?

Well, until a recent Court of Appeal decision in the case of Petrodel Resources Ltd & Ors v Prest & Ors [2012] EWCA Civ 1395, the family court could order the transfer of assets owned by such companies or even company shares to the wife.  In this particular case, the husband owned the companies 100% and when the High Court first dealt with the case, the Judge ordered some of the company properties and shares to be transferred to the wife.  The husband appealed to the Court of Appeal and argued that the orders should not have been made since the court had failed to distinguish between the husband as an individual and the companies of which he was the sole shareholder.  The husband reminded the Court of the long established legal principle that a company has a ‘legal personality’ which is independent of its shareholders.  The shareholders of a company have no interest in or entitlement to the company’s assets.  Therefore, the High Court had made a fundamental mistake when it ordered that the husband was entitled to the properties and shares in his companies and could therefore simply be ordered to transfer them to his wife.

The Court of Appeal agreed with the husband.  The decision was not unanimous: it was a 2:1 majority.  The dissenting Judge was worried that husbands with assets tied up or sheltered by company status would be given “an open road and a fast car” to defeat the reasonable claims of a wife on divorce.

It is fair to say that most family lawyers I have spoken to are astonished (and concerned) at the Court of Appeal’s decision.  It is common in some marriages to stick matrimonial assets into company ownership for tax and financial planning reasons.  If this decision by the Court of Appeal stands, I can imagine that some wives will be nervously reviewing the matrimonial financial arrangements to find out if that fast company car disappearing down the highway has its boot full of the family silver.

If this Court of Appeal decision stands it is difficult to envisage how a family court can achieve fairness in circumstances where a husband (perhaps by calculation) is at the steering wheel with the pedal to the metal.  Thankfully, both for justice and my motoring metaphor, the case has now been appealed to the Supreme Court where I sincerely hope Baroness Hale has constructed a roadblock and is armed with high explosives.  I just hope Her Ladyship remembers she is only supposed to blow the bloody doors off.


Completing Form E within divorce proceedings is difficult enough but one of the main mistakes is to underestimate the length of time it takes for pension providers to cough up the pension information.  But in the first place, it helps to submit the correct document: this is Form P (Pension Inquiry) to each pension fund holder. Using Form P is essential, otherwise the pension providers will not know the context of your request is a divorce and therefore will not give you the information needed for Form E.

Here is a short video on:

  • how to find the Form P for free on the internet;
  • the relationship between Form E and Form P;
  • how to complete Form P.

Form P is essentially used for the majority of private pension funds.  A different pension information request form is used if you are, for instance, in the armed services,  a police officer or a teacher.  As ever, I can always post on these exceptional circumstances if there is enough interest.

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Image by @Williamslegal

There can hardly be a family lawyer in the land who has not shivered with horror at the news that one of their letters of client advice, containing deeply personal and confidential information, has fallen into the hands of their client’s other half.  How could this have happened?  And what could have been done to prevent it happening in the first place?  I suspect that nowadays, it is more likely to be an email that has been compromised rather than a letter.

Adios snail mail

It is often the case that advice will be sought whilst a client is still living with their spouse or partner in the same property. A problem arises when the solicitor wishes to confirm the advice given in writing. In the days when snail mail was the only option, it was often agreed that the post would be sent to a trusted third party rather than to the client’s home address. The use of e-mail, which has the benefit of speed, is often requested by clients still sharing a property with the person from whom they wish to separate.  Even if the parties have separated, it may be the case that the departed spouse comes back from time to time to pick up post, or possessions.  These visits may occur when the occupying spouse is absent.  It strikes me that sending an e-mail to a client’s email account, which will be accessed from a shared computer  in the matrimonial home is as dangerous as sending a hardcopy letter to the home bearing the legend “DEEPLY PERSONAL AND CONFIDENTIAL LEGAL ADVICE FROM YOUR DIVORCE SOLICITOR”.  In fact, it is probably easier for a client’s partner to stumble across and read a confidential e-mail from a lawyer (and then then hit “Mark as unread”) than it is to steam open a hardcopy letter before glueing the envelope back down.

Clouds in my coffee

It is imperative in most family law situations, (the possible exception being the collaborative law model) that communications between solicitors and clients are kept private.  Confidentiality is key.  How can a client discuss matters of importance with candour and expect equally candid advice if such communications are likely to be intercepted and compromised?  So, what can you do to retain the benefits of electronic communication whilst maximising its security and confidentiality?

Try these tips:

  1. If you want to receive email communication to your home on a shared computer then consider setting up your own user account that you log into and out of when the computer is on.  This will require a password.  This is relatively secure but may be overridden if you are not the person who set up the computer in the first place – often known as the Administrator.
  2. Go a step further and open an email account with a hosted e-mail provider (in what is colloquially called The Cloud). GMail is just one example.  Set your username, password, and security questions, and do not reveal them to anybody else. Do not leave these details written down. If you absolutely must keep a record of the account information for fear of forgetting the passwords, then consider retaining the information on your smart phone, if you have one, but heed the next tip.
  3. Ensure that you have a pin code on your smart phone, laptop or tablet to prevent your spouse or partner accessing these details when you are not around.
  4. You can then give this hosted e-mail account to your solicitor. The e-mail communications will not appear on your home PC provided you have not set up a forwarding facility on to a conventional e-mail account that can be accessed at home.
  5. When setting up a hosted email account you will often have to provide a pre-existing email address.  This is likely to be your email account in the shared home.  A validation email will be sent from the hosted account to your existing email account as part of the set – up process.  Once this has arrived, deal with any action required but then immediately delete the welcoming email  it (and then delete again from the trash folder).  This will prevent your partner being aware that you have an additional email account.
  6. Such cloud services offer more than just email.  If your solicitor has sent you draft letters or settlement options for consideration, you can retain them in the cloud, amend them and then send back to your solicitor.  You need not ever print off a document that could be inadvertently read by your partner. You can therefore have a complete set of correspondence from your solicitor which you will retain online rather than having a printed file of documentation which could fall into the wrong hands. As an alternative to  the online storage solutions offered by Google, you could consider opening a Dropbox account which, to my personal taste, is a more elegant and functional solution than Google Docs.
  7. Before you login to your hosted e-mail account, see if you can select “Private Browsing” in your Internet browser.   This prevents a record of your browsing history (including your visits to a hosted email account) being created on your home PC.  Alternatively, when you log out of a browsing session, you can delete the browsing history. This would prevent a suspicious partner from looking at the recently browsed or accessed webpages and deducing that you have a private e-mail account even if they cannot access it.

The phenomenal growth in the smart phone market, now complemented by the astonishing popularity of the Apple iPad and Apple’s competitors rushing to also grab a slice of the tablet market, has freed us from the shackles of a desk-bound computer.  We can access emails and documents from just about anywhere on a number of electronic devices.  Family lawyers must be more flexible about the ways in which they balance their clients’ demands to be kept informed with their competing right to confidentiality.

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Divorce, Next ExitI might have known that I could not write a blog aimed at helping people to get their heads around divorce finance issues without coming back, time and again, to Form E.  The magnificent, overblown Form E.  If Form E were a film it would be Citizen Kane.  If it were a novel it would be War and Peace.

Despite the fact that Form E is designed as a financial questionnaire, even its apparently straightforward sections can provoke confusion and mistakes.  A few of my clients had problems with Section 2.3 which asks for the listing of all bank and building society accounts.  Here are a few pointers on this particular section

Form E Section 2.3 

Details of all personal bank, building society and National Savings Accounts that you hold or have held at any time in the last twelve months and which are or were either in your own name or in which you have or have had any interest. This applies whether any such account is in credit or in debit. For joint accounts give your interest and the name of the other account holder. If the account is overdrawn, show a minus figure.

If you have money in another person’s bank account, you must still disclose your interest (the amount you have in the account) at this section of the Form E. TIP If you have online access to your bank accounts you can usually print off the last 12 months’ bank statements directly to your printer.  If you are having difficulty obtaining missing bank statements, your bank is obliged to provide up to the last 6 years’ worth of bank statements provided you state clearly it is a request under the Data Protection Act 1998 for which the maximum charge is £10.00. There are some common mistakes to avoid:

  1. Forgetting to include details (and statements) for accounts closed in the past 12 months.  If your spouse is aware that you had such an account but you do not disclose it, it can arouse suspicion and mistrust.  Remember to include the closing statement so it is clear the account has been closed.
  2. If you do not want your spouse to know where you are living (arising from a genuine concern for your safety or that of your children) and have withheld your address in the divorce or civil partnership proceedings, you should ‘redact’ (blank out with a thick felt pen) any identifying geographical information such as your address and also any local ATM cashpoints that you use.  DO NOT BLANK OUT AMOUNTS OF MONEY AS THAT WOULD NOT BE JUSTIFIED.
  3. Ensure you have complete sets of statements for each account.  Through no fault of your own, you may be missing a few pages and if there are significant changes in the balances of the accounts then your spouse may think you are hiding something.
  4. If the bank account you disclose is a joint one then make sure you only put down 50% of the final balance as your interest.
  5. Finally, do not forget to deduct the value of any overdrawn accounts rather than adding them in.  This happens more often than you may think, especially if there are 8 or 9  bank accounts all jostling for space in this section of the Form E.
There.  Hope that makes it all clear.  
Post-script: I am pleased to say that after many years of effort one of my tech projects has led to the creation of the Siaro platform.  This platform will be available to lawyers but free to their clients and one of the features is the automatic production of a Form E which I hope will go some way to removing the errors that often appear in the completion of this document.

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Very occasionally in divorce proceedings one spouse will forget to disclose one of their assets on Form E, nothing major you understand, just one of those big bricks and mortar things called a house. It’s easily done.  Often, just a gentle nudge by way of an enquiring solicitor’s letter or even a court approved questionnaire if you are in the middle of financial proceedings will do the trick and get the response: “Oh, that house…”

But what can you do if the spouse swears blind that there is no other property even though you distinctly remember them whispering about it to their accountant or investment manager?  What do you do if you have no idea where the property may be, not even which town it may be sitting in?  You can’t do a Land Registry search unless you have a specific address.  Or can you?

Here’s a little trick.  Ask your spouse to help you complete a form from Land Registry called PN1 which allows a search in the Index of Proprietors’ Names. That is, it allows a search against a name and will reveal the details of any properties owned by that person.  The Land Registry will not accept the form unless your spouse has provided their consent on the form.  But if your spouse has nothing to hide they will be happy to complete the form and let you do the search.  If they refuse, you can always ask the court to draw an adverse inference from the refusal by concluding that there is indeed something to hide  In that case, if the court is on your side you can ask the court to order a search in the Index of Proprietors’ Names.  This does not require your spouse’s consent.

This approach is not foolproof though.  It is possible that your spouse owns the property through a company so you will need submit a search in the name of the company as well as the name of your spouse.  More difficult still would be if your spouse had given funds to a private individual who has purchased the property in that individual’s name.

But despite these drawbacks, this is a useful weapon to have in the disclosure armoury.


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