Divorce when you’re a land or business owner

Nicola Furmston

Nicola Furmston recently wrote this article which appeared in the East Anglian Daily Times on 5th July 2014.

Many rural businesses operate as companies, including farms, and marital assets can be closely tied to these companies. For example, it is not unknown to find that a family home is owned by the family company, rather than by the parties to the marriage themselves. Capital may be tied up in a business in various forms and both parties may be employed by the company. Commonly, one party is a director and the other receives a minimum wage for a small amount of service to the business. There will be shareholdings and dividends may have been paid, as a way of providing an income from the business in a tax efficient manner.

On divorce, directors may take steps to limit the impact on the business, for example by sacking the spouse or to decrease the income from the business in the hope of reducing the company’s value or simply forcing the spouse into poverty, perhaps ceasing to declare dividends. The aggrieved spouse hopes to seek a remedy against the individual concerned, but the reality is that the remedy usually lies against the company itself, either in an employment forum or the Companies Court.

If a spouse is seeking an order in relation to property held by the company, traditionally the court has had limited ability to make such orders in divorce proceedings against companies. This has required the court to ‘pierce the corporate veil’ and there has been a marked reluctance to do so. However, in a relatively recent development (Petrodel Resources Limited and others v Prest [2013] UKSC 34) the court cracked open the door for the transfer of a company-owned property to an estranged spouse and left it open for others to follow.

The court considered a restricted principle of English law allowing the court to deprive a company or its controller of the benefit that they would have had as a result of the company’s separate legal identity. In the Petrodel case the Husband had placed assets into a company, which he controlled. Although in that case the court was not prepared to go as far as sanctioning the transfer of properties owned by the Husband’s company to the wife, it said that in circumstances in which a party had deliberately evaded financial obligations by putting assets into a company it might be prepared to do so.

It is not yet known quite how the court will be prepared to take this principle, but the courts routinely take a dim view of any actions taken during or in an anticipation of litigation to deprive another party of a fair share of assets and are prepared to take firm sanctions in relation to this sort of behaviour.

Nicola Furmston is a solicitor specialising in the family field at Barker Gotelee, Solicitors in Ipswich.