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Business assets or personal assets - Where to draw the line?

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Divorce. It is very rarely an easy or straightforward process, but when there’s a business involved, things can feel even more complicated.

When couples go through divorce proceedings, any goodwill that remained between them can often go out of the window. It may seem tempting to try and manage your financial arrangements in a way that you think will prevent your partner from benefiting financially from the separation in any meaningful way, but such behaviour brings with it serious risks.

A couple of years ago, company and family lawyers went head to head, in a landmark separation case known as Prest vs. Prest. The husband involved in the case owned and controlled a group of companies known as the Petrodel Group.

The High Court ordered the husband to pay his wife a combination of cash and properties to the value of £17.5 million.This settlement was challenged by the Petrodel Group who argued that the properties ordered to be transferred actually belonged to them, rather than the husband, and the court did not have the power to consider them part of any divorce settlement.

Initially, the Court of Appeal agreed with the Petrodel Group. However, the Supreme Court ruled that the properties were held ‘in trust’ for the husband: bought with his money and handed to the companies to “look after”. As he was ‘entitled’ to them, the decision was made that his wife was able to also entitled to a share.

One of the main reasons why the Courts overturned the appeal by the Petrodel Group, was that he was deemed to have been uncooperative during the early divorce proceedings. He had failed to provide a ‘full and frank’ disclosure of his circumstances, which may have clarified the situation much earlier in the proceedings - an essential requirement in family law disputes, where the court is considering financial issues. The result of this was that the court could infer from the husband’s behaviour that he “had something to hide”.
This is an extreme example, but it has applications to all walks of life, not simply those operating multi-million pound industries.

No matter how large or small the amount of money involved, all parties must provide relevant financial information in a ‘willing and ready fashion’ or risk falling on the wrong side of the law. At best, anyone the court deems guilty of misconduct can be forced to pay the legal costs for the other party, as well as their own. At worst, they could be found in contempt of court.

The Court looks towards achieving a result which provides fairness and equality between the former couple, taking into account all the circumstances of the case and the needs of any children of the family. But equality doesn’t necessarily mean the same. A Court may give one party more of one, or all of the assets, because of an income disparity, or to offset the value of one asset against another. Generally speaking, the longer a relationship has lasted, the harder it would be for a party to argue that the court should ignore an asset, such as an interest in a business.

The line between business assets and personal assets is becoming more blurred in family proceedings. It might be tempting for people to try to hide behind their businesses, perhaps using funds from their business for their own personal day-to-day expenses, or seeking to ‘protect’ their personal assets by holding them in their company name. However attractive that may seem it can be illegal and is very likely to upset the tax man. If brought to light in a court during divorce proceedings, it not only causes confusion but may damage your case

As tough as it might be, honesty is always the best policy. If you are unfortunate enough to become involved in financial proceedings with your former partner, they may obtain a settlement which is more than you think they deserve, but the court will not take such ‘feelings’ into account when trying to achieve a fair outcome. Don’t be tempted to do something you may later regret.

Any good experienced family lawyer, possibly with the assistance of an accountant, will have your best interests at heart, and provide you with proper independent advice about your circumstances to try and help you resolve matters in a less painful and costly way for all concerned.