Family Law - Hiding Assets When Divorcing

In June a landmark case involving a husband hiding his assets from his wife finally worked its way to the Supreme Court.

Michael Prest is a wealthy oil trader. A High Court judge ruled in 2011 that he was worth at least £37.5 million at the time. His former wife said he may be worth much more, but in any event the judge, Mr Justice Moylan, ordered Michael Prest to pay his former wife £17.5 million. Now although the figures are large, there is nothing otherwise remarkable about the judgement, except that Mr Prest tried to hide behind company law to avoid paying the £17.5 million divorce settlement.

Michael Prest had repeatedly flouted his duty to give full, frank and clear disclosure of his finances. The Court of Appeal said that his evidence was deceitful and shambolic. Lord Sumption even went as far as saying Mr Prest’s conduct had been characterised by ‘persistent obstruction, obfuscation and deceit’.

So where does the law now stand when a wealthy husband behaves in a dishonest and obstructive way and tries to use company law to hide his assets? In the Prest case the court found in the ex-wife’s favour, confirming that the court is not only there to enforce the law but also to deliver justice. The family judges in the Court of Appeal were entitled to be sceptical about properties bought by a husband’s company. If the companies are just a ‘sham to conceal the reality of the husband’s beneficial ownership’, then the court may be able to look behind the company facade.

What the ruling did not do is overturn more than a century of company law. Normally shareholders like Michael Prest have no interest in, let alone entitlement to, a company’s assets. The distinction between a company and its shareholders remains as valid today as it was at the end of the 19th century, when the law lords decided the case of Salomon v Salomon & Co Ltd. The court will only look behind a corporate veil under very rare circumstances. One of those rare circumstances will now be where a husband wilfully tries to deceive the family courts.

Caroline Holley, the lawyer who represented the former Mrs Prest, said:

‘The Supreme Court has dealt a blow to dishonest spouses everywhere and taken this important opportunity to send a clear message that those seeking to avoid responsibilities to their divorcing spouses and children will not be allowed to succeed.’

Unfortunately, despite this ruling there will still be many cases involving the financially stronger party trying to hide his or her assets. Since a Court of Appeal ruling in another multimillion-pound case, Immerman v Tchenguiz [2010] there has been what divorce lawyers called a ‘cheat’s charter’ in UK family law. The cheat’s charter effectively banned estranged partners from using copies of financial information obtained in secret. This is even when the information shows evidence of money being concealed. In effect, what the case did was force a party to apply for a court injunction to ‘freeze and seize’ assets, a costly step even in the best of cases.

The cost in wasted time and money in difficult divorce cases can be astronomical, but perhaps more rulings like those in Prest might encourage parties to behave more reasonably.

What is most telling is what Mr Prest’s former wife, Yasmin, said: ‘None of this would have been necessary if Michael had been sensible and played fair.’