Hands off my business
What happens to company assets after divorce?
“I know I may have to divide some of my company shares with my partner, but what about other company assets?”
As a starting point it is worth remembering that anything ‘owned’ by the divorcing couple is fair game to be included as part of the settlement pot. Shares in a company would be no different.
However, it becomes more difficult when one of the parties to the divorce wants to include business assets in the sharing pot. The business assets may be fleet vehicles, an expensive company car, a factory unit or office block, or valuable machinery and therefore may well increase the value of the sharing pot considerably.
The Corporate Veil
You may have heard the mysterious phrase of ‘piercing the corporate veil’ and wondered what it means. Well, first of all, let’s look at what the corporate veil is. Imagine the corporate veil is a moat between an individual’s assets on one side and the company owned assets on the other. You can see over the moat and see what the company has, but it is tricky to get at them, at the very least, you might have to get your feet wet.
Piercing the corporate veil is the building a raft to cross the moat (to extend the metaphor still further) but to be able to build the raft you have to have the right materials and the right tools and these aren’t easy to find. The right tools, in the context of a divorce are as follows;
- where the company is being used to avoid satisfying court orders, or otherwise
- it is being used to avoid legal obligations (such as personal assets being transferred to it)
But that’s not the end of the story. The court doesn’t have to pierce the corporate veil in every case.
The Family Home
Sometimes the matrimonial home may be owned by the business. Putting to one side lots of problems about the tax ramifications of doing this, when looking at a divorce the court will look at the intentions of the couple to determine whether the matrimonial home should also be in the pot, despite it being owned by the company.
To put this in legal language, it is about separating who may be the ‘legal’ owner (i.e. the company) from who is the ‘beneficial’ owner, the couple.
Dishonesty isn’t needed
Some lawyers tell their clients that to be successful in obtaining a share of property held by a company they have to prove that the assets were owned by the company for dishonest reasons, that it was a sham. Unfortunately, this advice is wrong. All the court will do is look at the intentions of the parties and where the money came from to purchase the particular asset in deciding whether the moat can be crossed.
As will be appreciated, this is a very complicated area of law and specialist advice should be taken at an early stage. Getting it wrong can be a very expensive mistake. If you have any concerns about your own assets, your company assets or those of your spouse, please do get in touch with the family law specialist here at Cooke Painter and we’ll talk you through your options.