Division of property in marital disputes: beware the corporate structure

Division of property in marital disputes: beware the corporate structure

By Svetlana Ryabokon, Head of Wealth Structuring and Fiduciary Services of Oracle Capital Group

Placing assets into corporate structures may be a good tax-planning strategy, but it will no longer protect them from matrimonial claims.

In June 2013 the Supreme Court issued a groundbreaking legal decision. In a divorce proceeding the Court gave the wife access to assets held by independent companies where her ex-husband was the beneficial owner. The Court transferred seven of the husband’s properties to his wife, even though these properties were legally held by the husband’s limited companies, and not by the husband himself.

The court reasoned that the assets concerned essentially belonged to the husband, since he was entitled to such assets “either in possession or in reversion.”
Placing properties into various corporate structures is often a technique used for reducing tax and streamlining succession planning. However, it is now clear that by doing so you do not necessarily protect your assets from being handed over during matrimonial disputes. As demonstrated by this recent case, a one-man company could be open to a matrimonial claim. Although here the court was careful to point out that this ruling would not necessarily be applicable to all future cases of this kind, which would be assessed individually, it is evident that the court’s reasoning, if applied more broadly, has the potential to open all sorts of corporate structures to attack.

In another recent case, where the husband’s assets were similarly held in a complex network of corporate offshore structures, the court once again chose to disregard the fact that the properties were held in the names of independent companies and counted those properties as the husband’s assets and liable for transfer in the divorce. The court stated that although the properties were held by the companies, by exercising absolute control over his empire the husband had retained beneficial control over all of these assets.
In order to avoid finding themselves in a similar position, individuals placing their assets into corporate structures should ensure that these structures are properly maintained and appropriate corporate formalities put in place in order to safeguard the assets held there.

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