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Relationship Property, Sham trust, Trusts

Another shot across the trust bow

This blog explores the increasing difficulties the asset rich party has hiding assets from his or her former partner in the face of judges who really want to help.

The case in question (Prest v Petrodel) is a UK case, and accordingly, it is important to appreciate that the equivalent relationship property legislation includes broader powers for transfering assets following a marriage break up than the equivalent New Zealand legislation.

However, as the common law in one country is often shaped by that of another, the reasoning in the case does require some consideration.

In this case the  UK Supreme Court found a trust in favour of the wife through “piercing of the corporate veil” of the husband’s various companies.  The Court’s reasoning  being that as the husband had beneficial interest in the properties apparently owned by companies, the companies were holding the assets on trust for the husband.  Once the assets could be linked to him, it was a very small step to then divest him of these in favour of his wife.

The reasoning is clearly that of function over form.  Regardless, it continues a long path now that shows that complacency in asset ownership and having assets owned “unnaturally” can have future  consequences.

To save you wading through the 44 pages (although the hardy who wish to do so will find it pretty easy reading) I will paraphrase the findings and draw your attention to para 55 (my emphasis), which neatly sums up the reasoning behind the judgment:

 “Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. In many, perhaps most cases, the occupation of the company’s property as the matrimonial home of its controller will not be easily justified in the company’s interest, especially if it is gratuitous. The intention will normally be that the spouse in control of the company intends to retain a degree of control over the matrimonial home which is not consistent with the company’s beneficial ownership. Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. But where, say, the terms of acquisition and occupation of the matrimonial home are arranged between the husband in his personal capacity and the husband in his capacity as the sole effective agent of the company (or someone else acting at his direction), judges exercising family jurisdiction are entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband’s beneficial ownership.”

 

References:

  • Prest v Petrodel [2013] UKSC 34
  • (UK) Matrimonial Causes Act 1973, s 24

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