More Landmark Divorce Cases & What We Can Learn From Them

Recently we posted an article on our blog that presented some case studies of famous divorces that have been very important in determining the outcomes of other cases. By learning about such cases, you can gain a better understanding of what to expect, and it can help with developing a strategic framework to work from.

In this post we present a few more important divorce case studies that we feel will have relevance in the future of divorce law, and examine what these cases can tell us about the legal system and how judges tend to reach their decisions.

Prest v Prest (later Prest v Petrodel Resources Ltd), 2013

If you have dabbled in the world of corporations, you will know that one of the main reasons for establishing a limited liability company is… well… to limit your liability.

But what happens if one of your liabilities is a divorce settlement? The bad news for business owners, but good news for those divorcing them, is that in Prest v Prest we discover that courts do not extend the limit of liability to include divorce.

Michael Prest obviously thought it would be clever if instead of owning assets in his own name, he thought it best to purchase all of his significant assets through a company and he thought he was even cleverer by ensuring that that company was owned by another company. Furthermore, he thought he’d add some extra points by making sure that the company was established outside of UK jurisdiction.

Mr Prest’s line of argument was that because he was not directly the owner of his various assets, he had no entitlement to them, and therefore could not transfer any interests in those assets to his former wife.

Contrary to his apparent expectations, the court was not impressed with Mr Prest. In fact, it seems they were hard-pressed not to punish him even further than they did.

One of the more surprising things about this case is its complexity. However many links there were in the corporate chain Mr Prest had established, ultimately the chain would lead back to himself and there would be some shares that he held. The court would simply have to transfer at least 50% of the shares in the ultimate link to Mrs Prest and the problem would be solved, right? Not quite!

You see there was technically nothing to stop Mr Prest from simply starting a new company and then ordering his other companies (all separate legal entities, not resident in the UK) to transfer assets to the new company.

The court could then order the new company to comply, but Prest could open a new company, and then another one, and so on. A cat-and-mouse game like that could tie the matter up for a lifetime.

So the court was left with no choice but to go about things the hard way. After vigorous debating that had company directors everywhere anxiously on the edge of their seats, the Supreme Court ruled that there was no need to “pierce the corporate veil”, and simply ordered Mr Prest to transfer half of the value of the assets held, regardless of which entity ultimately held them.

Because Mr Prest owned the sum of interest in all of the companies, he could not fraudulently hide behind a smokescreen designed to shield him from the disclosing of (and disposing of) his assets.

Sharland v Sharland, 2014

An exceptional case in which no less than two courts decided that the husband had fraudulently concealed assets and perjured himself, and yet still denied the wife’s claim for greater ancillary relief.

The last court of appeal suggested that the husband could face punishment for his alleged crimes but would not be ordered to pay anything further to his ex-wife.

Why did the judges rule in this way even though they believed the evidence presented to them by the plaintiff? The answer really has two parts.

The first part of the ruling is that even though the judges expressed opinions indicating that they believed the evidence suggested that Mr Sharland had concealed his true financial position, he had not been found guilty of any related charges in court.

If the court did make a ruling based on presumed guilt (even where it seems watertight), that would prejudice Mr Sharland’s presumption of innocence in any subsequent criminal proceedings, and may lead to a situation of double jeopardy.

Even if an individual judge was of the opinion that Mr Sharland was guilty, they could not actually make a ruling based on his guilt until it had been proven beyond a reasonable doubt in a criminal court.

Mr Sharland has a legal right to a fair trial, and if any judge ruled in advance of a criminal trial any issue that would be more appropriately dealt with in the criminal court, it would prevent the possibility of a fair criminal trial.

The second very important part of the decision is based on the financial position of the plaintiff. In this matter, the plaintiff had already been awarded more than £10 million. The question then becomes whether or not the award would have been substantially greater had all of the facts been known.

This differs from cases such as Critchell v Critchell on the basis that firstly neither party was in a position of financial difficulty, and that the sum involved was vastly greater, bringing it under the definition of what Lord Nicholls had described in White v White as a “big money” case.

White v White is of significance because it raises the issue of “financial need”, and it is clear that based on the original settlement, the financial needs of the plaintiff were not only met but exceeded.

When considering the first appeal in the High Court, the judge had to take into account whether he would have ruled differently if there had been a full and frank disclosure. The essence of his statement was that judges are not fortune-tellers; they are judges. The plaintiff was asking the decision to be revised based on actions that had not happened and which were only speculative at the time that the hearing had taken place.

The judge also pointed out that the wife had accepted the original settlement based on receiving a percentage of the sale of the husband’s shares whenever such sale took place. Therefore, it was immaterial whether the shares were sold within a short time of the settlement or not, she would still get the same percentage regardless.

Counsel for the plaintiff argued that if the husband had fully disclosed all matters relating to his financial position, the appellant would have “raised her sights” (which is merely another way of saying “would have been more greedy”… something that the court is not likely to look upon favourably).

The response from the Supreme Court judges was essentially that the original settlement was not unfair merely because the wife would have had greater expectations if she had known that an IPO was potentially imminent.

I think what can be gained from this is that the court looks at the nature of an agreement based on the state of mind of the party making the agreement. At the time of the agreement, the wife and the court clearly felt that an award of over £10 million plus a generous percentage of any future share sales would be more than enough to meet her financial needs.

In hindsight, on discovering she had been misled, she regretted that decision because she may have demanded more otherwise.

If you are given a big piece of pie it does no good to say that, if you had known there was more pie, you would have asked for a larger piece. It is only when your piece of pie is small and not really enough to meet your needs that you can expect to be given a bigger piece.

Summing Up

In Prest v Prest it is clear that attempting to conceal assets in any way, even the time-tested method of using offshore corporations, will ultimately go against you if it is discovered. There are perfectly legal ways to establish when somebody should not receive a 50% share, but “clever tricks” can backfire.

On the other hand, the case of Sharland v Sharland shows that misconduct alone does not always provide sufficient grounds to overturn a court decision.

In asking the courts to divide assets unequally, it is important that the request is neither too selfish nor too greedy. You will need to show that what you are asking will be the fairest outcome.

This is where legal consultants such as Hylton-Potts can help you, because we can identify such points that will lend weight to your argument.

Call us on 020 7381 8111 or email [email protected] for further information about how we can help you get a fair result in your divorce

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