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Following a 3 year wait for the judgment of the Supreme Court in Prest v Petrodel Resources Limited  UKSC 34 to be handed down, a record breaking judgment for financial provision following the breakdown of marriage has been made in the case of M v M.
In this case the wife, Mrs M secured the sum of almost £54m from her former husband, whose assets (mostly properties) where largely held in complex corporate structures.
As in Prest it was held that there these corporate structures were holding the assets on resulting and constructive trusts for the husband, Mr M, and so could be transferred directly to Mrs M, without the need to pierce the ‘corporate veil’.
Mr and Mrs M, both Russian nationals, were married for 17 years and had two children. They first met in Russia in the factory in which they both worked, but during their relationship Mr M, taking advantage of the changes in the Russian free market, built up a successful business.
Following their divorce in Russia in February 2009, Mrs M, who has been resident in England since August 2005, applied for financial relief under Part III of the Matrimonial and Family Proceedings Act 1984 (MCA).
Both children remained with their mother, and at the time of the application, one child was 15 and the other attending university.
The husband’s wealth was estimated at approximately £107m, of which approximately £91.6m was made up of 11 commercial properties in Russia and the remainder comprising of 8 English properties, which were held (in simplified terms) as follows:
The matrimonial home was the only asset not held in a company structure.
The Court was largely concerned with the 4 properties and the garage own by companies B, C and D (together “the Properties” and “the Companies”).
The wife sought an order enabling her to receive the Properties plus a lump sum of £38m representing half the realised value of 11 Russian properties.
The MCA allows for the Court, on the decree of divorce, to make an order that a party to the marriage transfer to the other party (or any child or for the benefit of a child) property to which the first mentioned party is entitled (either in possession or reversion).
The question before the Court therefore, was whether the Properties, albeit legally owned by the Companies in complex structures, were beneficially held by Mr M on a resulting or constructive trust.
As in Prest, Mrs M argued that since her husband had at all times retained the beneficial interest in the Properties held by the Companies, they were therefore matrimonial assets, and there was no need to pierce the corporate veil in order to transfer the Company assets to her.
However, all the Companies resisted the wife’s claim on the basis that they owned both the legal and beneficial interests in the Properties, so the wife could not make a claim for their transfer to her.
They further argued that the Properties were held by them outside the jurisdiction for well-recognised tax planning reasons, and that it had been a priority for the husband to have disposed of any interest he had in any of the Properties rather than retain it as if he had not done so he would fail to achieve the tax benefits sought.
They submitted that it was inherently probable that a wealthy individual non-domiciled in the UK would hold his assets offshore for tax avoidance.
The wife’s application for financial provision was successful and, as in Prest, the Companies were found to be holding the Properties on resulting and constructive trusts for the husband, in this case on the following basis:
The Court ordered the transfer of the Properties to Mrs M, the release to Mrs M of Mr M’s share of the balance of sale proceeds of the former martial home, a lump sum of £38 million and provision for child maintenance.
The facts of this case are highly unusual. Mr M went to extreme lengths to tie his assets up in highly complex corporate structures. He failed to engage in the Court process, ignoring Order after Order for disclosure, being in contempt of Court many times over.
Whilst the result in this instance has been a success for the wife, the application of this case may be more limited than hoped. If assets are obtained for value in the ordinary course of business and this can be proven, the principles in Prest and M v M are unlikely to assist those spouses seeking provision under the MCA, save in relation to the marital home.
However where spouses are taking deliberate steps to wrap assets up in company structures (whilst retaining control of those assets) in an attempt to keep them out of reach of their spouse then Prest and M v M will be persuasive authorities to assist in bringing such assets back in to the pot of marital assets for distribution.
For more information please contact Alison Broadberry, Partner
T: +44 (0)20 7427 6567