Josepha Madigan, family law Solicitor and TD, has introduced a Private Members Bill to allow the time that you have to be living apart from your spouse before you can apply for a divorce from four years to two. This is a much needed development as society has changed in the 20 years since divorce was introduced. Such a change, which requires a referendum, would mean an end to the two stage separation process that we have in this country which is unfair to spouses and also to the children caught up in a separation. Ironically, same sex couples who entered into Civil Partnerships only had to wait 2 years for a dissolution of their partnership and this reflected the fact that civil partnership was introduced at a time when societal attitudes to break up of relationships had changed. You can view a recent Irish Times article by clicking on the link below.

http://www.irishtimes.com/news/politics/fg-td-brings-bill-to-cut-divorce-wait-time-from-four-years-to-two-1.2704512

Irish courts have, to date, tiptoed around piercing the corporate veil in separation and divorce cases

Two recent family law cases have highlighted the issue of whether a company will be able to maintain its separate legal identity when its major shareholder is involved in divorce litigation.

It is a long established core principle of company law that a company is a distinct legal entity from its shareholders, even a majority shareholder who has total control over the company.

Notwithstanding this, the family courts in England have until recently routinely made orders directing a company to transfer its assets to the spouse of a shareholder.

The Irish courts have, to date, stopped short of going as far as this.

However, Irish courts do regularly make orders directing a company shareholder to give company data and documents, information that is confidential to the company, to their spouse.

This is to allow the spouse of the shareholder to value the shareholder’s stake in the company in the course of divorce litigation.

A recent English case has made clear when a company might have its assets transferred to the spouse of a shareholder.

The case in question is the case of Prest versus Petrodel. The husband, Michael Prest, was the founder and sole shareholder in Petrodel Resources. In his divorce case, he claimed that Petrodel’s assets did not belong to him and that he was £48 million in debt. Initially the court ordered the company to transfer properties worth £17.5 million to the wife. The company appealed this decision and the UK’s Supreme Court.

The court decided that, in general, orders could not be made awarding company assets to a shareholder’s spouse.

However, the court then went on to make just such an award of company assets to the wife in this case because it found that the husband was the beneficial owner of the assets.

He had, for example, provided the funds to buy them. He also took funds from the company whenever he wished without company authority.

The court therefore rubber-stamped the transfer of assets from a company to a spouse, albeit with limitations.

Legal tiptoe

Irish courts have, to date, tiptoed around piercing the corporate veil in separation and divorce cases.

Instead of making orders against a company, they have made orders against the shareholding spouse to either transfer some of his or her shares in the company to their spouse or to give their spouse a lump sum, such that the only way they will be able to pay the lump sum is to pull money out of the company.

Whichever of these methods of transferring assets to a spouse is used the results are often unsatisfactory and crude.

The former may leave the dependent spouse with an illiquid minority shareholding and the latter is very tax inefficient.

A case in Ireland in June of this year also highlighted the issue of the separate legal status of a company, albeit on a narrower issue.

The case of Q versus Q involved an application by a wife to compel a husband to give certain company information to her. The husband argued that he was not in a position to provide the information pertaining as the company was a separate legal entity.

He also argued that the information being sought was not within his possession or power to give.

Quasi-inquisitorial role

Mr Justice Keane in the High Court made the point that a court in a family law case has a quasi-inquisitorial role.

He found that the husband had been able to receive all and any information he needed and he could not therefore argue that the documents his wife was seeking were beyond his possession or power to give.

The case demonstrates that a company is not immune from involvement in family law cases in this country just because it is a separate legal entity.

One feels it is only a matter of time before the issues that arose in Prest versus Petrodel are before the Irish courts.

If the Irish courts do follow Prest, the impact on company law here would be dramatic in that company assets might become fair game for the spouses of divorcing shareholders.

Tackling the problem

A pre-emptive solution should be found now to avoid such problems arising in the future.

One option would be to introduce legislation along the lines of the Australian model which enables a court to make a whole range of orders concerning a third party, including orders against a company to transfer assets from the company to a spouse of a shareholder.

Indeed, perhaps such legislation should be introduced here sooner rather than later so as to provide certainty for couples and companies alike and to make it easier for the courts to make proper provision for spouses on divorce.

Justin Spain is a family law solicitor

By Justin Spain – Irish Times | Mon, Oct 20, 2014 | Link to Irish Times Article

The Supreme Court handed down a Judgment of great significance on 19th October. The Judgment was given by the Chief Justice in the case of G v G and addresses the important question of what constitutes proper provision on the granting of a divorce in circumstances where a Separation Agreement has previously been entered into by the parties.

Until this case the law was unclear as regards the weight that a Deed of Separation should have in the context of providing proper provision on divorce at a later date. Parties were using the forum provided by a divorce application to seek a “second bit of the cherry” and there have been conflicted Judgments from the High Court on the issue of how much a weight a previous Deed of Separation should carry. The clarity provided by the Supreme Court in this case on the issue is therefore to be welcomed.

In the case of G v G the parties were married in 1977 and separated in 1995. A Deed of Separation was entered into by the parties in 1996, pursuant to which the husband agreed to pay the wife maintenance of £100 per week for two years, decreasing to £50 per week thereafter. He also agreed to provide a house for her, pay her VHI and gave an additional lump sum of £70,000. The Deed contained a “full and final settlement” clause which stated that the Agreement constituted a full and final settlement of all present and future financial claims by either party including a divorce at a later date.

After the Deed of Separation was entered into the husband became wealthy. Having inherited property, sold it and bought other lands which he later sold for €19 million. The wife still lived in the house provided for her at the time of separation. She had spent her lump sum of £70,000 and did not invest it in any wealth producing activity. The wife then instituted divorce proceedings, primarily with a view to improving her financial situation.

The divorce came before the High Court in May 2009 by which time the husband’s assets were worth €21 million. The High Court made the following Orders in favour of the wife:

• €600,000 for the purchase of an annuity.
• €300,000 for the purchase of a pension.
• Maintenance of €54,000 per annum increasing annually in line with inflation.
• €1,000,000 for the purchase of a second house for the wife.
• A further lump sum of €600,000.

The husband appealed the Order to the Supreme Court on the basis, inter alia, that the amounts awarded to the wife by the High Court were excessive having regard to the law applicable to the making of proper provision for her. The husband argued that the High Court had failed to give any real weight to the parties’ prior Deed of Separation and had embarked upon a redistribution of wealth. He further argued that the Court should only make further provision if there is some material change in a party’s personal non-financial circumstances or if there was some deficiency in the initial provision.

The Supreme Court laid down some general principles to be applied where there is a prior Deed of Separation, including the following:

• A Deed of Separation should be given significant weight by a Court when determining what is proper provision on divorce, particularly if it contains a “full and final settlement” clause.
• If the circumstances of the spouses have changed significantly since separation the Court is required to make proper provision but there is no requirement on the Court to redistribute wealth between the parties. Such changed circumstances may include, for example, changed needs of a spouse due to illness or the bursting of a property bubble which has altered the value of assets so as to render an earlier provision unjust.
• If a spouse acquires wealth after a separation that is unconnected to any joint project during their married life, there is no automatic right of the other spouse to further monies or assets.
• The greater the length of time that has passed since separation, the less likely a Court will be to alter arrangements entered into at separation.
• Assets which are inherited by one spouse will not be treated as assets of the marriage.
• A spouse should not be compensated for their own incompetence or indiscretions to the detriment of the other party.

In applying the above principles to the present case the Supreme Court made a number of findings. The Court found that the initial level of maintenance was too low and also that the Deed of Separation did not provide a sufficient level of security into the future.

However, the Court found that the overall level of financial provision made by the High Court for the wife was excessive. In particular the Court allowed the Appeal of the husband in certain respects and held the following:

• The husband should not have to pay €1,000,000 for the purchase of a second house for the wife.
• The lump sum of €600,000 awarded to the wife should not have to be paid.
• The Court found that where one party fails to maximise resources acquired under a Deed of Separation this in itself is not a basis for further provision to be made. In this case the wife did not maximise her capital resources, however her subsequent ill health and the low level of initial maintenance under the Deed of Separation meant that the High Court was entitled to make further provision for her.
• Where there is a great improvement in one party’s finances following a “full and final” settlement the concept of “proper provision” should not be dominated by that change. However, if there is a new or different need then that may be met from the resources that now exist. The Court stated that the general standard of living of a spouse should be commensurate with that enjoyed when the marriage ended. Importantly, the Court stated that the standard of living of a spouse, when the other party has achieved further wealth, is not entitled to be elevated on that basis.

In the present case the Court found that the husband had acquired his wealth after separation and as such his wealth should not be relevant to making proper provision for his wife except if there is a requirement for a special consideration such as ill health. The Court therefore found that the wife’s increased maintenance and pension met her needs.

This case provides some much needed clarity on the weight to be given to a Deed of Separation when parties come to divorce at a later date. In the last number of years the practice of using divorce as a forum to have a “second bit of the cherry” appears to have been very significantly reduced by this Judgment.