What Latest Court Ruling Means for Divorcing Couples With Company Shares

A recent court ruling has provided clarity on how matrimonial property disputes will be handled, particularly when assets are registered under the name of a company. 

The Court of Appeal, on September 12, affirmed that courts can allow for companies to be joined as parties in a divorce case, a significant development that could change how spouses approach the division of shared wealth.

The case involved a former husband and wife locked in a dispute over the division of matrimonial property following the dissolution of their marriage. Central to the dispute was whether companies in which the couple held shares could be joined in the proceedings. 

Disputed Ruling

In February 2017, the High Court allowed a wife to amend her initial suit to include two limited liability companies as parties in the matrimonial property case. She argued that some assets acquired during the marriage,  including the family home, were registered in the names of one of the companies.

The court reasoned that failing to include the companies would prevent the real issues from being determined.

 The Appeal

The husband appealed the ruling, raising several objections. His lawyers argued that:

• Section 17 of the Married Women’s Property Act, 1882, under which the suit was filed, applies strictly to disputes between spouses, not to companies.
  
• Allowing the amendment would improperly pierce the corporate veil of the companies, exposing them to litigation without proof of fraud or misuse of the corporate structure.
  
• Some of the companies had shareholders beyond the couple, raising fairness concerns.

His legal team maintained that if the wife wanted to pursue claims involving company property, she should have withdrawn her initial case and filed a fresh suit.

The Wife’s Argument

On her part, the wife argued that companies closely tied to the marriage could not be excluded simply because they had a separate legal identity. She emphasized that:

• The companies were essentially family businesses in which the spouses or their relatives held shares.
  
• The matrimonial home itself was registered under one such company.
  
• Amending the pleadings would not fundamentally alter the nature of the case but instead clarify the issues for fair resolution.
  

Her counsel cited previous Court of Appeal decisions, including PWK v JKG [2015], which recognized that in matrimonial disputes, courts may consider the shareholding of spouses in companies to determine the true extent of matrimonial property.

The Court of Appeal’s Findings

Justices Daniel Musinga, Mumbi Ngugi and Francis Tuiyott examined the principles governing amendments of pleadings, noting that courts have wide discretion to allow such amendments if they help address the real issues in controversy. 

“Having considered the ruling of the trial court and the submissions of the parties, we find no basis for interfering with the trial court’s exercise of discretion. The position of our law, as the authorities we have noted above and those relied on by the trial court illustrate, is that amendments may be allowed to bring before the court the real issue or controversy between the parties; that mere delay is not a sufficient basis for denying an application for amendment; and that limited liability companies, as was sought in this case, can be joined as parties in a suit relating to matrimonial properties between spouses,” read the ruling in part.

Implications for Divorcing Couples

The ruling underscores that divorcing couples cannot hide behind company registrations to shield assets from division. Where property acquired during marriage is held through companies, whether jointly or largely controlled by one spouse, courts may include such companies in matrimonial proceedings and determine the beneficial ownership of the assets.