Piercing the corporate veil during divorce

On Behalf of | Jan 2, 2024 | Asset Division

Most young children are taught that “sharing is caring.” Unfortunately, some adults hold onto the inverse lesson, that failing to share is a concrete way of showing someone that you don’t care about them. This mindset can be destructive at the best of times. Yet, when tensions are high and much is at stake, the consequences of this kind of approach can be downright unlawful. 

Take, for example, a high-asset divorce scenario in which one spouse is deeply invested in a corporation or limited liability company (LLC) and their spouse is not. If the business-focused spouse is disinclined to share their income, bonuses, benefits or other assets with their spouse whom they’re divorcing, they might be tempted to hide these resources within their company or their employer’s enterprise in some way. 

What can a wronged spouse do?

The good news for a spouse whose other half refuses to lawfully disclose and share their assets is that recourse is available. If assets that have been hidden within a company’s books and accounts are discovered, the wronged spouse can “pierce the corporate veil” to get their fair share back. 

Piercing the corporate veil is a process wherein business assets may be seized to satisfy debts and other legal obligations. This approach is usually appropriate when the spouse-in-the-wrong is so closely tied to their business or business accounts that they aren’t easily separated and it would be unjust to treat the wrongdoing as the company’s fault. Instead, the individual is held accountable for the assets they’ve hidden within a business context. 

Seeking justice

When a court is advised that a spouse has been unlawfully hiding assets, the court may not only move to restore the wronged spouse’s interest in those assets, it may punish the deceptive spouse as well. Depending on the couple’s circumstances, a wronged spouse may be awarded lump-sum or ongoing support as a result of the hidden assets or they may simply be awarded their fair share of what was hidden in the first place as part of the broader property division order. They may be awarded more than what would have been considered their fair share as the other spouse’s punishment for wrongdoing.

The concept of piercing the corporate veil is a complicated one. Any spouse who believes that their ex may be hiding assets within a business entity can benefit from seeking personalized legal guidance.