Offshore trusts: Piercing the matrimonial veil

May 18, 2017

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In this blog, Samantha McFadzean and Victoria Connolly of Carey Olsen (Jersey) examine how offshore trusts can play a part in English divorce proceedings.

Contrary to popular belief – a belief shared by some English divorce lawyers – offshore trusts do not provide a safe haven in which to hide your assets to avoid paying your spouse a share of your hidden fortune in the English divorce courts.

The Jersey trusts industry supports a progressive and the tax efficient use of trusts to protect assets set aside for a particular purpose, including the financial protection of future generations of your family.

Jersey trustees are subject to the supervisory jurisdiction and scrutiny of the Royal Court of Jersey, and there is ample case law to support the view that the Jersey judiciary will not assist a spouse to avoid his or her obligations on divorce by attempting to hide the matrimonial assets in a Jersey trust.

 So why use trusts?

  • Can be discretionary, fixed interest, provide for a life interest or for a charitable purpose;
  • Asset protection – for example, “spendthrift” trusts;
  • Estate planning – can avoid the need to obtain probate, and avoid forced heir-ship;
  • Asset management – the trustee holds the trust fund during the trust period, and is bound in the execution of its duties and in the exercise of its powers and discretions to act with due diligence, as would a prudent person, to the best of the trustee’s ability and skill, to observe the utmost good faith, and to carry out and administer the trust in accordance with its terms and will be liable for any losses suffered by the trust fund as a result of any breach of those duties.

How trusts play a part in divorce:

If you are divorcing and discover (or are already aware) that your spouse has an interest in an offshore fixed or discretionary trust, what should you do?

Unsurprisingly, in the first instance, get advice from your divorce lawyer. There are any number of decisions to be made about how – if at all – to involve foreign trustees in English divorce proceedings. Should trustees, for example, be invited to join or play a part in the financial proceedings ancillary to divorce? As they are under no obligation to do so, what might you or your lawyer do if the trustees refuse to take part? How can you obtain disclosure from trustees of the trust assets they hold and the terms on which they hold those assets?

The English courts have no jurisdiction to make enforceable orders in relation to Jersey trusts and their assets, so you will need, at an early stage, some sensible expert advice on how a Jersey trustee and the Royal Court of Jersey is likely to respond to an English divorce court order.

Any good English divorce lawyer will have a network of offshore legal experts in family and trust work who will be able to advise you about how best to proceed and, in the event that the English divorce court makes an order purporting to affect trust assets, whether and how it may be possible to seek assistance from the Royal Court of Jersey in attempting to give effect to any such orders.

We receive a large number of requests every year from those divorcing and their lawyers about how we can help them to understand their options; remember that everything you may read about the offshore world in the press is not true.

With thanks to Samantha McFadzean and Victoria Connolly of Carey Olsen.

Samantha McFadzean is counsel based in Carey Olsen’s Jersey office. She is a family lawyer with many years’ experience of offering robust and straightforward advice to clients in relation to all types of relationship generated issues including:

  • pre and post nuptial agreements;
  • divorce and civil partnership dissolution and cohabitees’ disputes;
  • complex contested financial disputes arising on relationship breakdown; and
  • contested proceedings relating to children, including applications for contact, residence, leave to remove and prohibited steps orders.

Contact Samantha at: E: samantha.mcfadzean@careyolsen.com  T:  +44 (0)1534 822419     

Victoria Connolly is counsel in Carey Olsen’s Trusts and Private Wealth group based in Jersey. She has a broad non-contentious and semi-contentious trust practice. Victoria regularly writes articles for trust industry journals and other publications and speaks at conferences and seminars on all aspects of contentious and non-contentious trust law and private client matters generally.

Contact Victoria at: E: victoria.connolly@careyolsen.com  T:  +44 (0)1534 822317