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Home > News
12 February 2021
“It’s a rather sad statistic that divorce rates are increasing around the world, and relationship experts warn ‘the pandemic-induced break-up curve may not have peaked yet” stated an article by the BBC in December 2020. A less than heart-warming prospect this Valentines Day.
Financial matters will be far from a couple’s minds when they get married but very likely to be at the forefront when they get divorced, especially when dealing with high-net-worth individuals. At VG, we are well versed in working with settlors and their professional advisors on the establishment of a variety of multi-generational wealth planning structures and, while not necessarily in the romantic spirit of marriage, from experience find it is better to plan in advance and ensure that suitable structures, such as a Jersey Trust, are put in place at the most sensible of times, which could include before embarking on marriage.
A matter of trust
The concept of a trust, developed in medieval times in the English courts, was usually intended as a means of protecting assets however, during the past century the trust concept has been refined and developed, and trusts are used for a wide variety of purposes but do include high-net-worth individuals looking for some protection against claims from former spouses.
Jersey is regularly chosen as the jurisdiction of choice for settlors who have such concerns and this often because of one or more of the following attributes found in Jersey:
The Royal Court of Jersey is well versed in dealing with foreign courts and in the context of matrimonial proceedings the three most common issues to arise relate to (a) provision of trust information, (b) whether the trustee should participate in the foreign matrimonial proceedings and (c) issues concerning enforcement of foreign orders.
How the Jersey courts deal with such issues will depend on the specific facts but there are certain fundamental matters that are useful to have in mind when considering establishing a Jersey trust with an eye to future concerns that love might not be everlasting!
Where is the love?
Whilst a Jersey trust may prove to be an effective structure to manage preservation of wealth (including in the context of divorce) it will not provide much protection where the assets of the trust are held in the home territory of the divorce courts in question. In that event, a foreign court could effectively enforce its own orders without full regard to the application of Jersey law.
As such, as a general observation, a Jersey law trust is most effective where the trust fund is comprised of assets which are within Jersey or are in other jurisdictions where recognition would be given to the orders of the Jersey courts.
Most courts of general jurisdiction seek to achieve a just outcome in all cases. In the context of matrimonial courts, they look to achieve fairness between the husband and wife, whereas the Royal Court of Jersey would focus on what is in the best interests of the beneficiaries as a whole.
Many divorce courts (if not all) will seek to establish whether, in the case of assets held in trust, the trust assets should be treated as a “resource” available to one or both spouses. In other words, were, say, the husband to request the trustees to advance the whole or part of the trust fund would the trustee be likely to do so? (the “Likelihood Test”).
If a court finds that a spouse has assets that are in trust available to him as a resource then this may mean that there is no attack on the trust but such a finding could have disastrous consequences for that spouse if they are unable to meet the court orders. On the other hand should there be an attack on the Jersey Trust it will most often be on the basis that the foreign court (a) declares the trust a “sham” i.e. the true arrangement between the settlor and trustee is more akin to a nomineeship or agency than a true trusteeship and the assets are to be attributed to and treated as held to the order of the settlor or (b) ordered a variation to the foreign trust.
Fortunately under Jersey legislation ,such attacks on the sanctity of a Jersey trust are difficult to successfully deploy but nonetheless there are some practical considerations to bear in mind by settlors given that one day the settlor (or perhaps a beneficiary or even the trustee) may have to pass the blush test when being questioned by a foreign judge on matters relating to the “Likelihood Test”.
The following points should be considered:
Ultimately, trustees of Jersey trusts are expected to administer trusts in the best interests of the beneficiaries and this may well include ensuring that, in indulging their beneficiaries, the trustees are not causing issues to arise for them in the context of their matrimonial concerns.
It is best for all those involved in the creation of the trust to have a clear purpose in view of the intended operation of the trust and for advice to be taken before the trust is settled. Ideally, the issue of a pre-nuptial agreement should also be considered by the settlor at that time.
VG does not provide tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or legal advice. You should consult your own tax and legal advisors before engaging in any transaction.
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