FOR ANY HIGH-NET-WORTH individual, safeguarding one’s money from attack, either from the tax man or other predators, is normally a priority. Such protection is varied and, at times, underhand. Similarly, the range of people whom one has to defend the money from is wide, from creditors to one’s own spouse.
As England and Wales has developed into the divorce capital of the world, defending one’s money in a matrimonial context is causing increasing concern to advisers and individuals alike. Every year, there seems to be a new case emanating from the divorce courts which highlights the vulnerability of protective means which previously had thought to be immune from attack, whether they are a company or trust structure.
The most recent example is the case of Whaley which has been reported widely in the press. In this case, a husband attempted to persuade the Court that a trust of which he was not a beneficiary, first, was not an asset which could be considered as part of his asset pool and, second, even if it could be taken into account in considering his wealth, was dynastic by nature and therefore could not be busted by the English Court. Both arguments were rejected and the Family Court Judge made the trust assets available for distribution to the wife.
This case exemplified the wide powers that the English Divorce Court now has to deal with trusts.
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One of the first individuals to come out second best to the English Divorce Courts when trying to hide money behind a trust was a certain Mrs Browne in 1989. She was married to a conservative member of Parliament and the relationship came to an end for reasons not disclosed in the Law Reports. She was a wealthy individual and a beneficiary of a trust from which she obtained money as and when required.
The Member of Parliament successfully managed to get an order which, in effect, encouraged the trustees to make payments to Mrs Browne so that she could meet her obligations to Mr Browne under the divorce order. This set the trend for Judges to ‘judicially encourage’ trustees to make payments from legitimate trust which could not be bust open any other way.
From that time, the Family Courts have had a robust attitude towards individuals who try to distance themselves from assets which, in the end, are controlled by them. This has led to accusations by other members of the legal profession that the Family Division has been cavalier towards its attitude to company and trust structures and, more recently, such warnings have tempered some of the Family Court Judges but, to use the words of Lord Justice Glidewell when he presided over the case the Thomas v Thomas that the Court should not ‘be misled by appearances’, and it should ‘look at the reality of the situation’.
Or, in the words of Mr Justice Coleridge in a case in 2003, ‘Sophisticated offshore structures were very familiar nowadays to the judiciary trying ancillary relief proceedings and did not impress, intimidate or fool anyone.’
A HIGH-PROFILE case a few years ago involved John Charman who was pursued by his wife through courts for many years. Similar to Mr Whaley, he claimed that part of the assets were tied up in his dynastic trust which should not be ‘busted’ by the court.
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The Judge disagreed and made orders which, in effect, required payment by the trustees. Mr Charman did not, however, take this lying down. The case proceeded to Bermuda where the trust was located and although nothing further was reported on the case, it is widely rumoured that the Bermudan Courts were more robust in their defence of the trust structure than the English Courts.
A lesson to be learned from all of this is that high net worth individuals should be very careful when instructing an advisor to set up structures to protect their wealth it is prudent to seek the advice of an expert in the matrimonial field to see how they can best protect the assets from the predator in their own home.
Of course, there are other means of protection available, of which the most secure is not being married. Often that is not an option, and other possible safeguards including pre-nuptial and post-nuptial agreements and locating any trusts in ‘unfriendly’ (to the courts of England & Wales) offshore jurisdictions, may be more appealing and/or realistic. Beware.
Alex Carruthers is a partner at specialist international divorce law firm Hughes Fowler Carruthers
