A trust is an investment – so is sound advice.
Trusts are, without a doubt, bêtes noires for many family lawyers . A client attending a first meeting will expect clear answers, not waffle, particularly if he or she is the beneficiary of a trust.
Here at Stowe Family Law, we were recently visited by the barrister Simon Sugar. One of the specialist family law set at One Garden Court, London, he is the co-author of Unlocking Matrimonial Assets on Divorce, which I thoroughly recommend. We invited him to come here to speak about the content of his book, and to ensure that our lawyers’ specialist knowledge of various forms of trusts and offshore assets was sufficiently refreshed and updated.
Simon Sugar’s visit was arranged as part of Stowe Family Law’s in-house programme for Continuing Professional Development (CPD). This is prepared by one of our partners, Rachel Roberts, and is greatly valued by us all.
Every year we select a thorny subject and immerse ourselves within it. Last year, we chose cohabitation and the law. Professor Rebecca Bailey Harris, of 1 Hare Court, came to our Harrogate offices and gave a talk that was so clear and so straightforward, it’s a pity she didn’t publish it for the entire profession. It was brilliant.
This year, we have chosen trusts. Following Simon Sugar’s masterclass, we were visited today by the Chancery barrister Daniel Hochberg, of Wilberforce Chambers in London. We were delighted to have him here: he has appeared in a number of leading cases. These include Charman v Charman, in which he acted for Mrs Charman.
He led an interactive session at our offices entitled “Divorce and Offshore Trustees: Strategy and Current Legal Problems”. We were set a case study to consider in advance: in it, we were acting for Jersey Trustees in what appeared to be potentially a “sham” trust. We had to consider the position as English lawyers asked to advise the Trustees.
A solicitor who will be joining our Cheshire office, when it opens in May, is currently based in Jersey. He has many years of experience in this field, and joined the session from Jersey to provide practical advice on what would happen in a Jersey court.
For those with more than a passing interest in trust-related matters, the issues as I see them are as follows:
If an English court is dealing with a divorce, it has powers to vary a trust worldwide and divide up trust assets worldwide.
However, the questions that must be asked include:
1. What kind of trust is it? Is it a bare trust or a discretionary trust? The difference could prove to be of utmost importance. If it is a bare trust and the entitlement of a spouse to the assets is fixed, then it is easier to vary or even extinguish a beneficiary’s interest in the trust. A discretionary beneficiary does not have an identifiable interest in the trust property. Nevertheless, have any distributions been made from the trust which may tend to identify the beneficiary’s interest?
2. Are the trusts “nuptial” settlements, whether “ante nuptial” or “post nuptial”? If neither, the court has no power to vary the trusts in a divorce. If “ante nuptial” it is a harder task than if a trust is “post nuptial” The issue of whether a trust is nuptial and capable of variation under s 24 Matrimonial Causes Act 1973 is tricky in itself, and often the magnitude of the award depends on the answer, making the difference between a relatively modest settlement and a very substantial one indeed.
The presence – or otherwise – of a nuptial element in a trust may appear straightforward to a Chancery barrister, by his interpretation of the meaning of certain clauses in a deed of settlement or deeds of variation thereafter within the context of Chancery law. However, a family lawyer is not necessarily going to obtain the same result in a family law court and the trust still may not be varied. Even if a Trust is not nuptial, then the Court will still consider it as a resource to be taken into account, and may place “judicial encouragement” on the Trustees to cough up some of the assets to assist with an overall settlement. And if there is a variation, this does not guarantee a huge award, but does mean that the assets in the case are not confined simply to the “free” assets which a spouse planning their finances in advance, may have dissipated in the run up to the divorce proceedings and of which the other spouse was completely unaware.
3. Who set up the Trust (this person is known as the Settlor) and for whose benefit and when did this occur? Are the trusts “dynastic” trusts intended to run through the generations? In the Charman case, it was held that the couple’s Bermuda-based Dragon Trust was not dynastic on its specific facts, even though Mr. Charman argued it was and intended to benefit the family through the generations. His letters of wishes to the Trustees made it clear the monies could all be paid to him as the principal beneficiary. The English court held that Mrs Charman was able to access the trust to obtain her award of £48million. Thus the English court treated the trust, even though offshore and subject to Bermudian law, as available for division – notwithstanding the husband’s arguments to the contrary.
4. Is the trust offshore or onshore? The case is going to be much easier if the Trusts are in England and no foreign element is involved.
5. Where and who are the Trustees? Should they be joined into the proceedings? If they are not English, will they submit to the English jurisdiction? What happens if they refuse, particularly if there are no assets in England? In cases with foreign trustees it is likely they will seek directions from their own courts. If the courts order them not to take part in the English proceedings, they have acted properly to establish their position but that may cause ongoing problems for anyone trying to unlock trust assets such as obtaining information, especially if the foreign courts refuse to allow the trustees to provide answers to questions by Letters of Request addressed to the foreign Court.
6. Where are the Trust assets – and of particular note, are there any assets in England? What is the total value of the assets onshore and offshore? What tax implications may arise? If there are assets in the jurisdiction, then from an enforcement perspective it will be much easier to make sure a client is paid – or pays up.
7. How will any judgment be enforced against a Trust? This is a huge subject and even with the benefit of an order could potentially be worthless. English jurisprudence is littered with examples. In Jersey, however, notwithstanding them jealously guarding their jurisdiction over Jersey trusts, the prevailing view seems to be that the Jersey court will not assist a spouse to dodge their responsibility, if there is an order of the English court.
8. Finally: is it a trust at all, or is it a “sham” in reality? Does it exist for the absolute benefit of one of the parties at will? If so, the court has powers to set aside a trust set up to defeat the spouse’s claim. To prove a trust is a sham is difficult and may rebound, leaving the spouse making the application with costs of all parties to pay.
In conclusion, it’s a minefield and I would emphasise that tactics and strategy are critical and need to be considered from the outset. Leave it too late, and a divorce case in England, could be irreparably compromised.