Treatment of Offshore Trusts & Corporate Entities
In our international family law work we frequently come across offshore trusts and corporate entities. Questions which we are often asked about these vehicles are set out here.
Frequently Asked Questions →
As a non – UK trustee of a settlement in which a beneficiary is embroiled in English divorce/dissolution proceedings, do I need English family law advice? Does it make any difference if the trust was settled during the marriage?
Yes, it is highly advisable. You may have trust assets located in this jurisdiction which will be under attack by the spouse or civil partner. It is crucial that the English court has the correct advice about the trust assets and liabilities so does not make orders based on faulty information that you can then do little about later. Additionally, it is likely that you already have advice from lawyers in your own jurisdiction, including with regards to requests by the English court for disclosure of trust accounts and information.
Consideration must also be given to the issue of potential joining the trustees as parties to the proceedings. Where a trust was created during a marriage, and benefits either or both of the spouses, in their character as a spouse to this marriage, with or without benefit for any child or children, then such settlement may be regarded by the English court as a nuptial one, and can be directly varied by the court on divorce, primarily to provide benefit to the other spouse. This is subject to considerations of the type of asset/interest within the trust, where it is located, tax, and the enforceability of the English order against the foreign trust. By contrast, the trust might not be a “nuptial settlement”, but given the track record of loans and distributions made by the trustees, it might be regarded as a resource available to the beneficiary on divorce, from which he/she can pay the other spouse. This is known as judicious encouragement by the Court.
I want to undertake some wealth planning and settle part of my wealth into trusts for each of my children. I am worried that if they get married and then divorced, the trusts might be emptied out by one of their spouses. How do I avoid this?
As the settlor, you are able to determine the terms of the trusts and the group of beneficiaries. You must give consideration as to whether your grandchildren and spouses are included in the class of beneficiaries. Further, whether you require each child to enter into a prenuptial contract with their fiancé/ee or civil partner to set rules in respect of the trust interests – you could choose to say that such interests are “off limits” on divorce, subject to meeting the other spouse’s needs on divorce.
I am an adviser within a Family Office and we are restructuring various settlements and investments for fiscal planning. Should the planning also be run past a divorce lawyer?
Yes, saving tax for a family is often at odds with the optimal structuring in the event of a divorce – for example maximising a spouse’s tax allowances by placing wealth in the other spouse or civil partner’s name, and then seeking to take back those assets/income on a divorce/dissolution. A balance has to be struck, and given that a divorce court is bound to consider the “yardstick of equality” when dividing the family wealth, even if a 50:50 split is not the ultimate order made, it demonstrates that a spouse as a creditor is just as relevant as the tax man.
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