London
New York
Geneva
Greenwich
Getting Caught up in a Beneficiary’s
Divorce
STEP Bermuda – June 2012
Hong Kong
Dawn Goodman and Sue Medder
Milan
Withers LLP
New Haven
Introduction
• The White v White revolution - the ‘yardstick of equality’
• Trusts
• part of the assets available for division to satisfy the ‘yardstick of
equality’
• Trustees
• joined to proceedings?
• disclosure obligations?
• assisting the Court?
The methods of attack (1)
• Variation – Ante and post nuptial settlements - Matrimonial
Clauses Act 1973 s 24(1)(c):
“ an order varying for the benefit of the parties any ante-nuptial or
post-nuptial settlement (including such a settlement made by
will or codicil) made on the parties to the marriage, other than
one in the form of a pension arrangement”
• Connection between the settlement and the marriage?
The methods of attack (2)
• Trusts as a resource (s.25(2)(a) Matrimonial Causes Act 1973)
“ if the husband were to request the trustee to advance the
whole (or part) of the capital of the trust to him would the trustee
be likely to do so?”
Charman No 1 [2005] EWCA Civ 1606
Trust Assets a Resource?
• Nature of assets?
• Inherited Wealth?
“The nature and source of the asset may well be a good reason
for departing from equality within the sharing principle”
Robson v Robson [2010] EWCA CIV 1171
Inherited wealth / pre-acquired property (1)
• Robson v Robson [2010] EWCA Civ 1171
• 21 year marriage and two children aged 20 and 17
• H’s capital assets mostly inherited pre-marriage valued at £22.3
million (included Oxfordshire stately home and estate)
• Extravagant lifestyle
• ‘Dynastic plan’ argument rejected as assets had funded lifestyle
• W received £7m
Inherited wealth / pre-acquired property
• Whaley v Whaley
• 20 year marriage, 4 children
• Assets £10 million
• 7 million held in two trusts Y & F Trusts
• H beneficiary of F trust H not a beneficiary of Y Trust
• Trust settled by H’s father
• Held assets in Y Trust could be taken into account because H
could be added as a beneficiary
The methods of attack (3)
• Sham
• There must be a common intention as between the trustees
and the settlors that ‘the arrangement is otherwise than as
set out in the trust deed’ – Munby J
• Family Division jurisdiction to decide allegations of sham
and corresponding proprietary claims against third parties:
• Goldstone v Goldstone [2011] EWCA
• Kremen v Agrest [2010] EWHC
Disclosure
• Request by whom and in what capacity?
• What documents to disclose?
• Obligations owed to divorcing beneficiary / class of
beneficiaries?
• Letter of wishes?
In the Representation of U Limited [2011] JRC
131
• H settlor and beneficiary
• W excluded as beneficiary
• Offshore Trustee
• W’s request for disclosure
• Trustee application for directions
Assisting the Beneficiary – Assisting the Court?
• No Comment?
• Prejudicial to a trustee and beneficiaries?
• Inferences to be drawn?
“if the trustees refused to participate meaningfully or helpfully in
the court’s enquiry, the court could draw robust conclusions as to
the likelihood of future benefit”
BJ v MJ [2011] EWHC 2708 (Fam)
Trust review – prevention is better than cure!
• What are beneficial interests of beneficiary intending
to marry?
• Are spouses in the class?
• Are children in the class?
• What, if any, is the pattern of distributions?
• Are there assets in jurisdiction(s) where couple live
which could be brought home to trust jurisdiction?
Review of trust continued…
• What does the Letter of Wishes say? Should settlor
(if alive) be invited to review?
• Are there any trustees / protectors / other fiduciaries
in jurisdictions which make the structure more
vulnerable to attack?
• Is the beneficiary in question a fiduciary? Should he /
she be encouraged to stand down?
• Are critical documents in jurisdiction(s) where
beneficiaries are resident?
Management of settlements to protect against
attack
• Creating sub funds?
• Exclusion of spouses from the beneficial class?
• Change of the governing law of the trust?
• Removal of beneficiaries from key roles in the trust, such as
Trustee?
• Handling and dissemination of trust documents and information.
• Reviewing letters of wishes.
• Limiting future distributions
Pre-nuptial agreements
Are they worth the paper they are written on?
• Not legally binding yet, but following the Supreme Court
decision in Radmacher (October 2010), Courts encouraged
to give effect to nuptial agreement freely entered in unless
terms unfair
• Primary purpose – to protect assets on divorce
• e.g. ring-fencing of inherited wealth or money made
prior to marriage
e.g. selection of jurisdiction for divorce – can be
decisive
(S v S 1997; Ella v Ella 2007)
Post Radmacher ?
• A V Z (No 2) [2011] EWHC
• B V S (Financial Remedy: Marital Property Regime) [2012]
EWHC 265 (Fam)
In the Matter of The Representation of A (A
minor) and B (A Minor) [2012] JRC 086B
• A cautionary tale
“It is a bold move for the court but we find ourselves constrained
into setting aside the instrument of appointment because in our
view no reasonable trustee would have excluded the
grandchildren as beneficiaries”