London Hong Kong Greenwich New York Geneva Milan New Haven The latest of the Chancery v Family debate on trusts and divorce STEP Bermuda – February 2013 Dawn Goodman and Sue Medder Withers LLP

Setting the scene 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 Causes 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?

Variation (continued) C v C (Ancillary Relief – Nuptial Settlement) [2004] EWCA Civ 1030 The right to apply for variation under the MCA 1973 s 24(1)(c) derived not from the settlement but from the matrimonial regime of the jurisdiction that dissolved the marriage The fact that the wife was a joint protector was influential in the Court of Appeal concluding that the settlement was a nuptial settlement, even though neither husband nor wife remained in the beneficial class

Variation (continued) BJ v MJ [2011] EWHC 2708 Two trusts set up at same time during the marriage – H, W and son beneficiaries of the first, only grandchildren beneficiaries of the second Trust held interests in interlocking companies Both trusts were held nuptial settlements and so trustees ordered to pay W assets from second trust for the grandchildren

Variation (continued) Isle of Man - D v D and M Ltd (67/2008) Identical provision to s24(1)(c) of the MCA 1973 Nuptial character established because the structure supported the family even though trust pre-dated the marriage

Enforcement of variation (1) Hope v Krejci [2012] EWHC 1780 Court had the power to ‘telescope’; to order the transfer to W of English assets held by an offshore trust through an offshore company Power to ‘travel right down the lift-shaft from top floor to the basement, without having to stop at any floor in between’ No piercing the corporate veil/finding of ‘impropriety’ needed

Enforcement of variation (2) BUT! ‘telescoping’ likely to be wrong now after decisions in VTB Capital PLC v Nutritek International Corp and others [2013] UKSC 5 Supreme Court (but not wholly definitive) and Petrodel Resources Ltd & Ors v Prest & Ors [2012] EWCA Civ 1395 N.B. Prest currently pending appeal next month to the Supreme Court

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 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 (2) Whaley v Whaley [2011] EWCA Civ year marriage, 4 children Assets £10 million 7 million held in two trusts Y & F Trusts H beneficiary of F trust but not a beneficiary of Y Trust (revocably excluded) Trusts settled by H’s father Held assets in Y Trust could be taken into account because H could be added as a beneficiary

Contrast more Chancery approach to treating trust assets as a resource G v G [2012] EWHC 167 Fam ‘In my judgment, the cases show that in carrying out the s25 exercise, the Family court is engaged in considering what is likely to happen if the relevant trustees act properly in all the circumstances of the case, as trustees of their trusts, and so in applying trust law and practice, which introduce the criterion of fairness judged against a different set of factors and rationales.’

Contrast more Chancery approach to treating trust assets as a resource (continued) G v G [2012] EWHC 167 Fam ‘Charman (No 4) confirms, in line with the approach in the much earlier case of Thomas v Thomas [1995] 2 FLR 668, that when doing this the court (a) is taking a view, (b) is not seeking to put pressure on trustees, and (c) is bringing to its task “a judicious mixture of worldly realism and of respect for the legal effect of trusts, the legal duties of trustees and, in the case of offshore trusts, the jurisdiction of offshore courts”’ (Charles J at para 89)

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 Civ 39 Kremen v Agrest [2011] EWCA Civ 232

A different line of attack? (1) Re AQ Revocable Trust [2011] WTLR 373: ‘Trust’ was a failed testamentary document and so invalid

A different line of attack? (2) Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd [2011] UKPC 17: a receiver appointed over the settlor’s power of revocation for the purpose of restoring trust assets to the settlor’s estate to meet claims

A different line of attack? (3) Slutsker v Haron Investments Ltd [2012] EWHC 2539 (Ch) Joint or community property claim (Claim failed because of husband’s acquiescence, but pending appeal)

Possible risks of an attack Cannot claim rights as beneficiary while attacking: Jersey - In the matter of Re M and L Trusts (2003) No contest clause: Cayman Islands - In the matter of the Trusts Deed dated 21 November 1985 and made by A.B. Snr. (2012)

What do you do when you get asked ‘the bloody question’? (1)

What do you do when asked ‘the bloody question’? (2) Whaley v Whaley [2011] EWCA Civ 617 Importance of providing a reasoned and reasonable response Trustees’ letter disregarded by Family Court and Court of Appeal RK v RK [2011] EWHC 3910 (Fam) Trustees believed but Court ordered greater sum on assumption that they would assist

What do you do when asked ‘the bloody question’? (3) Seek Court’s directions/guidance if at risk of not being believed

Risk of non-disclosure (1) BJ v MJ [2011] EWHC 2708: 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

Risk of non-disclosure (2) Trend of increasingly extensive disclosure Eg Jersey - Perczynski v Perczynski and Others [2012] JRC 084A Recent English authorities suggest the Court’s increasingly aggressive approach to spouses who do not cooperate on disclosure about trusts Scot Young (2012) Thursfield (2012)

Risk of non-disclosure (3) Perils to beneficiaries being forced to disclose Jersey - In the Matter of the M and Other Trusts [2012] JRC 127

Consider drastic action! (1) Possibly: Remove beneficiary from key roles in the trust Change governing law of trust Exclude beneficiary from beneficial class Decline to provide copy trust documents to beneficiaries - insist on inspection

Consider drastic action! (2) Get advice Seek directions/guidance from Court