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Family Law

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04 FEB 2008

William Massey: Threats to the integrity of trusts on marriage breakdown

William Massey, Partner, Farrer and Co LLP, UK

Although the favourable tax regime has made England an attractive place for wealthy non-domiciliaries to live, it has also become an extremely good venue for their poorer spouses to bring divorce proceedings. Since the case of White in October 2000 and the subsequent decisions of, for example, London has become one of the most generous places for the less well off party to divorce and has regularly been described in the press as 'the divorce capital of the world'. Whereas before, the poorer spouse was limited to receiving sufficient money to satisfy their reasonable requirements, these recent cases have established the principle that property should be shared equally, unless there are good reasons to depart from this. At the same time, English courts also tend to be more generous in the level and duration for which spousal support will be payable. Of particular importance is that, unlike in many countries, under English divorce law the 'sharing' principle applies to all property, which may include trust interests. However, to the extent there is non-matrimonial property (for example property owned by one of the parties before the marriage or an interest in a trust established some time before marriage) these might be reasons for a departure from an equal division.

The English court's approach, both in terms of generosity and its treatment of offshore discretionary trusts, was highlighted earlier this year in the well publicised case of Charman, heard by the English Court of Appeal, which has sent shockwaves through private wealth adviser circles. Not only did the court uphold the largest contested spousal award (of some £48 million), but it also affirmed the extremely robust approach English family courts often take to assets held in offshore trusts by treating assets of £68 million held in a Bermuda trust as though they were the husband's and available for division with his wife.

In this article William Massey provides a detailed evaluation of the legal position of trusts on marriage breakdown and advises practitioners on how to mitigate the risk of trust assets being attacked on divorce. For the full article see [2008] International Family Law, Issue 1.

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