Trusts on divorce: a global perspective

'Trust begets trust' the immortal words of Mahatma Gandhi inspired a recent international Withers seminar. Our family lawyers from Singapore, Hong Kong, the US and England came together to discuss practical and legal strategies when dealing with the implications of trust interests on divorce. 

It is an enormous benefit and privilege to have the opportunity for members of our international family team to come together in Hong Kong and Singapore.  The panellists, Claire Blakemore, Nicky S Rooz, Jocelyn Tsao, Samantha Klein and Ivan Cheong shared their extensive knowledge and experience with the attendees about how to avoid pitfalls when dealing with trusts on divorce.  

It is commonplace for our cases involving trusts to have an international dimension, examples include: a domestic trust with overseas properties; an offshore trust; or a trust being governed by foreign law. It is essential to work with lawyers in the relevant jurisdictions so as to provide clients (whether they are divorcing spouses or trustees) with the international advice they require. Closer to home, we also work with our Private Client team, both in terms of advising about family law implications in establishing and managing trusts, but also in analysing trust documents and considering tax implications of distributing or utilising trust assets. 

It is also useful to have an understanding of the court's approach in different jurisdictions in circumstances where a claim for financial relief can be brought in more than one country and clients need to decide where best for their claim to be heard. 

At the seminar, each lawyer considered various scenarios and explained how the court would approach the facts to determine an outcome. Panellists looked at:  family trusts where one spouse was a beneficiary; where a spouse received either capital distributions or income from the trusts during the marriage; where spouses were settlors and settled assets in advance of a marriage; and where the spouse settled assets during the marriage. Panellists also gave examples from their own cases to show how the law worked in reality. 

3 themes were prevalent for all jurisdictions: timing, intention and control/access. When, how, and why trusts were established, how they are used during the marriage, and the extent to which either party has control over the trust/trustees, are all critical factors. The use of trusts together with pre/post- nuptial agreements was also consistently seen as a better form of asset protection. 

There were many specific learning points from the seminar, which were relevant to each jurisdiction, but which also highlighted key areas of overlap and/or differences. Whilst the points are too numerous to mention, here's an example from each jurisdiction:

• The approach to the treatment of trusts in divorce is similar in England and Hong Kong but with some interesting differences, such as the very different approaches between the two countries on the treatment of cohabitation, which could have a meaningful difference on how the assets held by a trust are treated in the event of a later marriage which fails.
• In California, if the trust was created before marriage and was dynastic and irrevocable, the court's powers will be limited to issues relating to spousal and child support and payment of legal fees.
• In New York, the court has considerable discretion when dealing with trust assets although the timing of the creation of the trust is crucial and can be very influential in how the assets and income are treated.
• In Singapore it can be helpful to obtain a spouse's consent before establishing a trust – where both spouses consent to assets being removed from a marital pool and put into trust the court will give weight to that intention and likely protect those assets from division on divorce.

These are just some of the points discussed in the sessions; there were many more which highlighted the necessity to seek jurisdictional specific advice and how it is helpful to have a broad understanding of approach in other jurisdictions so as to know where and when to seek advice.  All the panellists agreed that the key times to consider these issues are not just when a marriage becomes rocky, but when setting up trusts, varying trusts, making significant decisions regarding the trust and when the beneficiaries encounter significant changes in their lives, and not just in relation to their relationships.  They were also unanimous in the benefits for pre/ post- nuptial agreements and trust creation and management to be considered together and reviewed regularly.