Family Asset Protection: responsible protection of assets in a divorce and trusts context

Divorce is a major threat to the protection of wealth. But that wealth needs to be protected in a legal and ethical manner.

The IBA Family Law Committee advocates responsible family asset protection. It is a topic that’s rarely covered. We are taking a fresh, regulatory and forensic look at the trusts and divorce industry, and tackle the issues that are often ignored.

In the London Court of Appeal case of Judge v Judge [2008] EWCA Civ 1458*, Lord Justice Wilson (as he then was) found that the Guernsey trustee had, ‘adopted a stance not only properly defensive of the interests of the trust, but also both neutral as between the husband and the wife and essentially helpful to the court.’

The Hong Kong Monetary Authority (HKMA) in July 2020 launched its Consultation Paper with a view to regulate and supervise trust business via a mandatory Code of Practice for Trust Business (the Code). The Code could have a major beneficial impact on the setting up and running of trust structures in a divorce context. The Family Law Committee accepts that regulation is required and fully supports the introduction of a mandatory HKMA Code. We will be responding to the Consultation Paper. This will be the first webinar worldwide to cover the HKMA Code in a divorce and trust context.

What is legal for lawyers? Lawyers are now in the spotlight. Knowles J, in the English divorce judgment of Akhmedova v Akhmedov EWHC 3140 (Fam) of 22 November 2019, found that emails from the husband's solicitor (which had been produced by a whistleblower) 'show that they form part of [a] fraudulent scheme to defeat the wife's claims, including both by moving assets to jurisdictions in which enforcement would be impossible.'

She also stated: 'This conduct began in March 2015 [after the divorce petition had been filed in 2013] (when assets were settled into a Bermudan discretionary trust) through the months leading up to the trial in December 2016 (when all of the assets, including those previously held by the Bermudan trust, were transferred into Liechtenstein structures) and continuing after judgment was obtained (including the further transfer of the vessel to Straight).' She held that the husband's solicitor could not rely on privilege and that the 'fraud' exception to privilege applies.

* Marcus Dearle led the team representing the trustee.

Issues to be covered in this webinar include:

• Whether the above type of Akhmedova scenario would be a problem in the panellists' jurisdictions. How is this type of problem impacting the trust industry generally? Should other jurisdictions adopt similar regulation as proposed by HKMA?
• Discussions regarding HKMA’s key Code provisions: in particular, ‘Principle 1: Fairness, honesty and integrity’ and ‘Principle 2: Due skill, care and diligence’ - with the provision of specific examples of the impact this is likely to have on onshore as well as offshore trustees, and banks in Hong Kong.
• What does ‘properly defensive’ in the Judge context mean?
• The ‘fraud’ exception to privilege.
• The potential major reputation damaging consequences of irresponsible and aggressive trust structuring strategies which so often backfire: is there a risk that trustees also will in future be found by the courts to be involved in '[a] fraudulent scheme to defeat the wife's claims' in structuring/restructuring trust arrangements?
• The future: (a) tactics lawyers should adopt to deter and/or tackle trust structuring/restructuring arrangements completed after the filing of the divorce petition, and (b) what lawyers specifically should do from a compliance perspective when a spouse settlor seeks legal representation to set up a trust at the time that a marriage has broken down, or soon after.

Marcus Dearle
Bryan Cave Leighton Paisner, Hong Kong; Senior Vice Chair, IBA Family Law Committee

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Zenobia Du Toit
Miller Du Toit Cloete, Cape Town; Member, IBA Family Law Committee Advisory Board

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Paul Hodgson
Butterfield Trust, Guernsey

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Kevin Lee
Stephenson Harwood, Hong Kong; Committee Liaison Officer, IBA Private Client & Tax Committee

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Shan Warnock-Smith QC
5 Stone Buildings, London

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