Wealth Solutions & Wealth Planning
How to avoid conflicts and losses due to divorce
Marcus Dearle of Berwin Leighton Paisner
Feb 1, 2013
Marcus Dearle, Hong Kong Office managing partner at Withers, talks to Hubbis about the tools, structures and techniques which can help individuals structure their assets to preserve wealth from the risk of divorce.
How is it possible to avoid conflicts and asset losses arising from divorce?
There has been a growing focus in Asia, and especially in Hong Kong following several high-profile divorce cases, on the usefulness of lawful and responsible asset structuring for the purposes of preserving wealth from the risk of divorce.
This is done with the use of pre- or post-nuptial agreements, and increasingly in tandem with trust re-structuring and the setting up of “dynastic” trusts. Trusts can still be useful and effective asset preservation vehicles.
What trends have you seen in the treatment of trusts in relation to divorce cases?
Trustees are regularly experiencing situations where assets held in a trust are coming under attack in divorce proceedings. It is a common misconception that all trusts are safe from attack from divorce.
First, with a “standard” discretionary trust, where a settlor is usually also a beneficiary, it is possible to treat that trust asset as a financial resource of a divorcing party who is a beneficiary or potential beneficiary of that trust.
Secondly, if there is a “nuptial element” to the trust, for example where a spouse or future spouse is named as a beneficiary or within a class of beneficiaries when a trust is set up, before or after a marriage, the court technically has the power to vary the terms of that settlement by way of a settlement of property application in favour of the financially-weaker spouse who was never originally intended to receive any benefit from the trust at all.
Wealth planning is beginning to move beyond advice on pre-nuptial and post-nuptial agreements to the setting up of “dynastic” trusts where trust structures are set up genuinely to benefit future generations, backed up with carefully-crafted letters of wishes which govern and restrict distributions to beneficiaries.
These give settlors a chance of ring-fencing assets outside the matrimonial “pot” for division, so that their potential losses could be significantly reduced from the 50% of their wealth that they might have lost to the financially-weaker party in a divorce if no dynastic trust structuring had been completed at all, no pre- or post-nuptial agreement had been entered into, or a standard discretionary trust was in place.
To what extent is there a need to stress-test existing structures?
Clients need to consider stress-test existing structures. For example, from a divorce protection perspective, we look at the trust deed to see if the wife of the settlor, for example, is a beneficiary or within a class of beneficiaries of that trust. In these cases, the trust might be subject to an attack by way of a settlement property application.
A variation of settlement application is a powerful weapon for the attacking divorce lawyer’s tool-kit.
When is the right time to implement structures?
The wrong time to start setting up a trust for asset preservation purposes is when the marriage has already started to fail.
Trusts set up in those circumstances are highly likely to be set aside by the Hong Kong court, for example.
Trust structures set up many years before a relationship gets into difficulties, however, are far more likely to be respected and protected by the court.
Partner, Head of Family Asset Protection - Private Client at Berwin Leighton Paisner
More from Marcus Dearle, Berwin Leighton Paisner
Latest Articles
You might be interested in
