The division of global assets presents complicated challenges in divorce proceedings, particularly when dealing with trusts, offshore holdings, and complex tax implications.
Understanding how English courts approach these matters is a must for individuals dealing their international financial concerns during a divorce.
It must always be remembered that the English Court system is discretionary which means that the courts have a wide range of powers.
Trusts in divorce proceedings
Trusts are often established to manage and protect family wealth across generations.
During divorce proceedings, however, the treatment of trust assets becomes a focal point.
English courts possess the authority to examine trusts to determine whether their assets should be considered part of the matrimonial estate.
A pivotal consideration is whether a trust is deemed a ‘nuptial settlement.’
This term refers to a trust that provides ongoing benefits to one or both spouses.
If classified as such, the court has the power to vary the terms of the trust to achieve a fair financial settlement. This could involve altering the trust’s provisions or redistributing its assets between the parties.
Even offshore trusts are not immune to such scrutiny, as English courts may assert jurisdiction if they believe the trust was established to benefit the marriage.
Offshore holdings and asset protection
Many individuals utilise offshore structures to manage assets, seeking benefits such as tax efficiency and privacy.
While these structures can offer legitimate advantages, they may also be scrutinised during divorce proceedings.
English courts adopt a pragmatic approach, focusing on the reality of asset ownership and control rather than solely on legal formalities.
If it is determined that a spouse has influence over offshore assets, the court may consider these assets as part of the matrimonial assets, subject to division.
This approach aims to prevent the deliberate shielding of assets to avoid fair distribution.
Tax implications of global asset division
The division of international assets carries substantial tax considerations, particularly Capital Gains Tax (CGT).
In the UK, transfers of assets between spouses are generally exempt from CGT up to the end of the tax year in which separation occurs.
Beyond this period, transfers may trigger CGT liabilities, potentially reducing the overall value of the assets to be divided.
Therefore, timing and strategic planning are needed to minimise adverse tax consequences.
There may however be exemptions if the transfer of assets between spouses takes place pursuant to a court order. Legal advisers commonly work with tax specialists to ensure that any settlement is structured in the most tax efficient way.
The utilisation of offshore trusts and holdings may also have implications for Inheritance Tax (IHT) and other taxes.
It is therefore important to seek legal advice to overcome these challenges effectively, ensuring you remain compliant with tax laws.
Strategic considerations
Given the difficulties involved in dividing global assets, several strategic considerations are paramount:
- Full disclosure – Both parties are obligated to provide full disclosure of all assets, including those held offshore. Non-disclosure can lead to legal penalties and settlements possibly being reopened.
- Jurisdictional challenges – Enforcing court orders on offshore assets can be challenging, especially if the jurisdiction housing the assets does not recognise foreign judgments. Due to this, you will need to fully understand the laws of the jurisdiction you are dealing with.
- Professional guidance – Global asset division can be tricky to navigate, so having the assistance of our legal experts will provide you with the support needed to overcome any troublesome hurdles.
While the division of global assets in divorce can be a demanding task, strategic planning from a trusted legal adviser can make a world of difference.
Being a founder of Mackrell International, an independent association of law firms around the world, means that we in the Family & Relationship Team of Mackrell.
Solicitors have immediate access to the international advice which is needed in such circumstances.
For further advice on such matters, please contact Alison Green, Partner and Head of the Family and Relationship Team at alison.green@mackrell.com or on 0207 240 0521.
Alison Green