Judgement Summary: Offshore Assets And The Divorce

BJ v MJ and Others [2011] EWHC 2708 (Fam)

This is an English High Court (Family Division) case involving a Jersey proper law trust whereby Mostyn J examined the treatment of a Jersey trust in divorce proceedings and made an interesting comment about a Jersey trustee's potential involvement in proceedings.

Background

The parties married in 1980 and were both aged 65. They had one adult child. The wealth derived from the husband's interest in a company in which he had worked during the marriage. That wealth was settled into two Jersey trusts. The beneficial class of the No 1 Trust included the husband, the wife and their child. The husband and wife were excluded from the No 2 Trust, although there was power to add the wife after the divorce.

The judgment contains a summary of the 'various types of trusts which are commonly encountered in proceedings for financial remedy following a divorce'.

Decision

It was held that all assets, including the trust property, constituted matrimonial property and should be subject to the equal sharing principle. However, the 'implementation of that equal sharing should reflect the clear arrangement made during the marriage, assented to by the wife to set up a trust ultimately to benefit their child and future generations'.

From the trusts, the High Court held that £1,475,735 was to be made available to the wife with £500,000 to be paid to her outright and £750,000 to be extracted from the settlements and settled on the wife for her life with the remainder to their child. The balance was to be by way of a charge against the former matrimonial home in favour of the trustees of the wife's new settlement.

Practical Considerations

Mostyn J touches upon the duties and the role of trustees who are joined to proceedings together with the applicant's obligations where the order being sought has an impact upon the interests of other beneficiaries. Mostyn J held that 'it is incumbent upon the Applicant to draw the claim to the attention of any significant beneficiaries explaining that they are at liberty to apply to intervene or otherwise to make representations'.

Mostyn J also recognised the dilemma that trustees often find themselves in when a court is considering the extent to which trust assets should be treated as a resource of the parties but he warned of the risks of trustees failing to engage. He said 'if the trustees have refused to participate meaningfully or helpfully in the inquiry then neither they nor the beneficiary can complain if the court draws robust conclusions as to the likelihood of future benefit'.

In this regard, one solution suggested by Mosytn J was for the trustees to participate in proceedings 'qua witness' which he suggested could not be 'construed as a submission to the jurisdiction'.

Comment

It must be debatable whether the trustees would be prepared to risk taking the qua witness approach. If necessary, trustees should be prudent and consider making a directions application to the Royal Court as to the submission to the English court's jurisdiction and/or the disclosure of information. In this regard, what is undoubtedly clear is that trustees will have to continue to consider their position carefully which means trustees ensuring they fully understand the issues and the types of orders that are being sought.

BJ v MJ [2011] EWHC 2708

The English courts have once again ruled that offshore trust assets may form part of this 'divorce pot'. The decision raises several issues of interest to trustees alike. In particular, the judgment provides insight into the court's views on the participation (or lack thereof) by trustees in UK divorce proceedings. Specifically, the judgment implies that foreign trustees should participate in UK proceedings when requested by the court, or else should not complain if the court draws 'robust conclusions' to the detriment of a spouse beneficiary in those proceedings.

As in previous cases, the English court does not hesitate to make an order in respect of assets outside its jurisdiction, including an order that trust assets are to be made available for financial relief even where both the husband and wife are excluded persons under the terms of the trust. However, on the particular facts of BJ v MJ, the court's potentially unenforceable order finds practical reinforcement in the form of a warning from the court that it will force the sale of the beloved family home in England should the Jersey trustees fail to comply.

Facts

The husband (H) and wife (W) were married in 1980 and are both 65. Both are originally from Mauritius but are deemed domiciled in the UK for inheritance tax purposes. The couple began living apart in 2009 and decree nisi was pronounced in November 2010. The family's wealth derives primarily from H's former interest in ABC Ltd (ABC), the shares of which were transferred to two Jersey trusts in 1994 along with certain other assets. W's role during the...