Established trusts have been successfully used in recent divorce cases to achieve favourable outcomes for divorcing husbands – the recent case of Petrodel Resources Ltd & Ors v Prest , being an example. However, in this case, we have a clear and obvious example of trusts being used for tax efficiency reasons, but where they have resulted in a husband losing significantly in his divorce settlement.
Originally purchased in 2000 for £6milion, the family home was now worth a staggering £40million. The vehicle used to purchase the property was trust located in the Cayman Islands. Intended to be a financial investment for the family, during the divorce proceedings, Mrs Slutsker decided to make the most of the fact that she was the person named as the ‘settlor’ of the trust – excluding her husband from any financial interest in the property. This sounds absolutely incredible! How could any Court agree that a property purchased with funds from the family business, had nothing to do with the divorcing husband? But, this is precisely what the High Court determined recently when considering the financial settlement on divorce: the super-rich must live with the consequences if they choose to own their homes through offshore trusts.
Don’t get me wrong, Mr Slutsker put up a strong fight, insisting he should be entitled to 50% of the property. He argued that under Russian family law, regardless of the trust, he should be recognised as an equal beneficial owner of the house, as the couple’s joint money had been used to buy it.
However Lord Justice Lloyd found that Mr Slutsker had consented to the creation of the trust with his eyes open: he was aware that the house was being bought through a trust and that the structure was inconsistentwith straightforward Russian law principles of joint family property. He knew enough about what was happening to give his ‘effective consent’ to it and was therefore bound to suffer the consequences – i.e. losing out on around £20 million!
An expensive lesson indeed – but one that was so easily avoidable. Trusts are wonderful vehicles that can be utilised in many ways to maximise investments. They can be used to exclude assets from the matrimonial pot and exclude spousal rights – but only if created in the correct way and at the correct time.
Everyone expects to live ‘happily ever after’, but unfortunately statistically, we can see that this is only reality for a small number of people.
Reviewing trusts is imperative. A saving in tax is great – but losing £20million in a financial settlement in divorce, is definitely not.
At Pinder Reaux, we are affiliated with some of the best financial planners in the country, who can advise and guide you on the establishment and management of Trusts. Protect yourself, protect your wealth.
MD @ Pinder Reaux & Associates