Guide: International Divorce and Offshore Trusts

This short piece endeavours to provide practical guidance to those whose divorce is international in its nature, and which as a consequence, raises cross border legal issues.

An international divorce is likely to bear the following characteristics:

1) where one spouse is applying for a divorce in a country where they do not live or where the other party does not live; and/or

2) where the legal system of a country other than that of England and Wales, could possibly entertain divorce proceedings;

(Scotland and Northern Ireland have their own legal systems)

The following factors are all relevant in determining which country should deal with divorce proceedings:

• Domicile is where a party has their permanent home: this does not necessarily mean that the person must actually live there. Rather it is a question of where the party regards their permanent home as being. Those serving in the Armed Forces are a very good example of those domiciled in England, although for obvious reasons they are physically elsewhere;
• Habitual Residence is the legal test of where someone normally lives;
• Nationality: to be a national means that a person has an official right to be a member of that nation-state. Nationality can be acquired by birth; adoption; or marriage. The rules vary from country to country;

These are some of the factors taken into account by the English Family Court in determining whether it has jurisdiction (that is the legal power to deal with divorce proceedings) where there is a question over which country’s legal system is the appropriate one.

Legal requirements in England and Wales for commencing divorce proceedings

In order to commence divorce proceedings in England and Wales, it is necessary for at least one of the spouses to be either domiciled or habitually resident in England or Wales for at least one year, preceding the presentation of a divorce petition.

Divorce and matrimonial financial issues

It is important to make the point that a divorce in the English Court relates only to the legal dissolution of a marriage. Judges in the Family Court do not make orders about a divorcing couple’s financial issues in divorce proceedings. Their ability is limited in the divorce procedure to considering and then approving an agreement which the divorcing couple have made, provided that the judge accepts that the agreement is fair to both persons.

If the separating spouses really cannot agree on the division of the matrimonial assets, then in those circumstances a separate application needs to be made (known as an application for financial remedies).

Important practical issues in international divorces

The ability to pursue divorce proceedings in the English court is not the only consideration for an international divorcing couple, in circumstances where one or both have connections with another country or countries. Both parties will be concerned to ensure that their divorce is recognised in any other relevant country. This will be particularly important if one person wishes to remarry. In addition, both will wish to ensure that whatever financial orders the English Court may make, or which are agreed to by consent between them, will be enforceable overseas.

A further consideration for each person will be, which jurisdiction is likely to give them a favourable outcome.

The significance of Brexit in international divorce

The departure of the United Kingdom from the European Union (“Brexit”) means that from 1 January 2021, a different test applies on whether the English Court can entertain divorce and matrimonial financial proceedings. Generally speaking, before that date, provided that divorce proceedings had been commenced in England and Wales, this meant that the English Court would be the jurisdiction that dealt with the proceedings. This was often referred to as “winning the jurisdictional race ” and winning the race was conclusive, unless a dissenting party made a successful application for the proceedings to be dismissed.

From 1 January 2021, a different criterion applies on whether the English Court can deal with divorce proceedings. The principle that should now be fulfilled in determining the appropriate jurisdiction is where the parties have “the closest connection”. This is not to say that where one person has won the jurisdictional race by commencing divorce proceedings in this country first, that this is irrelevant, but rather that this will not be the sole factor.

How the English Court approaches disputes over jurisdiction

The case of J V U and U V J no 7 (Domicile) 2017 is a helpful illustration in illustrating how the English Court approaches a dispute over which is the appropriate legal system for divorce and matrimonial financial proceedings. In this case, the husband argued that the appropriate forum was the Bosnian legal system. The parties had moved to Sarajevo in Bosnia and last lived there together as a couple. The English Court considered a number of factors in reaching the decision that the proceedings should take place in England; these being that:

• the main assets were in England;
• the ability of the Bosnian court to deal with property outside its own jurisdiction was limited;
• both parties spoke English fluently;
• although the parties last lived together in Bosnia and the husband was now in Bosnia living there with the children, he did not convince the Court that Bosnia was the appropriate legal system to deal with the divorce and matrimonial financial proceedings.

Recognition of an English divorce in other countries

Following Brexit, an English Divorce is no longer automatically recognised in the member states of the European Union. English divorce is recognised by all of the signatories to the 1978 Hague Convention on the Recognition of Divorces and Legal separations. However, it is important to note that not all of the member states of the European Union are signatories to the Convention. The legal position of those who are not signatories to the Convention (on the recognition of English divorces) will be contained in the national law of that country: it is best practice to take the advice of a lawyer qualified in the relevant overseas country.

The significance of overseas assets and property held overseas

The relevant legislation in our jurisdiction (this being the Matrimonial Causes Act 1973) gives Family Court Judges a very wide discretion to make orders concerning the assets and debts of the divorcing parties. Judicial powers are not limited to simply making orders over assets that are held in the United Kingdom. However, a notable exception to this judicial ability is that of property held overseas. A Family Court Judge in England cannot make an order for sale of an overseas property, nor can he/she make an order for a transfer of the legal title of land held overseas. However, there is judicial power in the English Court to consider the value of a property held overseas. So, for example, a judge could make an order compelling one person to pay to the other a lump sum, where the only way that order could be fulfilled is if the overseas property was sold.

Again, legal advice should always be taken from a lawyer qualified in the jurisdiction where the overseas asset is held to ensure that any order made in the English Court is enforceable there.

Offshore Trusts

A Trust is a legal arrangement under the law of equity where Trustees have a legal duty to control and manage the Trust assets for the beneficiaries. These arrangements are usually established for tax efficiency purposes (or the less charitable would say, to dodge paying tax!).

Seasoned family lawyers enthuse over dealing with cases concerning offshore trusts as such cases are professionally very interesting. However, parties involved in family cases where the opposing spouse is the beneficiary of an offshore trust, usually hold firm opinions that the offshore trust means that there is some skulduggery going on. Lichtenstein and the British Virgin Islands are notable examples of countries where Offshore Trusts are established.

The approach of the Family Court to Trusts

The Family Court will obviously consider whether the trust assets form part of the “matrimonial pot”, that is, the body of assets which fall to be divided by the Court. The test of whether the trust assets do form part of the matrimonial pot is not limited to whether one of the parties is a beneficiary; it is a wider consideration than this. The test is whether a party in the proceedings has benefited or is likely to benefit from Trust assets.

So for example in the case of Charman V Charman 2007, Mr Charman argued as his second main ground of appeal before the Court of Appeal, that the original trial judge had erred in including £68 million held within an off-shore discretionary trust known as The Dragon Holdings Trust (“Dragon”) as a resource that was available to him, and hence part of the matrimonial pot.

Mr Charman had set up Dragon in 1987 upon an expression of wish to the Trustees that during his lifetime he should be its primary beneficiary. His Queen’s Counsel (Mr Boyle) further argued before the Court of Appeal, that not only was £68M an incorrect figure for the assets within Dragon, but that the assets themselves were simply not available to Mr Charman as a resource. He declared on behalf of his client that if the earlier judge had asked himself the important relevant question, this being, if the husband had requested the Trustees to give him the whole (or part) of the assets of Dragon, would the Trustees have done so? Mr Charman predictably argued to the Appeal Court that the Trustees would certainly not have agreed to his request. This argument was roundly rejected by the Court of Appeal.

The powers of the English Court do generally extend to dealing with offshore trusts, although there are exceptions. For example, the Court can join the Trustees as additional parties in an application for matrimonial financial remedies. This ensures that orders can be made against the Trustees such as to disclose information that the Court needs to make a fair decision. If the Trust assets are quite clearly a matrimonial asset, a judge can also vary the terms of the Trust itself (even if it is an overseas Trust) and can make provision for the spouse who is not a beneficiary.

However, many offshore jurisdictions have what is known as asset protection/firewall legislation, the aim of which is to protect trust assets from orders by foreign courts. Where this is the case, the English Court may not exercise variation powers: our Courts recognise that any order is unlikely to be enforced. For this reason it is imperative that an offshore Deed of Trust is examined with a very fine tooth comb by any client’s legal representative both as to its content and what overseas law applies to the trust assets.

Children matters

International disputes concerning children can be complicated and will generally involve an understanding of the law of England and Wales, the other relevant jurisdiction, and in particular whether or not the other country is a signatory of the Hague Convention. This link is a quick reference point for a list of Convention signatories.

https://www.hagueapostille.co.uk/hague-members

Child abduction

It is every parent’s nightmare in circumstances of relationship breakdown, for a child or children to be taken abroad by the other parent without their consent, effectively child abduction. If a parent genuinely believes that their children are at risk of being abducted, then the proper course of action is to apply to the Family Court for what is known as a Prohibited Steps Order under the 1989 Children Act. Such applications can be listed as an urgent matter without notice to the other side, provided that the applicant can convince the Family Court that there is a genuine risk of child abduction.

But what if the abduction has already taken place? The first consideration will be whether the country to which children have been taken, is a signatory to the Hague Convention on the Civil Aspects of International Children Abduction 1980. Countries that are a signatory to the convention will cooperate in ensuring the safe return of an abducted child to his/her habitual residence. However, if the country of destination is not a signatory to the convention, then their own national law will apply which may or may not be helpful to the dispossessed parent.

Judges in the English Court have shown themselves to be sympathetic in preventing the risk of abduction to a non-Hague Convention country.

In Re: Do and Bo (Temporary Relocation to China) [2017] the mother was a Chinese National with a British passport. She was married to an Australian national but they were divorcing. The mother’s application for permission to take her children to China for 3 weeks was refused by the Family Court because of the Father’s concerns that she would not return with the children. Expert evidence on Chinese family law confirmed that the father would be compelled to go to China to secure the return of the children if indeed they were not returned. However, because of China not being a signatory to the Hague Convention, that country had no legal obligation to return the children. Because of the damage to the relationship between the father and his children, and of the possible permanent separation that would have caused, the English Court refused the mother’s application to travel to China with the children.

The Hague Convention looms like Everest in international Children Law. Orders made concerning children in England and Wales are recognised and enforceable in any Country that is a signatory to the Hague Convention. Likewise, in England and Wales, there is a mechanism for registering an order made in another Hague Convention Country, thereby ensuring that the order is recognised and enforceable.

To conclude, international family law will always involve consideration of the law of more than one country. Specialist legal advice should always be taken where there is a dispute or potential dispute of an international nature.

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