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Expat Investor : November 2008
FIRST PERSON Divorce decisions – watch where you separate A recent case has highlighted the uncertain relationship between the English courts and Jersey trusts. Here, Alex Carruthers, Partner, Hughes Fowler Carruthers discusses whether investors’ assets are safe from the decisions of English courts. (Mr Carruthers represented Mr Mubarik in the English divorce proceedings.) considered the request earlier this year. The Jersey Court looked back at the history of the relationship between the English divorce court and Jersey trusts. Whilst there was a lull between the first case, heard in 1985, and the second in 2002, there have now been eight such cases. This significant increase coincides with the much higher divorce settlements being made to wives in the English courts. It seems that the English courts have had to call on their powers to attack foreign trusts in order to fund these increased awards. In each of the cases prior to 2006, the Jersey courts aligned themselves with the English courts and made orders reflecting some or all of the English divorce order. In 2006, however, the law changed in Jersey. It was thought that the new law would toughen Jersey’s stance towards the English courts and their orders but it did not work in practice and, since 2006, Jersey has continued to acquiesce to English court orders. But the recent case of Mubarik The security of Jersey-based trusts came under scrutiny when the battleground of a fierce fight over settlement in an acrimonious English divorce moved across the Channel. The long-running dispute between Mr Mubarik and his ex- wife Mrs Mubarak (different spellings of the name are correct) gave the Jersey courts an opportunity to review how much weight the rulings of the English court would carry on their island. If a marriage is dissolved in England, the English courts have very wide, draconian powers. They can make orders forcing the disclosure of overseas financial assets and trust structures, even where the structures are explicitly governed by foreign law. This risk may not be uppermost in the mind 24 EXPAT INVESTOR ? of a spouse who establishes an overseas trust, but perhaps it should be. If divorce proceedings are commenced in England or Wales, there is a distinct possibility that an order seeking to attack overseas assets, for example those in a Jersey trust, may be made. An order of the English court is not the end of the matter; it must still be enforced in Jersey and that is not a foregone conclusion. However, the history of the relationship between the English divorce courts and Jersey trusts suggests this has not traditionally been difficult to achieve. It is exactly this issue which the Jersey courts have recently had to grapple with. Mr Mubarik is an Indian citizen with an international jewellery November 2008 business. For tax reasons, various companies which own the business are held by a Jersey trust. has sought to enforce this award with little or no success. Then, in 2006, she applied to the English “If divorce proceedings are commenced in England or Wales, there is a distinct possibility that an order seeking to attack overseas assets, for example those in a Jersey trust, may be made.” A few months after he and his family arrived in London, his wife started divorce proceedings. The divorce was bitterly contested. Finally, the English court ordered Mr Mubarik to pay his wife £4 million. Since 1999, Mrs Mubarak expatinvestor.com court for an order to vary the Jersey trust requiring the trustees to pay her a lump sum from the Trust of which she was not a beneficiary. The English court granted her the variation and asked the Jersey court to enforce it. The Jersey court suggests a change is on the way. The judges in Jersey stated firmly that the English court could not re-write a Jersey trust. Instead, an English order would be implemented only where the trustees already held sufficient powers to make that sort of change themselves. In short, an English order was not sufficient reason to make wholesale changes to the Jersey trust.Was Jersey trying to send a message to the English courts? Possibly. The case has certainly aroused much interest in Jersey.A consultation document has been produced proposing a further change to the law. If implemented, this would provide the Jersey courts greater ability to resist attacks on Jersey trusts by the English divorce courts. So, if you divorce in England, can you now be certain that your assets in a Jersey trust are safe? At the moment, the answer remains no. There is still considerable uncertainty: tension remains between the English divorce courts, which wish to do what they perceive to be fair between divorcing parties, and the Jersey courts, which need to preserve the integrity of their financial institutions.Watch this space. To find out more from Hughes Fowler Carruthers enquire through the fast facts number below. Fast Facts 99340