The High Court judgment against British business tycoon Sir Frederick Barclay, handed down on 28th July, demonstrates an unambiguous enforceability of family law orders. If one fails to abide by the orders made against them, they may find themselves in contempt of court, and criminal proceedings could ensue regardless of the extent of their wealth. The tycoon has been ordered to pay £245,000 to his ex-wife by 11th August, failing which he could be jailed for contempt of court for up to six weeks.
One is in breach of an order for payment of money if they have the means to pay but do not do so. The tycoon has argued that he cannot access his wealth which is tied up on various complex trust structures operated by his nephews. His case is that, due to a family feud, his nephews will not pay him the funds he requires to meet his obligations under the court order, yet they are meeting his legal fees of circa £1m.
The court’s approach to the tycoon’s argument that he cannot access his funds in the trust was not accepted because the trust had “never refused to provide the tycoon with funds when he needed them”. The courts went on to say that the sums he owed his wife for legal fees and maintenance were “relatively modest” considering the funds available to him under the trust.
Family law has developed and evolved to deal with express trust arrangements on family breakdown because these are popular with wealthy families and foreign individuals due to the fact that UK tax charges can legally be avoided by living off capital held under offshore trusts.
When advising a client in divorce that either relies on or instructs that their spouse relies on income or capital derived from a trust, it is essential to obtain the relevant trust documentation to consider the nature of the trust. This documentation will be the trust deed, deeds of variation and any letters of wishes. Analysing these documents should enable an adviser to understand the settlors’ intentions, the duties and obligations of the trustees and the nature of the beneficiary’s or class of beneficiaries’ interests under the trust.
As Lord Barclay is experiencing with the High Court’s approach to his argument that he cannot access funds held under the family trust, the court must look beyond the obvious and strict property interests of the parties and consider the “other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future” – s25(2)(a) Matrimonial Causes Act 1973 (MCA 1973). Judges have for some time now looked at “the reality of the situation’” rather than the formation of the trust [Thomas v Thomas [1995] 2 FLR 668, Glidewell LJ].
To treat a beneficiary’s interest in a trust as an asset for distribution in proceedings for a financial remedy order, the court would need to decide that the trustees “would be likely to advance the capital immediately or in the foreseeable future” per Charman v Charman (No2) [2007] EWCA Civ 503.
The court would try to understand the history of the trustees and beneficiaries to a trust. For this, it would analyse the parties’ past behaviour and determine how the trustees would react to a request for funds from the beneficiary in the future. Past actions, of course, are not always decisive as to future conduct, and circumstances such as a divorce could well affect trustee and beneficiaries’ future behaviour under the trust. Therefore, full and frank disclosure of the complete facts will be necessary. For Lord Barclay’s case, this analysis seems to have already been carefully undertaken given Sir Jonathan Cohen’s comments that the trust had “never refused to provide the tycoon with funds when he needed them”.
The family court has developed a generally robust approach to offshore trusts and can view such structures with scepticism if they appear to be designed to hide or put a veil over financial realities and defeat a spouse’s financial claims on divorce. In the case of J v V (disclosure offshore corporations [2004] 1FLR 1042 Coleridge J held:
“Clients whose cases fall into this category do need to be reminded by their advisers that these sophisticated offshore structures are very familiar nowadays to the judiciary to have to try them, they neither impress, intimidate, nor fool anyone. The courts have lived with them for years. If client’s ‘duck and weave’ over months or years to avoid coming clean they cannot expect much sympathy when it comes to the question of paying the costs of the enquiry which inevitably follows”.
Ultimately, the legal approach to express trusts is that the family court can look past trust structures and consider what really occurs when a beneficiary receives funds. If the trust always provides the funds upon request, then it can be considered a source upon which the beneficiary can rely even if the beneficiary has sought to distance themselves from the trust or plead inability to draw from it, in the case of Lord Barclay per s25(2)(a) MCA 1973. Therefore, decisive family law orders can be made which require the beneficiary to draw on the trust for their own benefit or for the benefit of their spouse. And, as Mr Barclay has discovered, failure to abide by these orders is contempt of court punishable by a fine, imprisonment or both.
By Susi Gillespie, Partner and Head of Family Team, Mediator and Collaborative Lawyer at Thomas Mansfield Solicitors
