Issues for trustees of Guernsey trusts when foreign couples divorce

When foreign couples who are not resident in Guernsey but connected with a Guernsey trust choose to divorce, the trustee is faced with a mountain of decisions.

To what extent should they become involved in the matrimonial proceedings taking place in another jurisdiction? Which orders from overseas courts are enforceable in Guernsey? The trustee will often even wish to seek the direction or "blessing" of the Royal Court to obtain a measure of protection in relation to these complex decisions.

The following briefing is intended to provide an overview of some issues that Guernsey trustees and their advisers should consider when they find themselves in this situation, and when to seek further advice in tackling those issues.

What are Guernsey's firewall provisions?

Guernsey has legislated to incorporate strong firewall provisions in its Trusts (Guernsey) Law 2007 (TGL). These are designed to protect trustees of Guernsey trusts by ensuring that any questions concerning the validity of the trust or dispositions (transfer of assets into the trust) are decided in Guernsey, in the court of the trustees' home jurisdiction, and are to be determined according to the laws of Guernsey without reference to foreign law (subject to the terms of the trust as per section 14(1) TGL).

However, there is a "carve out" in relation to dispositions of property into the trust where the property is either not owned by the settlor, or they have no power to make the disposition. In such a case, the Guernsey courts will recognise the law of a foreign jurisdiction to determine whether the settlor was the owner of the property or had the right to dispose of it. Therefore, the TGL will not help a foreign settlor who has settled assets into a Guernsey trust which, for example, they obtained by fraud or theft as constituted under their foreign domestic law.

Considering matrimonial property regimes of other jurisdictions

As a matter of common law, matrimonial property questions in the absence of a contract or settlement are determined by the law of the matrimonial domicile, which usually differs to those typical of an offshore jurisdiction. The matrimonial domicile law may contain a matrimonial property regime such as community of all property acquired during the marriage, meaning that both spouses are joint owners, and a husband may not properly transfer these assets into a trust without the consent of his wife.

Guernsey's firewall provisions protect Guernsey trust assets from attack based on community property regimes contained in the law of the matrimonial domicile, or because the law of the settlor's domicile does not recognise the concept of a trust (section 14(3) TGL). Such situations give rise to complex issues which may require detailed consideration of the precise scope and effect of the foreign matrimonial laws.

The location of trust assets

Another common issue is the location of the trust assets. Orders made under foreign matrimonial legislation may purport to vary a Guernsey law trust. For example, the English Matrimonial Causes Act gives the English courts (domestic) jurisdiction to vary anything it considers to be a "nuptial settlement" even though that may be a Guernsey law trust. Where the origin of the assets is within the local jurisdiction of the foreign matrimonial court, that jurisdiction will usually enable a spouse to enforce against the assets. For example, an English court will usually enable a spouse to enforce against trust assets located in England, even if the governing law of the trust is not the law of England and Wales.

However, where trust assets are held outside the matrimonial jurisdiction in a Guernsey trust, any order from the foreign matrimonial court purporting to vary the trust on the basis of non-Guernsey law will be subject to the firewall provision in Section 14(1) of the TGL. For example, trust assets held in Guernsey, by a Guernsey law governed trust will fall foul of the firewall provision under the TGL where divorce proceedings are commenced in England.

Can international courts enforce orders in Guernsey?

In recent years, the Guernsey courts have considered the firewall provision. Section 14(4) of the TGL provides that no foreign judgment or order shall be enforceable or given effect to the extent that it is inconsistent with the firewall provision. The giving of directions under the TGL by the court arguably does not amount to enforcement of a foreign judgment for the purposes of section 14(4) as it is an exercise of the court's inherent supervisory jurisdiction over trusts, exercised for the benefit of the beneficiaries when considered as a whole.

However, if the variation ordered by the foreign court is not something that the trust deed allows, the Royal Court would not be able to exercise its supervisory jurisdiction in this way. Much therefore also depends on whether the spouse and marital issue are beneficiaries of the trust, excluded persons and/or whether the trustee has power to add or remove beneficiaries.

Useful case law for Guernsey trustees

This issue was considered by the Royal Court of Guernsey in In the matter of the A Limited Funded Unapproved Retirement Benefits Scheme and the B Employee Trust [21/2017]. The Royal Court held that under certain circumstances the trustee can submit to the jurisdiction of a foreign court and directed the trustee to submit to the jurisdiction of the Family Division of the High Court of England and Wales. In English proceedings, the wife in a divorcing couple (W, the Respondent) had sought to join the trustee of a Guernsey trust (the FURBS) in the matrimonial proceedings (in England) for the purposes of disclosure. In this case, the Deputy Bailiff departed from the approach taken in Jersey on the matter and said that trustees can submit to the jurisdiction of a foreign court where the trust terms are drafted in a way that the trustee has no discretion (for example, in a workplace pension scheme, as in this case).

In the case of M Limited as Trustee of the B Trust [2019 GRC 052], a case which arose as a result of divorce proceedings in Israel, a BVI Company (H Limited) owned the former matrimonial home of the husband (H, the Applicant) and wife (W, the Respondent), with the trustee owning the entire issued share capital in H Limited. The trustee applied to the court for a number of declarations, including that:

• the Respondent had no entitlement to any distribution from the trust
• all questions in relation to the trust were to be determined according to the law of Guernsey without reference to the law of any other jurisdiction
• the Respondent could not be compelled or instruct the Applicant to deal with the property of the trust in a certain way

The Guernsey Court found that as the shares in H Limited (and so any asset owned by that corporate entity) do not form part of the personal estate of either H or W, the terms of the trust meant that neither H or W could assert any entitlement to receive any of the trust estate or compel the Applicant to distribute it. However, the Court noted that a request could be made to the Applicant for this, which would then have to be determined in the usual way, possibly by seeking directions from the Court, particularly if it is a means of giving effect to the terms of an order arising on divorce.

How Ogier can help

At Ogier, our award-winning Trusts Advisory Group offers specialised expertise and a dedication to excellence. Our highly skilled experts are adept at navigating the complexities of trust law across multiple jurisdictions, ensuring our clients receive the highest standard of service and advice. With a comprehensive understanding of the offshore trusts' framework and the practical implications of recent developments, we provide tailored solutions to meet your unique needs.

To learn more about our services and about the key features of other jurisdictions, visit our Trusts Advisory Group page.

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice