Wealth Solutions & Wealth Planning
Leading Trusts & Divorce Lawyer Marcus Dearle on why the Cook Islands’ New International Relationship Property Trust is a Useful and Innovative New Product
Marcus Dearle of Miles Preston
Feb 2, 2023
Hubbis, in association with sponsor Asiaciti Trust, a leading international trust and corporate services provider, held an educational webinar focused on the Cook Islands’ International Relationship Property Trust, a new solution to help bolster planning to avert the many potentially profound financial and psychological impacts of a divorce or other relationship collapse. One of the eminent speakers was Marcus Dearle, a London-based Partner at law firm Miles Preston, who offered delegates some insights into the important role the International Relationship Property Trust can play alongside pre- or post-nuptial agreements to mitigate the potential destruction of wealth and also often peace of mind when relationships disintegrate. Marcus is recognised as one of the leading trusts and divorce litigation practitioners for HNW and UHNW clients in Legal Week’s Private Client Global Elite directory, which is entirely reliant on peer nominations. He is a 26-year veteran of Withers in London and Hong Kong and has over 34 years of experience acting in complex domestic and international family law cases. Marcus reports that the IRPT is a useful and innovative new tool in the complex world of divorce and separation.
Is the new Cook Islands’ International Relationship Property Trust good news for the protection of wealth in cases where relationships break down?
Dearle: Yes, this represents a further significant step forward in helping sidestep very difficult, stressful and costly disputes when relationships break down. These types of trusts, in tandem with pre- or post-nuptial agreements (PNAs) will assist.
Although you are based in London, you cover these matters for private clients in the UK and also in Asia, so could you explain why pre- or post-nuptial agreements are not as watertight as people might have assumed?
Dearle: I have experience over many years working in London and in Hong Kong advising HNW and UHNW clients on how responsibly and effectively to protect their wealth through the use of PNAs, and I have acted in a number of the leading family law cases in Hong Kong since 2009. For example, I led the team acting for the successful financially stronger husband (JEK) in LCYP v JEK: the judgment in this case was handed down by Mr Justice Anthony Chan in the Hong Kong High Court on 8 July 2019. This is one of the most important family law decisions in Hong Kong in the nine years since the Court of Final Appeal’s landmark decision in LKW v DD in 2010 which brought in the ‘equal sharing’ principle and is now the leading PNA case in Hong Kong. I continue to be busy acting in Hong Kong cases from London.
The law with regard to PNAs in England and Wales and Hong Kong is essentially the same. PNAs are not binding contracts under English or Hong Kong law, but they are enforceable by the courts in England and Hong Kong: those courts are likely to enforce PNAs provided that the PNA is unvitiated and its terms are fair.
So you need, first, to create an unvitiated PNA. An unvitiated PNA is one where there is no concern about the fairness of the circumstances surrounding the creation of the PNA: that there was no fraud misrepresentation or undue pressure at that time, and that it was entered into freely. Mr Justice Anthony Chan in LCYP v JEK described the word unvitiated as a ‘convenient label to describe a nuptial agreement which is not tainted by any vitiating factor, for example, lack of disclosure of assets prior to the agreement’.
And if you have created an unvitiated PNA, you need then, second, to ensure that the terms of the PNA are fair. The July 2019 LCYP v JEK decision has clarified the law and provided for the first time much-needed guidance about the standard at which the financially weaker party’s needs are to be assessed in the context of an unvitiated PNA and how PNAs are to be enforced. It clarifies the meaning of ‘real need’ in the context of determining whether financial terms of a PNA are to be treated as ‘fair’.
It clarifies that in certain circumstances the court will order that some capital should be returned to the financially stronger party at a future date in relation to certain future triggering events. Such a condition had never before been imposed by a court in Hong Kong in any reported case involving a PNA.
The financially weaker party in the LCYP v JEK case, the wife, effectively received a significantly lower provision based on real needs, rather than at a real needs generously interpreted level.
So, what needs to be done to make any PNA as failsafe as possible?
Dearle: Significant care and attention needs to be given to creating and preserving a paper or electronic communication trail between the parties and their respective solicitors with effect from their first contact. All those communications might well need to be looked at by the family court in detail to ascertain whether or not there's been duress for example. And it's important also to record in the PNA itself evidence that the financially weaker party accepts that he or she has been given every opportunity to obtain independent legal advice and full and frank financial disclosure, and that they have been given sufficient time to consider the effect of the terms and agreements, so that he or she can ascertain the wealth he or she might be potentially giving up by entering into the PNA .
And in the event that the financially weaker party has decided not to obtain independent specialist legal advice, which is not compulsory, and if they have not sought full and frank financial disclosure, it is essential that waivers are included in the PNA and that those are backed up by further confirmatory emails in the email chain.
That said, I always advise clients at the outset that both parties should have independent legal advice and that full financial disclosure should be provided at the time that a PNA is negotiated. At the very least a ballpark figure of the level of wealth of the financially stronger party should be set out in the PNA.
Avoid at all costs a situation in which the terms of a PNA will lead to the financially weaker party on divorce getting into what is a called ‘a predicament of real need’. Sufficient information on the level of both parties’ wealth, and also on their standard of living, should be available in order to ensure that the provision set out in the PNA for the financially weaker party is realistic and fully provides for his or her needs – provision which will be more likely to be treated by the court as fair.
Do you have any other specific recommendations for these PNAs?
Dearle: Yes. Including a fixed lump sum as provision for the financially weaker party in the PNA is preferable.
The level of needs should be regularly reviewed after the PNA is signed to take into account changes in the level of needs that might have occurred as a result of increases in income and the standard of living of the spouses.
And given all that, why do you think the International Relationship Property Trust will help clients create more bullet-proof estate and wealth planning solutions?
Dearle: The most important point to note is that if there is an International Relationship Property Trust in place, a separate PNA should be entered into, in addition, to deal with any other assets that are not included in the IRPT.
One feature of the new IRPT which stands out as a significant benefit and which differentiates this product from other types of trusts is that the IRPT is required to be an irrevocable trust. From an asset protection perspective, irrevocable trusts are less vulnerable to attack. Revocable trusts on the other hand – and from a US tax perspective it is often the case that revocable trusts are used – are more vulnerable because the attacking spouse is likely to assert on divorce, in a case in which the defending financially stronger spouse is a settlor and beneficiary of a revocable trust, that the terms of the trust can be changed at a later stage to benefit the financially stronger spouse. Another key and useful feature is that it is a requirement that a ‘relationship agreement’ should be built into the IRPT governing what happens to the asset(s) owned by the trust in the event of a relationship breakdown. And that is in respect of the breakdown of any relationship - including those who are unmarried or in a same sex relationship - not just in the context of a divorce.
Finally, what general words of advice would you offer private clients on these matters?
Dearle: The final LCYP v JEK judgment in July 2019 came after five years of hugely expensive and traumatic litigation for the parties. People need to be aware that it's usually well worth spending money in the early stages on legal fees - well before a relationship has broken down - to obtain the best specialist legal advice when the trust(s) and PNAs are being set up. That approach could easily save families millions of US dollars in the longer term.
The IRPT is a helpful new product in the responsible asset protector’s tool kit. Provided all the assets of a marriage are covered by way of a trust, such as an IRPT, together with a separate unvitiated PNA dealing with any other assets, then there's less likely to be a big fight at the end of the day if a couple splits. But the terms must include proper financial provision for the financially weaker party to ensure that his or her needs are met on divorce.
A Brief Note on Marcus Dearle
Marcus Dearle is a Partner at Miles Preston, Chair of the International Bar Association Family Law Committee, and a Fellow of the International Academy of Family Lawyers. He is a 26-year veteran of Withers in London and Hong Kong and has over 34 years of experience acting in complex domestic and international family law cases.
Marcus has specialist expertise, in particular acting for trustees in HNW and UHNW divorce and trust cases, advising on UHNW pre- and post-nuptial agreements (PNAs) and dealing with international divorce litigation involving PNAs and trusts. He also has recognised pioneering expertise in international surrogacy law and medico-legal/fertility law issues.
In addition to being admitted in England and Wales, he uniquely practises in Hong Kong family law from London. He is also admitted, but not practising in, the BVI. He has a more than three-decade experience in these matters, and has been representing Sir Frederick Barclay in his divorce – successfully defending him in complex committal proceedings involving international trusts and having taken over the case just after the family remedy trial judgment of 30 March 2021.
Legal 500 2021 made the following comment on Marcus’s capabilities: ‘When it comes to international trusts and family law cases, Marcus Dearle is in a class of his own’.
Partner at Miles Preston
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