The IBSA Podcasts
IBSA podcasts contain information from a global community of entrepreneurs and professional advisors dealing with international business structuring and regulatory compliance.
Hosted by Roy Saunders, who has over 50 years’ experience within the financial sector, these podcasts delve into enlightening conversations with a wide range of leading professionals aiming to demystify the complex world of business and provide invaluable insights to help listeners deal with various complex technical matters to best support their business and clients.
Disclaimer: We believe the information in this podcast to be correct at the time of recording. The information given is relevant at the time in line with governmental legislations. Competent counsel in the jurisdiction(s) whose laws are involved should be consulted. The podcast is made available by the IBSA for educational purposes only and to provide general information. The information should not be used or relied upon as a substitute for competent legal advice from a licensed professional in your jurisdiction.
The IBSA Podcasts
Lucy Greenwood Navigates the Complex Realities of International Divorce and Asset Protection
Explore the tangled web of international divorce with Roy Saunders and our distinguished guest, Lucy Greenwood, Partner from The International Family Law Group LLP, as we dissect the impact of broken marriages on tax planning and the division of complex assets. Prepare to uncover the stark reality of how a relationship's dissolution can send ripples through established financial stratagems, particularly for those with cross-border connections. We consider the influence that domicile has on the choice of divorce jurisdiction and dismantle the UK's seemingly preferential treatment for the weaker financial party in divorce settlements. Our conversation peels back the layers on the critical nature of complete financial transparency in England, and the intricate ways in which personal assets such as inheritances woven into business ventures, and personal assets can affect their division.
With Lucy 's expert insights, we address the pressing issues that surround the protection of assets through pre-nups and post-nups, shedding light on their significance within a global context. The episode traverses the rocky terrain of business ownership in divorce, especially when high-growth potential companies are part of the marital estate. We scrutinise the valuation challenges of such businesses at the time of divorce and debate the various methods for balancing or offsetting assets against company shares. Listen closely as we navigate the choppy waters of jurisdictional disputes, comparing English legal intricacies with those of other countries, and elucidate the delicate process of relocating children across borders following a separation. This episode is an essential guide for those facing the trials or prospective trials of international divorce and the professionals aiding them.
This podcast explores a fictitious case study centred around an entrepreneur’s ambition to develop a task management software company. Click here to read the case study in full.
These issues will be examined in greater detail at our upcoming conference in May. Click here for full details of the conference and to book your ticket.
Hello and welcome to this IBSA podcast on the topic of cross-border family law issues. My name is Roy Saunders, founder and chairman of the IBSA, the International Business Structuring Association, which is a multi-disciplinary global association of entrepreneurs and their professional advisors, dedicated to sharing their expertise with each other within a great networking platform. Today, I'm joined by Lucy Greenwood of International Family Law Group, and I'm changing my identity to become Nicholas, the entrepreneur behind my fictitious case study, which formed the framework of our autumn workshops and which will feature in the forthcoming annual IBSA conference. I would direct our listeners to read the case study on the IBSA website under the conference page, theibsaorg, to fully understand what we will be discussing today.
Speaker 1:So, lucy, as you know, you understand how Maria and I first met when we married, how we invested in our business, the private homes, the tax planning that we've done and a little bit about our children. So, although everything is fine, we are a little bit concerned about our relationship and potential divorce situations. So I thought I'd better prepare myself, and Maria as well, by asking some questions which may help both of us understand our situation a little bit better. So my first question is if we do unfortunately get divorced, what does that mean for the tax planning that we've been doing individually and together.
Speaker 2:Well, if you're considering all of this at a point where there is no sign of any divorce which is great and is unusual because few people actually think to do it in advance then it may not have as big an impact because it probably has been factored into your tax planning. However, if you're coming to me at a time or Maria was coming to me at a time when there had been tax planning which one of you may or may not have been aware of and you've decided to separate, you may not be telling the other party at this point that you're doing so and it could come as quite a shock and out of the blue to the other person which might impact the tax planning advice you've received previously. So it is really helpful that you're coming along so early in the day.
Speaker 1:So I mean, I created a trust, a family trust, in 2005. If we were to get divorced, would the assets in that trust come as part of the divorce? Can I hide them? You know, those are the sort of questions I wanted to know.
Speaker 2:Yeah, I mean, I think it's probably worth looking at the assets in the round when we come on to look at it in a bit more detail. But anything that's accrued during your relationship and you've been together since you were at university, so most things ever accrued during the marriage would be shared and things like trust can be looked at very carefully, including the trust needs and questions asked about those sort of assets. So I'll talk about those in a bit more detail when we come on to sort of discuss the the main issues in your particular situation.
Speaker 1:Okay. So what should either of us do if we are an international family, as we are, you know, do we get divorced where we got married? What's the situation there?
Speaker 2:It's commonly not where you marry. It's commonly more to do with where you are at the time you separate, so where you're living or where you were born or where you're domiciled. And domicile is quite a complex concept and involves domicile of origin, domicile of choice and potentially reversion to domicile of origin. Obviously that would require a little bit more explanation and investigation in your case, but you were both born in Austria and you have indicated one day you want to go back there, so it would suggest you are domicile there.
Speaker 1:One of the thoughts we had because we were living in the US and we're coming over to the UK and we've done our tax planning in the for coming over to the UK. I've heard that the UK is better for wives than for husbands when it gets into divorce. Is that the case?
Speaker 2:Well, I mean it's better for the weaker financial party, which is still commonly the wife, but isn't always and increasingly isn't. And even in this scenario, maria has got significant potential inheritance, so it's. But you're right, england is a very generous jurisdiction for divorce and in addition to working out what you might have to share in England, we would also, in this situation where you have got jurisdiction choices, look at which country is best for you and we would look into speaking to family lawyers specialists in any country in which you've got a prediction here it would be Austria or England and ascertain which of those countries is best for you to divorce. We can only advise one of you. It's a contentious matter and we would commonly say, where there is a dispute about jurisdiction, that you don't inform your other spouse about getting divorced until you have secured your favourite jurisdiction In terms of. Actually, you know how England goes about matters. If you haven't got a prenup and if you haven't got a property regime in place in Austria, then the starting point would be to gather all of the information that you can about the assets and you would then work out which you know, where they were sourced from and which amount.
Speaker 2:And, as I said before, because you've been together for a long time, it is very likely that all of the assets would be potentially up for sharing. And in England we look at assets in every jurisdiction, all assets, any that you've got any interest in whatsoever. We have beneficial interests here, whereas other countries don't always have that Any kind of interest has to be disclosed. So we have very, very broad rights for financial disclosure. Once you've ascertained what there is, we look to see what that, where. That was how that was established, whether in fact the external funds that came in and, if they were, have they been mingled into marital assets? And I think with this case, because you've been together so long and you have intermingled various assets, both Maria's inheritance at the beginning of the company and also your investments being used for expenses whilst you're establishing yourself in England it is very likely that most, if not all, of your assets would be shared equally.
Speaker 1:As a starting point, Maria did have a big inheritance when we got married. Would that not be excluded? I wouldn't be able to get hold of that, or what.
Speaker 2:Well, if it can be afforded to be excluded, it would be, but she has put some of it into one of the companies, and so that has.
Speaker 2:she's utilised some for the benefit of the family too. In a sense she's intermingled that a little bit. But generally speaking, inheritance, if it can be afforded to be ring-fenced, will be. It's only if, after doing the exercise of getting all the marital assets together, dividing by two, and seeing whether that's enough to meet somebody's financial needs, it's only at that point, if there isn't enough to meet needs, that inheritance past or potentially future, if it's very imminent may come into the pot. Generally speaking, future inheritance will not.
Speaker 1:Now we haven't got a pre-nup, which I understand are accepted to the English courts. I'd be interested in your views on how acceptable they are. But I wonder, if we haven't got a pre-nup, could we enter into a post-nup now, thinking that there is a possibility that we might get to do in the future?
Speaker 2:Okay. So short answer is that pre-nups in England are not binding but they have very heavy evidential weight and recently there's been a quite useful high court case which has actually upheld a challenged pre-nup on the basis of the wife claiming that 14 million wasn't enough to meet her financial needs. And the courts are looking at them and basically the owner's of proof is almost changing to say, well, look, provided you've entered into them fairly, provided you've got independent legal advice, you've had full disclosure of all relevant issues. When you enter into them you're not being coerced. It's a proper contract. Then, unless it doesn't meet your needs, we will uphold it. So it's not binding and it must be fair and it must be entered into carefully and it should be entered into in good time so that no one's being rushed to do it. But they are gaining weight and it suits the court system as well if people can take some of these very potentially highly litigious cases out of the court time and resources.
Speaker 2:So, yes, you can do a prenup, or if you are not married, if you're already married, you can consider a post-nup, and many people do think about this, not because they're planning to divorce, but just in case they ever do. That can mean planning carefully and ascertaining exactly what you want to establish should the event arise. You would need advice from any jurisdiction which had a potential for looking at the divorce in the future. So here at the moment, that was probably England or Austria. There's a tiny risk of America if they're still spending a lot of time or ever plan to live there, but I don't get that impression and you will ask questions, for example, like where is this binding? So, although it's not binding in England, it may well be in Austria and that may also have a bearing on where you plan to live in the future, depending on which party you are and other aspects of planning your life together.
Speaker 2:If you do do a prenup or a post-nup, it's very important to keep all of your advisors informed that one exists because it can have a bearing on what they advise. But yes, you can, you could. Also, in a situation like this, where there are couples company with lots of people involved and it's an increasingly so including different shareholders, you could actually ask them if they would agree to enter into a post-nup or prenup if they're not married yet and are planning to to safeguard shares in the company, and the merit of that is, obviously it gives the company some protection, but also it does warrant and does require them to have other assets which can compensate the other spouse. In the event, the main asset is the company. It makes it a little bit more difficult and they're less likely to get in agreement with their spouse to do so.
Speaker 1:Well, that was one of the issues that I was thinking about, because, although the assets in the trust, for example, can be quite easily valued because they're portfolio investments, I believe that TASH, my software program, which is in TAP Limited now, that has potential, huge potential, and if we got divorced, I would want to first of all make sure that I would get Maria's shares, but also I'd like the. I believe it's got huge potential, but how does it get value? Because I'd like the minimum value obviously to be put on it in the case that I need to acquire the shares from Maria.
Speaker 2:Well, it very much depends on what interest there is at the time that you have it valued and if the you know, if the value can already see that there is huge potential which you are working towards, it is likely that valuation will take that into account. What the courts don't do is they don't seek to share future income and to some extent, if the company is going to develop in a few years time rather than immediately after end of separation, there is greater scope for Maria not having an interest in that potential. But if it's on the horizon, she would be arguing that she has contributed equally during the marriage. Everything's been accrued during the marriage and all the efforts that have gone in to get to this point where you're about to perhaps sell some shares or have a huge investment, a marital sort of contribution that both of you have made and that she could share in. So it is very, very important.
Speaker 2:What commonly happens with a company is that in a situation like this, where they've obviously got some very nice properties and probably other assets as well, or a raising capacity, it's common to offset. So you're not actually sharing the company, but you are working out what her value is and actually just giving her a lump sum with the transfer of the shares to the people in the company. It's not ideal for any situation if the company doesn't know what happens on divorce, which is why it can be sensible to have a post-nub or to have a shareholders agreement dealing with what happens in the event of divorce, because it can obviously disrupt the running of the company and it's commonplace in due diligence perhaps for investors or people that are joining the company to know whether or not there is a divorce in situ and that may put them off doing so. So it is very important and planning in advance can be very helpful for companies.
Speaker 1:Tell me about the timing. Does one have to separate for a period of time before divorce?
Speaker 2:Okay, so in England it's an awful system for divorce. You don't have to say anyone's done anything wrong. You only have to prove that you have jurisdiction to bring proceedings, and in this case, maria could bring proceedings against Nicholas anytime because he would be the respondent in the proceedings Similarly Maria's here so he could issue against her here, but I don't think he'd want to. In this country we don't have to have a period of separation. You have to be married for 12 months, and that's the only issue.
Speaker 2:In Austria, I believe, although I'm not an Austrian lawyer, it might well be the case that you have to wait six months after separation before you can start proceedings there. So you can see that one party already has a time advantage in relation to where they can issue and how quickly they have to issue. So all of this is why it's very important to have Austrian advice as well as English advice, and given that they are planning to move to Austria at some point in the future, at the moment they also need to look at this now if they're doing any kind of post-num.
Speaker 1:If Maria wanted to go back to Austria, for example, with the children, can I try and make sure that the children stay in the UK, for example, if I happen to want to stay in the UK?
Speaker 2:Well, maria would need your permission or a court order to move permanently from England to Austria with the children, because at the moment you are living here and you have parental responsibility and you therefore have to have permission to do that. So she couldn't just take the children. With your permission, she could do so and there would have to be arrangements for seeing the children. In that context, the more you travel back and forth between Austria and England, the greater the chance that the court might think it doesn't have such a bearing on the children's lives if one parent is living in England and one is in Austria. But it's huge factors to take into account for relocation and she must not, or he must not, leave with the children without the other one's permission. She must recognise its child abduction and it's likely to be brought back with the children to answer to the court and to make a formal relocation application.
Speaker 1:What about custody? Who has custody and these divorce situations?
Speaker 2:In England, the starting point is sharing the arrangements with the children, but not necessarily 50-50. It's what's in the children's best interests when it comes to determining what contact should be given or what time with the other parent should be given with whom they should live. It isn't unusual to have a lives with order in England, but on a different time basis to suit the children and indeed the adults who may have other commitments during the week.
Speaker 1:So it's not just weekends, for example, for fathers.
Speaker 2:Not unless that's what they agree and a couple can agree anything and the courts favour people agreeing something rather than having an order, because it's much more likely to be implemented that way. It very much depends on the children, their ages, what their needs are and what suits those particular children. So if you can't agree it and you are encouraged quite strongly to do so then there are proceedings that can be brought in court for a court to assess what those arrangements should be. And I'll guess another impact on the finances in that respect is that if somebody is sharing the care equally with the children, the level of child maintenance will be impacted because they're both spending money looking after the children for certain periods of the week.
Speaker 1:How has child maintenance worked out actually in this situation?
Speaker 2:In this situation if they're both living in England still, the child maintenance service would apply, but because Nicholas is likely to be earning over the income threshold for child maintenance service, it doesn't automatically apply. However, increasingly the courts are now looking at using a formula which one of the High Court judges has recently put together, which does a formula beyond the CMS threshold so that you're not spending a lot of time working out how much you need for the children. You are still basing it on a formulaic approach. It's got adjustments for the number of children and things like that, but that is being used quite a lot in cases at the moment. Otherwise, it's the court looking through budgets and working out what the children need. School fees would also be payable in this case.
Speaker 1:Okay, and I mean knowing without offence, knowing how adversarial lawyers can be. Is there a way of watering down that adversarial way through mediation or something like that?
Speaker 2:There's all sorts of different ways of trying to sort things out and actually family lawyers try not to be adversarial, although we do in a sense litigate.
Speaker 2:We don't litigate in the same way as a civil litigator, or certainly shouldn't, because we have got a family to think about and in particular the children. So there are all sorts of alternative ways of resolving matters either through solicitor correspondence or through mediation, which is obviously not binding and still requires a consent, and you can have lawyers in the background advising on the offers that are made in mediation. You can have an early and neutral evaluation by a judge who will look at your case and say what they think the outcome should be, and that can help to get people closer together towards a settlement. And you can also have arbitration, which has only recently come in and for family cases and is being gradually used more and more because it's saving on court time. It means you can use your judge to determine interlocutory issues. If you've got a sticking point on a particular aspect, that can be dealt with first, that sort of thing. So there are all sorts of other ways in which people can actually resolve matters between them.
Speaker 1:Arbitration is binding.
Speaker 2:So you would elect for a particular private judge, if I call them that, but they're usually a barrister, or a retired judge, or a barrister that sits as a judge, something like that sometimes solicitors too and you would ask them to make a decision, a determination, and you would agree to be bound by that determination, which can then be made into a consent order at court and implemented in the same way, and that is proving to be quite useful, although it's really only taking off gradually, just as mediation did, and has taken quite a while, in fact, to get going.
Speaker 1:Although it sounds like Maria and I have not been getting on, we have actually. I mean, we are childhood three tarts, as you said. It's just that, you know, because I've been travelling around the world so much and Maria's getting a little bit fed up and you know I'm a bit concerned about the future, so that's why I've been asking these questions. But basically, can we have an amicable divorce, if you like? That's really the bottom line.
Speaker 2:Well, it's entirely up to the two of you and it depends what the situation is at the time. The beauty of doing something like a post-nut whilst you're in a situation, or a pre-nut when you're still very much you know together, means that you can look at it more rationally, perhaps more unbiased, without the emotion that goes with a situation where you may have decided to separate. Of course, something was separated in a very calm way anyway and it just, you know, it fizzles out and they decide to go separate ways. But my experience and obviously I see more of the contentious cases is that invariably one is a little bit more angry about the situation than the other one, or is more upset or is not quite as ready for a separation as the other one. You may have been thinking about it for longer. So in those circumstances you are dealing with emotional situations and therefore it's harder to see things in quite such an objective way.
Speaker 2:And that is the benefit of coming to see me at this point, when everything's fine, just to ask what would happen if? What would happen if we separated? What would happen if we moved? You know, what would happen with the children and the finances? All of those questions can be looked at.
Speaker 2:You also want to perhaps consider immigration issues, depending on immigration status not necessarily in your case, but in other cases you could be dependent on one's spouse and if you start divorce proceedings, that could mean that they can't stay in the country. So there's all sorts of things that you have to think about, and having a precautionary if you like type meeting can be incredibly useful and means you can then plan, because what you can't do with a divorce is suddenly find your divorcing and start moving assets because they can be undone. Those transfers can be undone or you can have them added back into the pot because they've been done on the basis of trying to limit the outcome for the other party. So you do need to think in advance, and it's sensible to do so whilst you're all calm and happy with the situation and hopefully you'll never have to use it.
Speaker 1:That's brilliant. Thank you very much, lucy. That was really really well explained, and thank you for joining me today. I'm sure Nicholas would be extremely grateful for those insights and you might have some more questions for you when we meet again on the 23rd of May at the IBSA annual conference. The details are on our website at theibsaorg. So I'm now going to change back again from Nicholas to Roy Saunders. I'll conclude this podcast by obviously thanking you, lucy, again, and thank you to our listeners for listening.
Speaker 2:Thank you.