When considering a trust structure for the express purpose of asset protection within family succession planning, the prospect of divorce is never far from the settlor's or draftsperson's mind. Divorce is a costly undertaking and never more so than when consideration must be given to offshore trust assets and the role of a trustee. Combined with the additional possibility of a successful claim against trust property, the cost has the potential to wipe out the anticipated benefit to future generations.

It is therefore imperative that asset protection structures are established in such a way as to minimise:

  • the risk of being drawn into divorce proceedings; or
  • the involvement of the trustee and the trust assets where such proceedings are unavoidable.

Fortunately, the Guernsey fiduciary sector is experienced in dealing with foreign law divorce proceedings and Guernsey trust legislation and jurisprudence is sufficiently sophisticated to withstand foreign law pressures.

For purely discretionary trusts, it can be relatively simple to mitigate the risks by, for example:

  • ensuring that spouses of the beneficiaries are not themselves beneficiaries; and
  • limiting the beneficiaries' rights to both trust assets and trust information so far as the law permits.

While these measures will not prevent foreign divorce proceedings affecting a trustee, early engagement by the trustee may ensure that their involvement is kept to a minimum while preserving trust assets.

Other factors will arise where, for example, fixed interest trusts are involved or one or both parties to a divorce are settlors of offshore trusts. However, there are methods of mitigating the risk of exposure to foreign divorce litigation suitable to a multitude of modern dynastic planning circumstances. Where litigation does arise, the trustee will need to take early advice to ensure that their action (or inaction) does not prejudice the interests of beneficiaries.

In addition to the more traditional approaches described above, Guernsey is also experiencing increased instances of the use of pre and post-nuptial agreements to set out the circumstances in which trust assets may be considered in any future settlement. The extent to which such agreements may bind trustees in the future remains to be seen but, in theory, it is an added layer of protection which further minimises the risk of trustees' involvement in litigation.