How are offshore assets treated in a divorce?

In high-net-worth divorce cases, overseas assets often include valuables such as properties, businesses and investments and such situations tend to crop up quite often. The parties may have spent long periods abroad which led them to open a foreign bank account, buy a home or purchase a vehicle. Alternatively, they may have also made additional acquisitions such as shares, investments and business interests which need to be considered.

Common offshore assets include:

• Holiday homes and second homes
• Investment portfolios
• Overseas trusts
• Businesses

To be subject to the sharing principle on divorce, an offshore asset should be part of the couple’s "matrimonial property". This generally means an asset that was acquired during the marriage and/or enjoyed by both parties during the marriage. Property that was acquired by one party before the marriage, or that was inherited by one party before or even during the marriage may be excluded from consideration; however, each case will be considered in its specific context to ensure fairness and the cross-check of needs ultimately means that even non-matrimonial offshore assets may have to be invaded.

Issues with offshore assets in divorce situations:

The division of offshore assets is more challenging than domestic assets, even in a straightforward divorce. This is because of the differing legal and tax rules that apply in other jurisdictions. Post-Brexit, this can be the case even where an asset is located in a nearby EU country.

These challenges increase with the number of offshore assets held, the type of offshore asset (e.g. whether it is a holiday home or financial interest in an offshore corporation), and the degree to which the owning party or parties are willing to cooperate with disclosure early in the proceedings.

Further complexities include disclosure issues, delays, increased legal costs, valuation issues and additional court orders required for the enforcement of the overseas orders.

How are offshore assets valued?

Proper and professional valuation is an essential part of divorce proceedings to ensure that assets are divided fairly between the parties. Otherwise, there may be real risks of unfair division, reasons to challenge orders, and reopen proceedings later down the line.

The recommended route for the valuation of assets, particularly in a high-value divorce, is for the parties to appoint an expert jointly. This increases transparency and reduces the risk of conflict. In the case of offshore assets, it will often be necessary to engage valuation experts from the relevant jurisdiction, whether these are local real estate agents for an overseas property, or - for more complex corporations or trusts - expert accountants familiar with the jurisdiction’s legal and tax rules.

How are offshore assets divided?

Offshore assets are treated like any other asset in a divorce. The default position for the division of matrimonial assets is an equal split between the couple. This may, however, be varied depending upon a number of factors, including needs. If the wealth tied up in offshore assets is difficult to release, it may be open to the court to award a greater share of domestic assets to the other party.

Dealing with non-disclosure issues:

Full and frank disclosure of each of the party’s financial resources is one of the fundamental steps in a divorce process, whether the divorce is taking place on a voluntary basisor proceeding through the court.

Unfortunately, a party may take steps to conceal the full extent of their assets. This can be particularly common in acrimonious and high-value divorce proceedings where one partner primarily manages the couple’s money, owns a business (particularly an overseas business) or has a significantly higher income. Non-disclosure is a serious issue and may result in a lesser financial settlement for the guilty party and, in more serious cases, in an order for contempt of court which can carry a prison sentence.

Engaging a professional forensic accounting expert in these cases can be invaluable as they can:

• Closely examine financial statements and other documents for detailed information/inconsistencies
• Uncover and trace disguised assets at home and overseas
• Prepare accurate estimates and valuations

Enforcement of orders abroad:

If you are getting divorced in England or Wales, assets such as real property, money or investments located overseas are treated like any other assets for the purposes of financial settlements. UK courts can make orders in relation to offshore assets, including orders to compel disclosure of the details of offshore assets, orders to freeze offshore assets to prevent dissipation, and orders for transfer of assets.

Problems can arise when overseas jurisdictions do not recognise these UK court orders, and there are challenges concerning enforcement. Since Brexit, orders made by the Family Court in England and Wales are no longer automatically recognised in EU jurisdictions; therefore, parties will need to seek advice early about jurisdiction and enforceability in a divorce process.

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