The ultimate guide to high net worth and ultra high net worth divorces

    The ultimate guide to high net worth and ultra high net worth divorces

    Vardags has vast experience acting in high net worth and ultra high net worth divorces in England and Wales. High net worth (HNW) divorces are rarely straightforward. They typically involve consideration of company valuations, international trusts, and jurisdiction disputes, among many other complex issues.

    We have market-leading expertise and ability. Our unique financial forensic department is able to value private companies, interpret complex remuneration schemes and find hidden assets. Our elite legal team is able to deploy the most cutting-edge legal arguments, having acted in many of the most important recent decisions in the Supreme Court, the Court of Appeal and the High Court.

    Normal vs high net worth divorce

    High net worth divorces typically raise highly complex legal and commercial issues that demand expert legal advice and representation.

    The assets

    In high net worth divorce, assets are often held in complex structures that present unique difficulties.

    Trusts in high net worth divorce

    High net worth divorces often involve trusts. Significant amounts of the parties’ wealth can be tied up in trusts; consequently, how the trust assets are treated can have a critical impact on the outcome of the case. Attacking and defending both onshore and offshore trusts is a difficult process.

    Spouses without an interest in or access to the trust interests of the other spouse can argue that the trust is a financial resource that should be taken into account on divorce, or that the trust possesses a nuptial element that means it is capable of variation in favour of the parties and/or the children of the family.

    Obtaining disclosure about trusts can be a difficult process. If the trust is located in England and Wales, a request can be made to the trustees to provide documentation about the trust. The position becomes more complex if a trust is located offshore. On receipt of a similar disclosure request, the trustees of an offshore trust may respond in a number of ways. They may respond positively with the requested information. Alternatively, they could decide to seek the advice of their home court before making any decision about disclosure. In some situations, the trustees may not respond at all. Court applications may need to be made for disclosure (in the English court or in an offshore jurisdiction’s court), or the English court may need to be asked to make inferences about the nature and scale of a trust.

    The exact issues facing a high net worth spouse seeking to gain access to, or protect, trust assets depends on the type of trust they are faced with. For example, where a spouse is a potential beneficiary under a valid discretionary trust, the court cannot force the trustees to make any dispositions to the same spouse. At most, the court can request and provide encouragement that the trustees act in a certain way.

    Achieving a favourable result in such circumstances may prove difficult where the same trustees simply refuse to comply with an order of the English court. It may be necessary to apply to the offshore court for a direction that the trustees comply with the English court’s order. Ultimately, however, there are no hard and fast rules about how to access (or how to best resist such attempts to access) trust assets on divorce.

    This highly complex area of law requires specialist advice at an early stage. The right presentation and strategy at the beginning of the case is vital. In Young v Young, Vardags acted for the wife. We successfully demonstrated that the husband had significant undisclosed resources, held in a number of offshore trust structures. This discovery dramatically increased the wealth available for distribution between the parties: whereas the husband maintained that he only had debts of £28 million, we convinced the court that his net worth was in fact £40 million.

    What happens to businesses in high net worth divorce?

    The most significant asset in high net worth divorces is often a privately-owned business.

    Valuing a private business is a difficult process. The position can be further complicated if, for example, the business is active and has assets around the world, all held in a complex web of inter-related onshore and offshore corporate and trust structures. Our in-house financial forensic team are, however, familiar with every trick in the book: they are able to shed light on the opaque ownership structure of a company, unravel complex financial structures and locate hidden company assets.

    Businesses can also be difficult to distribute on divorce. It may be impractical or impossible to sell the shares: they could, for example, be illiquid or one party may simply wish to retain the shares (e.g. if they possess and wish to continue to hold a controlling share in the business). In either scenario, the spouse who is to retain the shares may need to provide more of the parties’ liquid capital to the other spouse or raise the funds in another way (e.g. if the business is cash rich, a special dividend could be paid out to fund the award). In a more extreme scenario, it may prove impossible to fund an award in any way other than by selling a business.

    Companies and trustees of trusts, which may form the business or hold shares in it, can apply to be joined to divorce proceedings so as to best protect their own interests. Obtaining disclosure from these parties and the role that they play if successfully joined to proceedings can complicate matters further.

    The fate of a business is often one of, if not the most, important financial concerns for some spouses on divorce. We understand, however, that each family and individual has different priorities, and we know how to best negotiate with the other side to help you achieve the result that meets your personal and commercial objectives.

    Non-disclosure in high net worth divorce

    In high net worth divorces, the financial stakes are high. Some spouses may refuse to make full and frank disclosure of their financial position in an attempt to gain a financial advantage over the other spouse.

    Non-disclosure comes in many different forms. In the simplest case, a non-discloser may transfer funds from their disclosed bank accounts into other non-disclosed bank accounts. At the sharp end, non-disclosers may move their wealth offshore into a series of inter-linked corporate and trust structures.

    When necessary, applications to court for emergency remedies can be made. These include, for example, search orders which allow the applicant’s legal team to enter premises owned or occupied by the respondent spouse to look for important documentation. Applications can also be made for the committal of a non-disclosing spouse to prison. Where undisclosed assets are located and there is a risk that they might be (again) hidden or dissipated, the other spouse can apply for a freezing order to protect the assets (both for assets located within the jurisdiction or even worldwide).

    Where the scale of a spouse’s non-disclosure cannot be fully uncovered, at trial it may be necessary to ask the court to draw adverse inferences against the non-disclosing spouse about the true nature and scale of their wealth. Vardags have a strong track record of successfully persuading the court that a non-disclosing spouse has significant undisclosed resources.

    In Young v Young, we acted for the wife. The husband maintained that he was bankrupt and had debts of at least £28 million. We successfully persuaded the court that this was a fiction: at trial, the husband was found to have wealth of £40 million with the result that the wife was awarded £20 million.

    In Al-Baker v Al-Baker, we acted for the wife. The husband failed to comply with disclosure obligations and multiple court orders. Vardags successfully persuaded the judge at the trial that the husband had significant undisclosed resources, which resulted in the wife being awarded £61.5 million.

    Special considerations in high net worth divorce

    High net worth divorces involve special issues concerning the distribution of wealth.

    Definition of ‘needs’ for high net worth divorce

    In both high net worth and ordinary divorce cases, when dealing with a spouse’s financial remedy application, the court’s overall objective is to achieve a fair result.

    In many cases, this means that the court will try to meet the parties’ needs in a way that enables them to transition to independence to the extent that it is possible to do so in the circumstances.

    The courts have a very broad discretion when assessing what a spouse’s financial needs are. In high net worth cases, where the family have enjoyed a very high standard of living and there are substantial financial resources, the parties’ needs will be computed in a more generous way than in an ordinary divorce case. This can mean that the court determines a spouse ‘needs’ very large sums, which may run into the many millions of pounds.

    At Vardags, we regularly deal with high net worth cases involving significant incomes and large asset bases. We understand how to best deal with arguments concerning needs, both for the wealth-generator and the economically weaker spouse.

    Non-matrimonial property

    In high net worth divorces, arguments about whether assets should properly be classified as matrimonial or non-matrimonial will likely have a greater significance than in ordinary divorces.

    The general rule is that the court will not seek to share the non-matrimonial property of one spouse with the other spouse on divorce, unless the needs of the other spouse or any of the children of the family cannot be met from the parties’ matrimonial property alone. Where assets are limited, needs usually require the court to invade any non-matrimonial assets. In high net worth cases, spouses with non-matrimonial assets regularly engage in arguments about why these assets should not be shared on divorce.

    Non-matrimonial assets can take many forms. A property acquired before the marriage by one spouse that does not become the parties’ home will likely be classified as non-matrimonial. Similarly, an asset acquired after the parties’ separation (but before divorce) may well be found to be non-matrimonial in character because it falls outside the time of the marriage.

    In another scenario, the wealth of high net worth individuals may derive in whole or in part from their family. The origin of the wealth in such cases can justify a departure from equality, as such dynastic wealth is likely to be characterised as non-matrimonial property. The dynastic wealth may be held in a number of ways. If the wealth is held, for example, in long-established complex onshore and offshore trust structures, even greater complexity arises.

    What is special contribution on divorce?

    For ultra high net worth cases, where a spouse has generated significant wealth, they may argue that on divorce a departure from equality of division of the matrimonial capital should be ordered because they made a special and unmatched financial contribution to the marriage.

    This is a complex and fast-changing area of law. For the wealth-generator, it is notoriously difficult to successfully argue special contribution. The courts have, in recent years, shown a reluctance to find that one party has made a special contribution, even where the wealth generated runs into the hundreds of millions and, in one case, in excess of £1 billion. It is nonetheless vital for the economically weaker spouse to mount a robust defence to any special contribution argument. Where the parties have enormous wealth, even the smallest departure from equality can result in a gain or loss of millions, or even billions, of pounds.

    We understand this complex area of the law inside-out. In Chai v Peng, we acted for the wife. The husband was found at trial to have generated assets of £205 million. He argued that his special contribution justified a departure from equality in his favour. We successfully resisted the husband’s claim, and there was no departure from equality by reason of special contribution.

    International complications

    High net worth individuals often lead international lifestyles, which bring their own particular difficulties on divorce.

    Forum disputes

    Where the parties have connections to multiple jurisdictions, there can be a dispute about which is the right jurisdiction for the divorce to proceed in. The choice of one jurisdiction over another can, and often will, have enormous implications: whereas England and Wales is often hailed as ‘the divorce capital of the world’ for its broad powers to bring about a fair financial result on divorce, many other jurisdictions are inflexible or provide far less generous financial provision.

    If you or your spouse has connections with multiple jurisdictions, you need to act fast by taking early expert advice before then taking swift action to secure the most favourable jurisdiction for you.

    Vardags have a strong track record in helping their clients secure the most favourable jurisdiction. In Chai v Peng, we acted for the wife in a long-running and widely-reported jurisdiction dispute concerning whether the divorce should proceed in either England and Wales or Malaysia. We secured the English jurisdiction for the wife, which functioned as the first step on the road to her being awarded £64.5 million (a significantly better result than she would have secured had the divorce proceeded in Malaysia).

    Financial relief after an overseas divorce

    If you have divorced overseas and a financial order was made in the overseas court, you may be able to secure further financial provision in England and Wales. Under Part III of the Matrimonial & Family Proceedings Act 1984 the English court has the power to step in, in certain circumstances, and make the same financial orders as if the divorce had been granted in England.

    Vardags have acted in many of the recent reported decisions in this area. In Z v Z, for example, we acted for the wife. The husband was worth £33 million. The Russian court approved a financial agreement that provided the wife with USD $10 million in full and final settlement in “all countries of the world”. Nonetheless, we successfully obtained the English court’s permission to bring a Part III claim and thereafter the wife was awarded a further £3.6 million.