Unwinding Multinational Estate Plans in Divorce
While affluent families historically have focused their planning on estate and inheritance taxes, divorce is becoming an equal, if not greater, threat to family wealth preservation.
It's critical that affluent families fully understand the typical problems that arise from the mismatch between common cross-border estate plans. Here are five challenges they might encounter:
The different treatment of forms of ownership from one country to another can yield some surprising results. It is critical to thoroughly explore even seemingly straightforward financial details during the divorce process, and is especially important to involve foreign counsel with expertise in tax and estate planning if there are non-U.S. assets or other foreign connections.
Some of the biggest surprises in divorces occur when one or both spouses have trusts and/or other structures that were established in a different country than the one they're living in at the time of the divorce. Although courts in one country can enforce the legal norms of another country, there must be sufficient nexus and the result can't be contrary to public policy.
One of the most controversial issues in divorce is how to treat assets in trusts that have been set up by third parties to benefit one or both spouses. In decisions about both property settlements and maintenance, outcomes vary from complete inclusion in the marital pot to no inclusion whatsoever.
When the divorce proceedings are taking place in a country other than where the trust is based, should the trustee participate, and if so, to what extent? Does participating mean submitting to the jurisdiction of a foreign court? There are both dangers and advantages to being involved.
In a divorce, the treatment of privately held companies is no more certain than that of trusts. The legal separation created by tiered corporate structures is not always respected when a divorce enters the picture.
The laws and practices of a country — and sometimes even a province or state within a country — can have a major effect on the outcome of a divorce. In many cases, spouses race to start divorce proceedings in the country of their choice rather than allow the other spouse to select the jurisdiction that suits their purposes.
Limiting control by a trust beneficiary or limited partner is an important first step to limiting the risk that the divorcing family member's interest will be considered "property."
Care must also be taken to reduce the opportunity for family law courts to find ways to access assets in fully discretionary family trusts and family companies with independent trustees and directors.
This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.
The Bank of New York Mellon, DIFC Branch (the “Authorized Firm”) is communicating these materials on behalf of The Bank of New York Mellon. The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation. This material is intended for Professional Clients only and no other person should act upon it. The Authorized Firm is regulated by the Dubai Financial Services Authority and is located at Dubai International Financial Centre, The Exchange Building 5 North, Level 6, Room 601, P.O. Box 506723, Dubai, UAE. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the Federal Reserve and authorized by the Prudential Regulation Authority. The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The Bank of New York Mellon is incorporated with limited liability in the State of New York, USA. Head Office: 240 Greenwich Street, New York, NY, 10286, USA. In the U.K. a number of the services associated with BNY Mellon Wealth Management’s Family Office Services– International are provided through The Bank of New York Mellon, London Branch, One Canada Square, London, E14 5AL. The London Branch is registered in England and Wales with FC No. 005522 and BR000818. Investment management services are offered through BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, One Canada Square, London E14 5AL, which is registered in England No. 1118580 and is authorized and regulated by the Financial Conduct Authority. Offshore trust and administration services are through BNY Mellon Trust Company (Cayman) Ltd. This document is issued in the U.K. by The Bank of New York Mellon. In the United States the information provided within this document is for use by professional investors. This material is a financial promotion in the UK and EMEA. This material, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such. BNY Mellon Fund Services (Ireland) Limited is regulated by the Central Bank of Ireland BNY Mellon Investment Servicing (International) Limited is regulated by the Central Bank of Ireland.
Trademarks and logos belong to their respective owners.
BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation.
The information in this paper is as of March 2022.
© 2022 The Bank of New York Mellon Corporation. All rights reserved. WM-253559