In the recent case of Slutsker v Haron Investments Limited and Summit Trustees (Cayman) Limited, the Court of Appeal dismissed the husband’s claim to a beneficial interest in the parties’ family home in London.

The parties were Russian and the divorce and financial proceedings were ongoing in that country.  The husband brought a claim before the English court (litigation was also taking place in Cayman Islands and Russia) for a half share in the family’s London home.

The property in London was originally purchased (using both parties’ money) in the name of first defendant, Haron Investments Limited. At the wife’s request, Haron declared that it held property on trust for the second defendant, Summit Trustees (Cayman) Limited, who in turn held it on trust for a further trust, called the Misha trust. Prior to the breakdown of the marriage, the beneficiaries of the Misha trust were the husband, the wife and their children. At the breakdown of the marriage, however, Summit exercised its discretionary power under the trust to exclude the husband as a beneficiary, thereby disentitling him to £20m.

The husband contended that, during the marriage, their property was subject to the matrimonial property regime of the law of the Russian Federation (ie using Russian law) and, therefore, the money used to purchase the property was owned by the husband and wife equally. He sought to trace his half share of the money into the property held by Haron on a resulting trust basis (i.e. using English law).

The wife challenged this argument, stating that Russian law should be applied throughout, rather than using English trust principles upon which the husband now asserted a half share. Further, she argued that, in accordance with Russian law, as the husband had consented to the creation of the trust (or at least hadn’t challenged the disposition within the required time frame), he knew that the trust structure would dictate the basis upon which the beneficial interest would be held.

The Judge agreed with the wife and held that the beneficial ownership of the property was dictated by the trust, which had recently excluded the husband. The husband’s claim to 50% of the value of the property was therefore unsuccessful.

Parties beware

This is not the first time we have seen the court reach a decision resulting in the exclusion of assets from the ‘pot’ to be divided on the breakdown of a marriage. In the Court of Appeal decision in Petrodel Resources Ltd & Ors v Prest & Ors [2012] EWCA Civ 1395, a case in which a Supreme Court decision is currently awaited, it was held that the court had no jurisdiction to make orders transferring properties which were held by a number of companies, despite the fact that some of the companies were owned and controlled by the husband. See also our previous blog on this case, “Is it two nil to the non discloser?”.

There are a number of reasons why people might create company or trust structures for the purpose of holding assets. These structures can be beneficial for many reasons but, as can be seen from the above cases, parties to a marriage or civil partnership must also be aware that deciding to hold assets in this way might have the effect of excluding them from the matrimonial pot entirely.  In cases where the value of the asset held on trust is significant, it can have a huge impact on the resources available for division at the end of the relationship.