Dear Clients, Colleagues, and Friends,
Life is unpredictable.
For instance, the financial pitfalls of a catastrophic divorce can throw devastating curveballs to even the wealthiest titans of industry.
Here is one such story:
Russian oligarch and French soccer club AS Monaco owner Dmitry Rybolovlev met his wife almost 30 years ago when they were both students in the Ural Mountains.
Mrs. Rybolovlev was Dmitry’s steadfast supporter as he rose from doctor to entrepreneur to chairman and majority shareholder of the fertilizer company Uralkal. She stayed by his side when he was accused of murdering a competitor and served 11 months in jail (before the charges were finally dropped), and even stuck it out when threats on his life forced him to wear a bullet-proof vest and move his family to Switzerland.
Mr. Rybolovlev was reported to be stunned when his accounts were frozen on New Year’s Eve 2008 due to Mrs. Rybolovlev’s unexpected divorce petition. In that petition, the then Mrs. Rybolovlev said she could no longer take Dmitry’s infidelities, alleging parties on yachts where, she said, he shared “young conquests with his friends, and other oligarchs.”
Six long, contentious years later, a Swiss court ordered Mr. Rybolovlev to pay half his fortune – approximately $4.4 billion – to his former wife. This staggering sum dwarfed the previous most expensive divorce when art heir Alec Wildenstein forked over $2.5 billion to his ex-wife Jocelyn. However, in Mr. Rybolovlev’s case in June 2015, a Swiss Appeals Court in Geneva significantly reduced the $4.4 billion award to a much more reasonable $604 million.
The reason for this multi-billion dollar savings?
Mr. Rybolovlev’s strategic use of an offshore trust in which he placed a substantial portion of his estate for his two daughters.
How do offshore trusts work?
An offshore trust is very similar to a regular trust, except that it is formed under the laws of a country that has significant trust protection rules in place. Generally, the creator of the trust, known as the “settlor,” transfers assets to a trustee in a foreign jurisdiction to manage those assets for the beneficiaries for whom the trust is formed. Worldwide, there are only a handful of jurisdictions that should be considered for the establishment of such trusts, and an experienced attorney can help determine the proper jurisdiction for your needs.
The biggest benefit of forming an offshore trust is that certain litigants find it extremely difficult to claim ownership of the assets inside the trust.
Mr. Rybolovlev’s case is a classic example of how offshore trusts protect your assets.
Prior to his wife’s initiation of divorce proceedings, Mr. Rybolovlev formed a foreign trust fund for his daughters to compliment his estate planning. The trust was set up to ensure the transmission of his estate to future generations and to make sure his daughters were taken care of should anything happen to him.
During divorce proceedings, the lower Swiss court applied Swiss law under which Mr. Rybolovlev’s wife was entitled to half of his fortune. The Swiss appeals court overturned that decision, instead applying the law of the foreign country in which the trust was formed, which stated that for litigation and divorce purposes, the funds in the trust were no longer part of Mr. Rybolovlev’s assets. The court found that under the laws of the foreign jurisdiction, the trust’s significant funds technically belonged to his daughters, and not to Mr. or Mrs. Rybolovlev. This finding prevented Mrs. Rybolovlev from diverting her daughters’ fortunes to herself.
Dmitry Rybolovlev came within a whisker of having the most expensive divorce in history; however, with a well-designed offshore trust established in coordination with his estate planning, Mr. Rybolovlev was able to limit his divorce exposure. Had he not implemented a foreign trust structure, he would have lost 50% of his multi-billion dollar estate to his ex-wife.
The teaching moment:
A $4.4B judgement to a $604M judgment is a huge savings, all due to the significant asset protection afforded by a foreign trust.
While most of us will never have to worry about asset protection on this multi-billion-dollar scale, the same type of asset protection plan that Dmitry Rybolovlev put into place is available, even for smaller estates. Using an offshore trust to protect your assets may make the difference between lifelong prosperity and financial insolvency.
Do you have a foreign trust? Before the unpredictability of life throws you a curveball, maybe it’s time to discuss getting one.