Estate planners may dismiss the recently reported Court of Appeal case of Slutsker* v Haron Investments Ltd & Another ( EWCA Civ 430) as one for divorce lawyers only. However, for anyone engaged in setting up trusts or other wealth structuring vehicles, the case is an intriguing one.
The facts; in brief. In 2000, with the help of her solicitors, Mrs Slutsker purchased a London property for £6,000,000. She was married at the time and the property was bought as a residence for herself and her young children while they attended school in London. Haron Investments Ltd, as Mrs Slutsker’s nominee, purchased the property on her behalf and then later, at Mrs Slutsker’s direction, declared that it held the property on trust for the trustee of a Cayman Islands discretionary trust, from which Mrs Slutsker, her husband and the children could benefit. All appeared well until Mr and Mrs Slutsker divorced in Russia in 2009 and Mr Slutsker claimed that half of the property was held on a resulting trust for himself.
The deposit for the property purchase was sent from a Swiss bank account in Mrs Slutsker’s sole name. Mrs Slutsker was the sole settlor of the trust. Mr Slutsker was also excluded from benefiting from the trust during the divorce process. So how could Mr Slutsker say he had a beneficial interest in the property? In part, his argument rested on Russian matrimonial property law and the fact that, in the case of the Slutskers’ marriage, property acquired by either spouse during the marriage was jointly owned. In other words, the Russian matrimonial property regime provided a base on which a claim to trace into the trust assets was attempted. English Private International law regards a married couple’s rights to each other’s movable property (e.g. bank account funds) as being governed by the law of the matrimonial domicile.
Mr Slutsker did not succeed with this argument (if you have to know why, read the case!). However, the case poses some questions. How many times (other than for anti-money laundering compliance purposes) do advisers ask questions about who in fact owns the assets being settled into trust? Should advisers be asking partners, married or unmarried, to confirm who they believe beneficially owns the assets to be settled, even if only instructed by one of the partners? Or seek consent from both partners to a disposition by one of the partners only? Should advisers be expected to ask about foreign matrimonial property regimes? The CA judgment does not answer these questions but, perhaps tellingly, the solicitors who bought the property faced no criticism for their handling of the case (though they were advising the couple on the wealth management structure generally, and by this means they kept Mr Slutsker informed of the proposed trust structure).
The case gives food for thought for any adviser pondering what ‘due diligence’ needs to be done when arranging for assets to be transferred into wealth management structures.