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Protection Of Family Assets In The Event Of Divorce

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Protection Of Family Assets In The Event Of Divorce
A new initiative in trust law 
The divorce or separation of HNW couples routinely leads to the breakup of their assets. This is often an acrimonious process driven by mistrust at a time of heightened emotions. The negative impact of this process on the value of the assets can be substantial, particularly where a family business is involved. Prenuptial agreements may be used in an attempt to limit the extent of the potential damage resulting from a divorce, but these remain subject to scrutiny by matrimonial courts.
It is also implicit in a prenup that the assets end up being split up between the parties, rather than kept intact.  Family trusts are also used in an attempt to insulate family assets from the impact of a divorce. However, trust assets are now routinely treated as part of the matrimonial property, to be divided and distributed between the parties. The existence of a trust as a separate legal entity, and the interests of its beneficiaries, are, more often than not, ignored by matrimonial courts.

The International Relationship Property Act (2021) (“the Act”) is a new and unique initiative providing statutory authority for couples who wish to keep assets they choose intact under common management in the event that they separate or divorce.  The Act does not attempt to enter the fray as to what is and what is not matrimonial property, nor as to what entitlements the parties might have to that property. The Act deals only with assets which the parties have agreed are matrimonial property.
It provides a statutory regime under which in the event the parties separate, assets held by a relationship property trust (RPT) must be held intact and remain upon the trusts declared, and must not be divided and distributed in the event the parties separate unless (and to the extent) the trust instrument provides otherwise.There is nothing stopping the parties including a restriction of this type in a standard deed of trust. What is unique to the Act however, and to the Cook Islands, is that the Act provides legislative authority for this restriction, and reinforces it with a comprehensive regime to give a certainty to the parties.

 

Principal features
The principal features of the Act are;

1 The Act applies to parties who declare themselves to be in a “relationship”, and is not restricted to marriage partners.
2 The parties select the property, and their respective shares, in the relationship property.
3 The Act sets out clear prerequisites for establishing a RPT including; a) independent representation, and b) full disclosure of assets and income.
4 Parties are given a period after execution to ratify, or opt out of the agreement
5 The right of a party to challenge the terms at a later date is restricted, as are remedies available upon a successful challenge.
6 Recognition of foreign judgements inconsistent with the principles of the Act are restricted.

 

Family business
The Act recognises a special category of property being a family-owned business. The forced sale of ownership interests in a family business can be catastrophic to both its value, and the interests of the beneficiaries, often resulting in the collapse of the business. Financial institutions lending to a family business must take this risk into consideration. In response to this problem the Act makes special provision for the retention of a family business. It is also recognised that it may be in the best interests of the beneficiaries if management of a family business by a spouse, who is a key person, continues after divorce or separation.

 

Marketing issues
The Act is designed primarily to appeal to married couples in jurisdictions where the norm is to dismember a trust upon divorce. It is not an alternative to a prenup which is designed to divide and distribute assets. An RPT might be used where a recently married couple is just starting out and believe their joint efforts should be held for them and their issue without exception. Or where there is a 2nd marriage with different families. An RPT might also be used where matrimonial property is subject to the laws of more than one jurisdiction. Where parties are not married, (or are not able to be married) an RPT can fill a useful purpose. An RPT can ensure succession of ownership of a family business as well as provide a higher level of security for lenders.

 

Summary
The Act gives planners a new tool with which to protect the assets of high-net-worth families. It creates a legislative regime which reinforces traditional concepts of trust law while complying with principles of matrimonial property law which allow parties to enter into agreements addressing property rights in the event of their divorce.  The regime is responsible, balanced and protective of a subordinate party. The requirements for disclosure and independent representation prior to entering into a RPT follow those set out in the Uniform Premarital and Marital Agreement Act, (US Federal) as well as principles of English common law. Specific provisions address areas of possible abuse. Finally, the Act is constructive socially, with an emphasis on retaining social cohesion and traditional family values. It is anticipated foreign courts will recognise the merits of this return to traditional trust principles.

 

Banking in the Cook Islands
There are four banks currently licensed to provide banking in the Cook Islands, and there are two types of banking licenses. ‘Domestic’ is for residents and ‘International’ is for people or entities not resident in the Cook Islands. Banks are required to meet the requirements of the Banking Act 2011, together with the obligations under the FSC’s Prudential Standards. Capital Security Bank (CSB), meanwhile, is the only bank that utilizes its International License to provide investment banking services to non-resident clients. Banking in the Cook Islands with CSB provides its clients with several safeguards to protect their assets, since it has vigorous internal policies and procedures, which are aligned to the Cook Islands legislative and regulatory frameworks. CSB clients can be comfortable in the knowledge that their assets are being managed and protected in line with internationally recognized banking standards.

 

Banking with Capital Security Bank
With over 20 years in business, CSB is a full-service investment bank and provides banking services to individuals and entities from around the world, with the ability to open accounts remotely, such that there is no need to travel to the Cook Islands in person. Offering self-directed Online Securities Trading and custody services, CSB gives its clients access to a broad range of global exchanges and investment opportunities, such as stocks, bonds, mutual funds, exchange traded funds and options. CSB also provides Managed Investment Accounts, Term Deposits, Foreign Exchange, and Bullion Storage. Establishing an investment account with CSB is a simple process and this is what our clients tell us too.

 

The three-step process is as follows:

1. Register using our online form, following the instructions, and providing the required due diligence.
2. Once approved add funds quickly and securely to your new account via a bank transfer.
3. Start trading online with access to more than 40 global exchanges across most asset classes.
Capital security bank
For more information on CSB, contact one of our professional Banking Team on info@capitalsecuritybank.com or view our website on www.capitalsecuritybank.com