A Victory for Trust Situs Under the Hague Convention

In what several newspapers billed as the world’s most expensive divorce, a local court in Geneva awarded a judgment of some $4 billion to Elena Rybolovleva against her husband, Dmitry. The court took issue with the fact that Dmitry had used an offshore asset-protection trust to hold roughly $8 billion in business and investment assets beyond the reach of his wife and her divorce lawyers. Applying Geneva marriage law to Swiss residents, the court disregarded the trust entirely, treated its assets as owned by Dmitry, folded them into his net worth, and awarded his wife half.

On appeal, the Geneva court reversed. Observing that Switzerland is a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition and has codified its pertinent provisions into Swiss civil law, the appeals court held that jurisdiction over the trust properly resided in the jurisdiction of administration — offshore — rather than in Switzerland. Noting that the trust had been funded for legitimate estate-planning purposes well before the divorce, the court held that the wife would first have to obtain a judgment against the trust in the offshore jurisdiction before resorting to the Swiss courts to enforce it.

The decision conforms to the situs analysis that has long informed sound trust planning. Implementing an asset-protection trust in a leading jurisdiction such as Belize or Nevis offers a heightened degree of certainty, shielding client assets from frivolous claims and unanticipated liabilities. Where a recognizing forum applies the Hague Convention, that protection is reinforced: the creditor must first prevail in the jurisdiction of the trust before laying claim to trust assets elsewhere.