IOM Offshore Trusts and Divorce

Couple in a strop with each other

What Happens to my Trust if I Get Divorced?

While we all have intentions to stay with our partner 'til death do us part, relationships do go wrong. So if you end up in the divorce courts you need to consider any effect on your IOM trust arrangements.

Much will depend on where the divorce takes place. But if, for example, you are living in France, have your wealth tied up in an IOM trust but proceed with your divorce in the UK then, increasingly, you may find that English courts are questioning large trust structures. “It's quite common nowadays to have a large trust established offshore, and then the divorce proceeds in London, as it is typically seen as the divorce capital because of the 50/50 division,” explains John Rimmer, chairman of the Isle of Man's Society of Trust and Estate Practitioners (STEP) and a partner with IOM law firm, Appleby. Generally speaking so long as the trust has not been set up specifically to avoid paying out divorce settlements or creditors, there should not be any problem according to Rimmer. This increasing propensity to question the motives of large trust structures is a consequence of problems related to asset protection trusts popular 15 to 20 years ago, when it was common for US doctors to tie up their wealth in trusts to avoid being sued, says Rimmer.

The position in the IOM is if you make a fraudulent transfer into trust then the trust is void. For bone fide trust establishment there is, however, protection. “We have what we call firewall legislation that limits the interference that a UK or another court can have on trusts governed by Manx law. In all reputable jurisdictions you'll find that the courts are not going to allow someone to perpetuate a fraud in any way, but there's undoubtedly still a measure of protection in having assets established through an offshore trust,” he explains. So as long as the motives of the setting up a trust are clearly about making provision for your family in the future in the most tax efficient way, you have no call to worry.