Day Conference: Trusts and Estates, Divorce Problem -

Day Conference: Trusts and Estates, Divorce Problem

The Rostovs
Ilya and Natalya Rostov married in Moscow in 1995. They moved to London the following year and have made London their main home ever since. Since 1998 they have lived in a large house in Belgravia. The have two children, Nikolai and Sofia, both of whom are young adults. They are studying in the US but live in the family home in London during their holidays.
Ilya moved out of the matrimonial home in early 2018 and Natalya (who is 43) has petitioned for divorce and applied for financial provision from Ilya. She has no assets other than her jewellery and her share of the contents of the various matrimonial homes. She claims to be entitled to a half share of the matrimonial assets. Her form E indicates she needs £10m to re-house and an income of £350,000 pa net to maintain the lifestyle she enjoyed during the marriage. Natalya has applied under s 24(1)(c) Matrimonial Causes Act 1973 for an order varying a settlement known as the Diamond Settlement.
Ilya’s father, Ivan (now aged 90), is an immensely wealthy man who has been very generous to his children over the years. Dismayed by the failure of Ilya’s first marriage, Ivan insisted that Ilya settle all his wealth (much of which had been given to him by Ivan) into a trust and that he be one of the trustees.
In accordance with his father’s wishes, in 1993, shortly before he met Natalya, Ilya created a settlement governed by Bermudan law known as the Diamond Settlement. Ilya transferred almost all of his then wealth to a Bermudan holding company (B Co) which he established. All the shares of B Co were then settled by Ilya into the Diamond Settlement. The initial trustees of the Settlement were Ilya and Ivan. In around 2000 Ivan retired as a trustee and was replaced by a Bermudan trust company (BTC).
When Natalya met Ilya he was in the process of establishing a new business exporting minerals from Russia. Within 2 or 3 years this business was making a large income for Ilya which he used to support the family. In 2005, Ilya sold his share of this business to his Russian business partner. Ilya has not worked since then.
Before Ilya sold the business he told Natalya that he was going to arrange matters so that he received the sale proceeds through the Diamond Settlement to save tax. Ilya reassured Natalya that he would be able to continue to support the family’s lifestyle through payments made to him from the Diamond Settlement. Natalya believes that, from 2005 onwards, the entirety of the family’s living costs (which she puts at around c £2m pa) were being met from the Settlement.
After Ilya left, Natalya was rifling through his desk and found a copy of the trust deed by which the Settlement was created. The trusts of the Diamond Settlement are discretionary. The class of beneficiaries originally consisted of Ilya and his living and future born issue. During Ilya’s lifetime, no trust capital can be advanced or appointed to any member of the class without Ilya’s consent. There is a power for the trustees to add or remove persons from the beneficial class but, again, only with Ilya’s consent. Ilya has a power to revoke or amend the terms of the Settlement. The Settlement contains a standard trustee indemnity clause, but, also, a provision stating that any transaction entered into with the approval of Ilya shall operate as a complete release of any liability of the trustees for loss to the Settlement arising from that transaction.
Natalya also found a 2018 deed by which Ilya retired as trustee and a copy of another deed made by BTC and Ilya in 2018 by which Ilya was excluded from the class of beneficiaries of the trust.
During those happier times, Ilya explained to Natalya that assets in the trust are held through B Co. Natalya’s solicitors have ascertained that B Co is the registered proprietor of the Rostovs’ home in Belgravia (valued at £20m) as well as various commercial properties in England (valued at c£20m). There are other properties owned by B Co in mainland Europe valued at £13m. It is not clear precisely what else the Diamond Settlement holds and neither BTC nor B Co has replied to correspondence sent by Natalya’s solicitors.
Ilya says he has no assets beyond his clothes and jewellery, his cars and his share of items furnishing their three homes. He has suggested that Natalya should find a job and support herself as he says he intends to do.
The court has directed an FDR. Miss Angus QC is to represent Ilya and Miss Hughes is to represent Natalya. Under a pilot scheme introduced into the Family Courts designed to relieve the workload of Family Courts and to reduce the cost to the public purse of administering justice, the conduct of the Rostovs’ FDR has been outsourced to those attending the 5 Stone Buildings Trust and Estates Conference.