Divorces between ultra high net worth people are not just big media events these days – the public cannot seem to get enough of the marital woes of the rich, it seems. Away from the emotional side, divorce is and remains one of the most important issues in wealth management because no matter how skillfully a married couple have grown their wealth, an acrimonious breakup can destroy years of hard work.
In this article, Graham Coy, partner in the family department of the UK-based law firm Mundays, examines some recent expensive cases, and ponders their implications. While the views are his own and not necessarily shared in full by this publication, the editors are pleased to publish these insights and invite readers to respond. The article was written from a European perspective but the insights have global parallels.
Rarely is it that Rupert Murdoch is upstaged. In 1999, Murdoch was ordered to pay his second wife £1 billion ($1.67 billion).
A Swiss Court has just ordered Dmitry Rybolovlev to pay his wife one half of his net worth, over SFr4.02 billion ($4.48 billion).
What lessons can be drawn from this decision, both for those whose assets are more modest and for those advising them?
First a quick look at the facts. They involve mind-boggling wealth, intrigue, allegations of murder, imprisonment and litigation spanning at least six different countries - as well as some fundamental errors.
Dmitry and Elena Rybolovlev married in Russia in 1987 when they were still students. Dmitry’s wealth emanated from the sale of his shares in a potash fertilizer company, Uralkali. Known as the “fertilizer king”, he was said to be the world’s 79th richest person.
His assets included a majority interest in AC Monaco and two of the most expensive properties ever purchased in the US, one in Manhattan and the other in Palm Beach, bought from Donald Trump. There were even plans to build a replica of Marie Antoinette’s palace in Versailles.
Since 1995, the couple’s main home had been in Geneva. Divorce proceedings began there in late 2008. Litigation continues even now.
Back in the real world, the most obvious lesson to learn is whenever possible, enter in to either a pre-nuptial or even a post-nuptial agreement. The former is preferable, at least for the financially stronger party since if the agreement is not signed there may be no marriage at all.
The Rybolovlevs did not sign a pre-nuptial agreement. In April 2005, when it was probably already too late, Dmitry proposed a post-nuptial agreement which Elena did not find attractive and she refused to consider it.
Pre- and post-nuptial agreements are much more likely than not to be upheld by the English courts than even just a short while ago, provided that certain safeguards are met. In Switzerland, no matter what the agreement might have said, it would have been binding.
Next, if moving from one jurisdiction to another, take advice first. The Rybolovlebs appear not to have done so. If they had they would have learned that in Switzerland they had choices of which matrimonial property regime they wanted to apply to their affairs. They could have chosen the matrimonial property regime of separation of property whereby each of them would retain their own assets exclusively and there would have been no sharing on divorce. [Not doing so was] a costly mistake for Dmtry.
Once involved in litigation or anticipating it, be sensible and realistic.
Having met with a bloody nose when he asked Elena to sign a post-nuptial agreement, Dmitry transferred much of his wealth to trusts set up in Cyprus. The Swiss courts would have none of that and the value of the trusts was added back before the court made its order.
It is said that, weary of the litigation, Elena offered to accept $1 billion. Dmitry refused and ended up paying twice that amount.
On the other hand Elena may struggle to enforce her award or at least part of it as there is no enforcement treaty in existence between Switzerland and Cyprus.
The last lesson is to decide at the outset where to start proceedings. Elena chose Switzerland because that was where she lived and where the property regime was the most favorable.
It is never a simple matter where couples have homes and assets in various different countries to decide which jurisdiction is going to be the most favorable, or the least-worst. Shopping around will involve notions of domicile, residence and nationality. There is some certainty within the EU but not necessarily beyond its borders. Speed and specialist advice are vital.