Big Victory for Asset Protection Trusts in Switzerland

In what was billed by several newspapers last year as the “world’s most expensive divorce,” a local court in Geneva, Switzerland awarded a judgment of $4 billion in favor of Elena Rybolevlev against her husband, Dmitry.  The court took issue with the fact that Dmitry had availed himself of an offshore asset protection trust to maintain ownership of $8 billion worth of business and investment assets, and yet the trust assets were outside the reach of his wife and her divorce lawyers.  At the time, the Geneva court ruled that Geneva marriage law should apply in respect of Swiss residents to disregard the trust entirely and instead regard the trust assets as owned by Dmitry.  By including the trust’s assets in the calculation of Dmitry’s net worth, the local court had then awarded half that amount to his wife.

In a stunning development last month, the appeals court in Geneva reversed the lower court’s ruling. Observing that Switzerland is a party to the Hague Convention on Trusts and has codified pertinent provisions of the Hague Convention into Swiss civil law, the appeals court determined that jurisdiction over the trust properly resided in the jurisdiction of trust administration (i.e., offshore), rather than in Switzerland. Noting that the trust had been funded for legitimate estate planning purposes well before the divorce, the appeals court held that Elena would first need to obtain a judgment against the trust in the offshore jurisdiction before resorting to the Swiss courts to enforce that judgment.

The decision by the Geneva appeals court conforms to the analysis first offered by our in-house legal team at the time Switzerland was implementing the Hague Convention on Trusts.  Implementing an asset protection trust in such leading jurisdictions as Belize or Nevis offers a heightened degree of certainty in planning, ensuring that client assets are shielded from frivolous claims and unanticipated liabilities.  Swiss law reinforces such protection by requiring creditors to first obtain a judgment in the jurisdiction of the trust before being able to lay claim to trust assets in Switzerland.