The Increasing Complexity of Asset Tracing in Family Disputes

Article, Solicitor’s JournalJune 2013

Legal / Disputes / Forensic Investigation

The rise in the number of individuals moving assets into offshore vehicles brings a new set of challenges for forensic experts advising parties to divorce proceedings.

The rise in the number of individuals moving assets into offshore vehicles brings a new set of challenges for forensic experts advising parties to divorce proceedings.

Solicitors Journal: How much of a rise have you seen in disputes over the value or tracing of assets since the beginning of the recession?

RGL: There has certainly been a steady rise in disputes in value terms and the requirement to trace hidden assets. The recession has created a lot of uncertainty for couples which can inevitably lead to stress over personal finances. This can mean that, instead of agreeing a settlement, the aggrieved party feels the other party should be made accountable.

The global accessibility of financial and other asset markets has inevitably required more sophisticated techniques to trace those assets.

SJ: What are these disputes usually about and are they getting more complex?

RGL: Disputes normally centre on what assets should be included in the matrimonial pool but also what they are worth. In terms of the former, common issues relate to pre-marital property, inheritances and businesses which one or both parties have worked hard to build and grow.

The valuation of private family businesses brings its own complexities in terms of, for example, sourcing comparables. In addition, where the main value of the asset pool is that business, complications can arise in evaluating and providing the basis for the funding of the divorce settlement.

SJ: Have you seen more assets being placed into trusts or companies, and how many are outside the UK courts’ jurisdiction?

RGL: It is not unusual for property, life insurance, shares and other financial assets to be placed in a trust fund or offshore company to help protect them for beneficiaries or avoid unnecessary inheritance tax. They are becoming a more common tool to hide assets as it can prove challenging to pierce their corporate veil.

In our experience, there has been a marked increase in assets being placed in jurisdictions that have strong privacy legislation and high levels of protection – for example, in the Cook Islands, Nevis and Belize.

SJ: Where do you start when, as in the case of Prest, the claimant alleges the defendant is hiding matrimonial assets in companies held in his name?

RGL: The Prest case means that spouses cannot deliberately hide assets in businesses and corporate structures to protect them in the future, in the event of divorce. The starting point in any investigation will be the client – they can be an important source of data intelligence.

Corporate accounts will only provide limited insight into any hidden matrimonial assets held. However, use of corporate, property and share registers will assist in initiating any financial investigation. It is not unusual for us to expand investigations cross-border, navigating through corporate shareholdings to ascertain who the ultimate shareholder is and thereby ascertain their financial worth.

SJ: Has it become more difficult to trace and assess the value of certain assets such as property or company shares?

RGL: The globalisation of the economy, the digitalisation of data and the expansion of financial services has certainly made it easier to invest funds more diversely – both in terms of where in the world, legal jurisdictions and financial vehicles.

Transferring assets to third parties, trusted relatives or friends will also make following the money trail more difficult. However, the internet, asset registers and time-honoured forensic curiosity and intuition all contribute to discovering hidden assets. The valuation of an unquoted, family businesses that cannot be simply “marked to market” like other assets is always challenging.

SJ: What are the additional hurdles with international claims?

RGL: International claims inevitably are more complex – both in terms of time, geography and intelligence resources. It is important to recognise that there can be important differences in corporate and data protection laws between jurisdictions which can either assist or hinder investigations.

One common hurdle, for example, to be found tracing assets in certain Caribbean jurisdictions is that formation agents set up companies such that the names of ultimate shareholders and directors do not have to be recorded in public archives, making the tracing of the individuals and their assets more difficult.

 

James Stanbury is a partner and Charlotte Haslam an investigations manager at RGL Forensics, a leading forensic accounting firm with 23 offices worldwide. (www.rgl.com)

 

As appeared in Solicitors Journal, Expert Witness Supplement, Summer 2013.

 

Download a PDF of the article.

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