ADDRESSING INFORMATION ASYMMETRY: LOCATING ASSETS IN DIVORCE & CONTENTIOUS PROBATE

It is almost inevitable that ultra-high net worth individuals (UHNWI) will hold (some) assets through complex international structures. A web potentially spanning multiple jurisdictions, as dictated by asset class, location, or purpose.

The reason for doing so can be as varied as the structures themselves: tax efficiency, planning for future wealth transfer, or allowing multiple family members to benefit from holdings and investments. Concealment may or may not be one. Individuals do have a right to privacy - to not have all assets and private wealth obviously and publicly identifiable.

Ultimately however the nature of the jurisdictions through which these structures are incorporated can confer an opacity to them: Ultimate Beneficial Owners (UBO) can be difficult to identify, and beneficiaries of trusts are not usually publicly declared. Therefore, it can be difficult to discern exactly what an individual owns, or has use of. 

In some cases this results in concealment by default. However, the same mechanisms can also be used for the deliberate purpose of obfuscating one’s net worth, or transferring assets to trusted parties.

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In divorce and probate cases, whether by default or intention, such structures can compound an existing knowledge asymmetry.  This could be a  spouse having limited oversight as to what their (soon to be) former partner owns, how and where, or a knowledge deficit amongst executors and beneficiaries, or potential beneficiaries, because the deceased is intestate, or there is concern that assets have been removed from the estate. 

In both instances, the public record is littered with compelling examples. Correspondence to Mossack Fonseca, leaked in the Panama Papers[1], reportedly included inquiries from (U)HNWIs looking to move assets offshore and away from their spouses in the event of divorce.

During the course of their divorce proceedings, Elena Rybolovleva alleged that her husband, Russian billionaire Dmitri Rybolovlev, used a web of offshore companies to hide assets – including artwork and real estate[2]. In any event, their increase in net-worth over the course of their marriage had led to the incorporation of deeply complex, international structures[3].

From a probate angle, Boris Berezovsky’s estate continues to make headlines, mostly recently with a court wrangling between his creditors over a chateau in the south of France[4]. The vast estate, which was ultimately found to be insolvent, has had several beneficiaries, as well as many creditors, lay claim to it. Similarly, the death of Berezovsky’s business partner, Badri Patarkatsishvili, left the latter’s family subject to claims against his estate – as well as the task of uncovering and mapping all his assets[5].

While these examples are extreme, they illustrate the need for asset-tracing and recovery principles similar to those traditionally deployed in commercial dispute resolution in order to correct a knowledge imbalance, provide a fuller picture of an individual’s real assets, or net worth, or address concerns of impropriety. 

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In many commercial disputes, the aim is not to find all assets but the right assets; to ease the process of enforcement for our clients, or to support swift applications for interim measures. Why? Because the value of assets we are looking for is fixed and determined by multiple factors: by the value of claim, or of the freezing order, or later by the judgment or award itself. 

Acting proportionally to find only what is needed, an experienced investigator will look first and foremost for the low-hanging fruit: assets in easily enforceable jurisdictions, or that are held through more simple structures, or ideally by the counterparty directly. 

There are always exceptions, but for those circumstances where you are only looking for a percentage of an individual’s total assets, investigators aim to find that percentage in the swiftest and simplest ways.

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For divorce or probate however, some tailoring is required.

As introduced above, divorce and probate cases often share at their core a fundamental knowledge asymmetry. Regardless of the motivation behind the creation of offshore structures, they often create a scenario where one party is left in the dark. 

It is common practice that various individual structures will be established in the most advantageous jurisdictions to facilitate particular investments or acquisitions, each held legitimately by different trustees or nominees (as appropriate). As a result – and outside of the UBO – there may not be one blueprint from which to work; you are tasked with building it, in order to determine the full extent of an individual’s holdings, so they can be divided between their rightful parties. 

Informing this approach are many factors: significantly your client’s own perception of their former spouse’s (or relative’s) worth, lifestyle, and investments. This is a picture often built from conversations, observations, and assembled partial paperwork, not to mention media reporting, rich lists, and attributed labels: “investor’, “tycoon”, “oligarch”, “multi-millionaire” etc. An investigator therefore must carefully, and tactfully, sift supposition from fact. Applying an approach that is more nuanced and more tailored.

Different to commercial disputes, divorce and probate cases can be deeply emotionally charged. An investigator’s approach is therefore also informed by responsibility towards the client in drawing the line between professional assistance and feeding conspiracy or rendering false hope. 

The notion of structures of wealth “offshore” can create a distorted picture of hidden treasure or lead to the other extreme: the full extent of a net-worth being shielded and thereby significantly under-valued. Working from a foundation built from paper trails, source work, and interrogation of public statements, an investigator can build a realistic and usable picture of an individual’s true asset-base. 

Where there is suspicion or indication of an attempt to remove matrimonial assets from inclusion in a divorce settlement, it is possible to effectively apply the same techniques that you would when looking for fraudulent transfer in a commercial dispute. An investigator can present not just a static snapshot but an indication of movements of assets, thus allowing you (and your clients) to interrogate specific transactions and unpick particular structures. 

From this, and in concert with other advisors, investigators can support your client in seeing through the veneer of a lifestyle that the divorced or deceased may have created to the reality underneath, or bolster their position in exposing wrongdoing where offshore structures have been deliberately created to shield assets.

While the methodologies for asset tracing in divorce and probate are similar to those applied in a commercial dispute, the intense emotional and personal nature of UHNW divorce and probate, overlaid with the potential intent by the counterparty to deceive and worse financially harm your client, requires a different, more nuanced and more sensitive approach. 

Investigative methods need to be rigorous and thorough, with conclusions based on as much fact, evidence and intelligence as can be amassed, not only in support of potential legal proceedings but to professionally and systematically address the concerns of clients facing some of the most difficult and damaging times of their lives.

[1] https://time.com/4281274/the-panama-papers-love-connection/

[2] https://www.irishtimes.com/business/panama-papers-how-spouses-at-war-hide-assets-offshore-1.2596911

[3] https://www.irishtimes.com/business/panama-papers-how-spouses-at-war-hide-assets-offshore-1.2596911

[4] https://www.bloomberg.com/news/articles/2021-01-28/dead-oligarch-s-old-foes-in-tussle-over-french-riviera-chateau

[5] https://www.thetimes.co.uk/article/wolves-circled-widow-of-oligarch-badri-patarkatsishvili-over-9bn-estate-50j90nmw8 and https://forbes.ge/uk-high-court-rules-irakli-rukhadze-led-pursuit-of-badri-patarkatsishvilis-assets-unlawful/