Russia's Supreme Court guidelines reduce high net worth individuals' ("HNWIs") asset protection opportunities and potentially create risks of additional creditor claims against HNWIs after divorce and asset division between the HNWI and his/her spouse.1
In addition, these guidelines enable third parties, notably creditors of the ex-spouse, to get access to information regarding the HNWI's disputed assets.
We summarize the most important points of these guidelines below.
- If an HNWI enters into a prenuptial or marriage agreement or out-of-court asset division agreement with their spouse or ex-spouse, this agreement would not protect the HNWI against some creditor claims. Creditors whose claims originated before the asset division agreement would not be bound by such an agreement. They can make claims against all assets as if these assets were not divided between the spouses.
- The bankruptcy administrator of the ex-spouse now has a direct cause of action against an HNWI whose title to assets is based on a prenuptial/marriage or out-of-court asset division agreement, and sometimes against the HNWI's counterparties. In particular, the bankruptcy administrator may demand that the HNWI relinquish such assets to the bankruptcy administrator. Should the HNWI sell, donate or otherwise dispose of the title to these assets to someone, the bankruptcy administrator of the ex-spouse has a repossession claim against the new owner. The new owner may defend this claim if he/she did not know nor should have known about the legal obstacles against buying these assets (so-called "good faith acquirer" defense, applicable save for a few exceptions).
- Alternatively, the bankruptcy administrator may demand that the HNWI pay compensation for the assets alienated to his/her counterparty. All assets repossessed from the HNWI or his/her counterparty may then be sold by the bankruptcy administrator to pay the claims of the ex-spouse's creditors, with a portion of the proceeds from the sale being payable back to the HNWI.
- If the marital assets of the HNWI and their (ex-)spouse were divided by a decision of the court, the bankruptcy administrator of the ex-spouse and his/her bankruptcy creditors may appeal against the court's decision.
- An HNWI must be joined as a party in a bankruptcy court case of their former spouse. This is possible where the ex-spouse or creditors allege that after the divorce the HNWI kept assets that should have been divided as joint marital property, but for some reason they have not been so divided.
- All of the debtor's bankruptcy creditors may take in asset separation proceedings between an HNWI and their ex-spouse as a third party. A third-party status gives bankruptcy creditors full access to documents on the file.
- Ex-spouses' ownership interest in the disputed assets is presumed equal (50/50), unless ex-spouses challenge this percentage. If such a challenge is made, the court must involve the bankruptcy administrator handling the ex-spouse's bankruptcy and may also involve bankruptcy creditors. Once joined, the financial administrator and creditors (and their representatives) may access all case documents.
Actions to consider
- review existing pre-nuptial or marriage agreements and other arrangements with spouses and ex-spouses to identify possible legal risks;
- consider alternative asset protection measures, including those provided for by foreign legislation e.g., trusts, foundations, life insurance and others.
1. Resolution of the Russian Federation Supreme Court Plenum # 48 dated 25 December 2018.