Cross-Border Financial Settlements in Divorce

Reaching a fair financial settlement after divorce can be significantly more complicated when matrimonial assets are located in different countries, and are governed by a separate legal system, valued in another currency, or subject to unfamiliar tax rules. Laurus advises individuals and families on the careful structuring of cross-border financial settlements, helping clients understand both the legal outcome and the practical steps required to make a domestic order effective overseas. Speak to our specialist family solicitors to arrange an initial consultation and develop a strategy that reflects your international financial circumstances.

The nature of a cross-border financial settlement

A cross-border financial settlement deals with matrimonial assets arising from divorce where one or both spouses, or part of their wealth, have a connection with another country. The international element might involve a holiday home in Spain, employment income earned in the United States, a pension accumulated in France, or shares in a family business operating from India. In more complex cases, the spouses may hold several nationalities and have homes, companies, trusts, and investments spread across numerous jurisdictions.

The fact that an asset is situated abroad does not usually prevent it from being considered in financial proceedings in England and Wales. An English court has the power to take account of worldwide wealth when deciding what would represent a fair outcome. However, there is an important difference between including an overseas asset within the calculation and being able to transfer, sell or secure that asset in practice. A carefully planned settlement must address both sides of the problem.

Establishing the complete international financial position

Both spouses are required to provide full and frank disclosure, including information about foreign property, accounts, investments, pensions, company interests, trusts and income. The disclosure should also identify liabilities attached to those interests, such as overseas mortgages, local taxes, guarantees, and business debts.

International finances do not always fit neatly into the categories used for UK assets. A person may hold shares through a nominee, own land under a form of ownership that has no direct English equivalent, or benefit from a family arrangement that is understood locally but has never been formally documented. In addition, bank statements and accounts may be produced in another language or prepared according to different accounting standards.

Valuing overseas property and investments

Overseas property should ordinarily be valued by an appropriately qualified professional with knowledge of the local market. An informal estimate from an estate agent or the price of a neighbouring property may not provide a dependable basis for settlement, particularly where there are unusual ownership restrictions, sitting tenants, or development issues.

The calculation may need to allow for a mortgage, local sale taxes, legal fees, estate agency charges, and any penalty associated with early repayment of finance. Rules restricting purchases by foreign nationals or requiring government approval may also affect marketability.

Investments can also bring their own difficulties, as their value may change between the various stages of financial proceedings, together with the costs and tax consequences of selling.

Foreign pensions and retirement provision

A pension based outside the UK can be included when assessing the spouse's overall resources, but an English pension sharing order will not usually operate directly against a foreign pension scheme. The scheme is governed by the law and rules of the country in which it is established, and the administrators may refuse to recognise an English order.

This does not mean that the pension should be ignored, because it may be possible to obtain an order in the relevant country, although specialist local advice will be needed before that possibility is assumed. Another option is to offset the pension against other assets, allowing one spouse to retain the overseas retirement provision while the other receives a greater share of the property or investments.

Offsetting requires more than comparing a pension valuation with the balance of a savings account. Pension rights may be inaccessible for many years, taxed when benefits are drawn and dependent upon investment performance, inflation or the future solvency of a scheme. A pension specialist or actuary may therefore be required to compare the benefits on a realistic basis. 

Tax planning within the settlement

The UK rules applying to transfers between separated spouses and civil partners provide important relief in certain circumstances, including transfers made under a formal divorce or separation agreement, or a court order. However, the treatment of the same transaction in another country may be very different. An overseas authority is not required to adopt the UK classification of a transfer, payment or pension arrangement.

Tax residence can also change during the proceedings. A spouse who relocates may become subject to a new tax system, while continuing to face liabilities in the country they have left. We work with specialist tax advisers where necessary so that clients can compare proposed settlements and understand the consequences before accepting binding terms.

Currency fluctuations and the timing of payments

Exchange rates can alter the real value of a cross-border financial settlement. If a spouse agrees to pay a lump sum expressed in pounds but must sell an asset valued in euros to fund it, a movement in the exchange rate may increase or reduce the amount they must realise. The problem becomes more pronounced where payment is delayed for several months or made by instalments over several years.

The settlement can specify the currency in which a payment must be made and identify who carries the exchange-rate risk. In an appropriate case, the amount may be converted by reference to a named published rate on an agreed date. The parties might instead divide an overseas account or investment by percentage, allowing them to share any movement in its value rather than fixing a sterling figure at the outset.

Clear drafting can prevent a later disagreement about whether the payer must deliver the full amount after fees or whether the recipient bears those deductions. As a highly rated law firm with experience of international family finances, Laurus can coordinate advice between jurisdictions and keep the overall settlement focused upon the client’s objectives.

Contact us now to request a free consultation with one of our specialist family solicitors.