Matrimonial disputes can be a trying and traumatic state of affairs for all involved, including trustees. Where a family trust is involved, the more contentious of marital disputes can quickly draw trustees into the ring for a bout over rights to information regarding, or even to assets held in, the trust. If foreign matrimonial proceedings seek to encroach on the administration of a Cayman Islands trust, the trustee is protected in many respects by what are known as the “firewall provisions” of the Trusts Law (2020 Revision) (“Trusts Law”). Judgments delivered by the Grand Court of the Cayman Islands in 2016 & 2019 and recent legislative reform have affirmed the operation and robustness of the firewall provisions and reinforced the need for a trustee of a Cayman trust under attack in foreign matrimonial proceedings to ensure that its response is, at all times, in the best interests of the trust.
Cayman’s firewall legislation in Sections 90-93 of the Trusts Law confirms that a Cayman trust can only be varied in accordance with Cayman law and only by a Cayman court, and any foreign order would not be enforceable against the trustee, the beneficiaries of the trust or the trust fund. Prior to its recent reform, the Trusts Law’s firewall legislation protected Cayman trusts from being attacked because a foreign law conferred a party with an interest in the trust’s assets by virtue of their personal relationship with the settlor. Because the provision only made reference to a personal relationship with the settlor, questions arose as to the protection afforded to the settlor’s descendants once the settlor was no longer living. In order to avoid any technical difficulties in this regard, the relevant provision (being sub-section 91(b)) was amended in 2019 by extending the reference to a “personal relationship to the settlor” to include a personal relationship to any beneficiary including a discretionary beneficiary. The legislative amendment has enhanced the protection offered by the firewall so that it is clearly available to all beneficiaries in countering any potential claims against a trust’s assets such as financial awards in foreign divorce proceedings.
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Cayman’s Firewall Provisions in Relation to Foreign Divorces with a Cayman Connection