The Most Expensive Divorce In History?

(Originally posted May 2014. Updated May 2016.)

A key issue in the recent high profile divorce of Russian billionaire Dmitry Rybolovlev was the trusts Mr. Rybolovlev created to hold most of his fortune.

When the legal dust settled, a Swiss court ordered Mr. Rybolovlev to pay more than US$4.5 billion to his ex-wife in what could become the biggest divorce settlement in history. At the centre of the case, and what was unclear from the various media reports, was whether the trusts were valid, and therefore left in tact by the court. His ex-wife’s lawyers suggested that the trusts did not hold up, since she was awarded approximately half of Mr. Rybolovlev’s reported $8.8 billion fortune. Mr. Rybolovlev’s lawyers, on the other hand, suggested that they had been successful in maintaining the trusts.To read more about the Rybolovlev divorce, click here.

Closer to home, our courts are also often asked to consider the validity and value of a family trust after spouses separate. Trusts that pose the most difficulty to value and divide are discretionary trusts. Discretionary trusts do not allot a particular percentage of trust property to each beneficiary; rather, the amount of trust property each beneficiary will receive is at the discretion of the trustee(s).

A threshold issue in deciding who is entitled to what trust property on separation is whether the trust property is family property or excluded property under the Family Law Act (FLA); family property is subject to division between the spouses on separation, excluded property is not (i.e. it is “excluded” from division), except that the increase in value of the excluded property is equally divisible between the parties. To determine the increase in value of the excluded property, the courts consider the value of the property on the date the relationship started or the date the property was acquired (whichever occurred later) vs. the its value on the date of settlement or trial.

Under the FLA:

  • excluded property includes a spouse’s beneficial interest in property held in a discretionary trust to which the spouse did not contribute and that is settled by a person other than the spouse.
  • family property includes the growth in value of excluded property during the spouses’ relationship, such that the value of discretionary trust property may be included in the family property, and therefore subject to division between the spouses.

The challenge in valuing discretionary trusts arises from the difficulty in determining a spouse’s beneficial interest, since it is typically left up to the trustee to decide how to allocate the trust property. For a more in depth discussion of this issue, see our post on the 2016 decision in Stober v. Stober,

Where a trust is not discretionary, family property includes that part of the trust property that was contributed by a spouse and in which the spouse is a beneficiary, and has control over distributions or has both the power to terminate the trust and a reversionary interest in that part of the trust property.

The above discussion applies where the court decides to divide and allocate trust property between the spouses. Another option available to our courts is to leave a family trust in tact and order a cash payment by one spouse to the other, representing the payee spouse’s interest in the trust.

If you are thinking of creating a family or personal trust, you may wish to seek legal advice and have a trust expert set up the trust to ensure you are accomplish your desired result.

About Leisha Murphy

Partner/Mediator – Vancouver

After being a family lawyer for over 13 years, coupled with my own personal experience with divorce, I have come to understand the difficult transition that comes with the end of a relationship. This experience has put me in the unique position of being able to provide clients with a clear picture of what is to come and how to plan for it. As well as provide clients with guidance and education on how to deal with the day-to-day realities of a separation.