Recognition of the trust in France

At its simplest, a trust is a legally binding arrangement which involves a settlor transferring legal ownership of their assets to at least one trustee, to be held for the benefit of at least one beneficiary. 

Trusts can take different forms. In France, judges and practitioners typically deal with parties that may have interests or rights relating to offshore discretionary trusts or irrevocable trusts. For the purposes of French jurisprudence, a discretionary trust is a trust where the trustee has discretion to decide whether to appoint income or capital to the beneficiaries and, if so, which beneficiaries will receive a benefit and how much. An irrevocable trust is a fixed trust meaning its terms cannot be altered except in special circumstances.

As the trust is a construct born from common law jurisdictions, it involves a set of legal notions that are typically distinct from civil law systems. As such, civil law regimes do not generally encompass trust law, or at least the concept of a trust as it is has developed in common law countries. Accordingly, it is not possible for spouses to establish a trust under the French legal system. However, trusts established offshore are recognised by judges in France. The general position is that the legal implications of a trust may be recognised in France unless doing so would be incompatible with French public policy. In practice, this bar is a relatively low one and in most circumstances a family judge in France will recognise a discretionary, irrevocable trust as a distinct relationship with its own legal implications.

The disclosure obligations of spouses and trustees in French divorce proceedings

By way of background, in France, when a marriage ends, each spouse is allocated a portion of the assets accrued during the marriage according to the matrimonial regime of the couple. The matrimonial regime is a set of rules defining the spouses’ rights and obligations in respect of their assets. On the divorce of the spouses, the matrimonial regime is “wound up”. If the marriage is dissolved by divorce, along with the assets received pursuant to the matrimonial regime, one of the spouses may receive a compensatory benefit (prestation compensatoire) by order.

Against this background, the spouses are under an obligation to communicate all information and documents relevant to determining the rights and interests of the parties and to the liquidation of their matrimonial regime (see Article 259-3 of the French Civil Code (FCC)).

In respect of determining whether a prestation compensatoire is to be paid to one of the spouses, the parties are required to provide the judge with a declaration certifying on their honour the accuracy of their resources, income, assets and living conditions (Article 272 of the FCC). Practically speaking, this article binds the parties to the proceeding (i.e., the spouses) and does not extend to trustees of offshore trusts. 

There is no set way in which spouses must abide by their disclosure obligations, unlike in other jurisdictions where the parties are required to complete questionnaires or to provide specific documents. Instead, it is up to the spouses to request from each other the documents or information which they believe to be relevant. While the French courts do not have powers to sanction inadequate disclosure, the judge may draw adverse conclusions against a party who has fallen short of their obligations. 

While in theory these provisions should ensure against the use of a trust by a spouse to conceal assets from the court, there is always a risk of this happening, as is the case in other jurisdictions.

Financial orders in divorce proceedings and trust implications

Financial orders – prestation compensatoire

In the context of French divorce proceedings, the courts may order financial compensation in the form of a prestation compensatoire. The purpose of a prestation compensatoire is to compensate a spouse for the disparity in lifestyle arising from the breakdown of their marriage. The prestation compensatoire is usually ordered by the court in the form of a capital payment made by way of a lump sum or a series of lump sums payable over a maximum of eight years.

The amount and form awarded as the prestation compensatoire is always subject to the judge’s discretion. Article 271 of the FCC directs the judge to fix the award according to the needs of the spouse to whom it is paid and to the means of the other, taking into account the circumstances of the spouses at the time of divorce and in the foreseeable future. In exercising their discretion, the judge is to have regard to the following criteria:

• The duration of the marriage.
• The age and health of the spouses.
• The spouses’ professional qualifications and occupation.
• The time spent, or to be spent, on educating the children, or favouring the spouse’s career to the detriment of their own.
• The estimated or foreseeable assets of the spouses, both in capital and income, after liquidation of the matrimonial regime.
• The spouse’s existing and foreseeable rights.
• Their respective situations as to retirement pensions.

This list is not definitive and there is no mandatory or automatic formula to determine the quantum of the award.

Consideration of the trust/trust assets when determining the prestation compensatoire

There is little case law relating to trusts in the family law context in France. Accordingly, there is no clear answer to whether a French family judge ought to consider assets in a trust or a spouse’s interest in a trust more broadly when determining the prestation compensatoire. The answer is likely to turn on the facts of each case, the level of disclosure that has been provided, as well as the court’s general analysis of the factors set out in Article 271.

Recent decisions from the Court of Appeal in Paris dated 7 July 2015 and 24 May 2016 (No. 14/08780) shed some light on the issue. The case involved the divorce of a couple, Mr N and Mrs G. In this case the court considered that in determining the prestation compensatoire owing to Mrs G, trust assets in an offshore trust established by Mr N were to be taken into account. 

The trust in question was a discretionary and irrevocable trust settled under the laws of the Island of Guernsey. While Mr N was not a trustee of the trust, he was the sole beneficiary. Mrs G asserted that the trust held assets of significant value which ought to be considered as part of Mr N’s assets for the purposes of determining the prestation compensatoire. On the other hand, Mr N argued that the trust was created in connection to his retirement plan so that he could attain pension rights in the absence of a retirement contribution in England where he had worked for many years. Mr N highlighted the discretionary and irrevocable nature of the trust as well as its separate status under Guernsey law. 

In its initial decision, the Court of Appeal ordered Mr N to produce a number of documents including the trust deed and a valuation of its asset. In its second decision, the Court of Appeal found that in accordance with local law and the trust deed: 

• the assets in the trust did not belong to Mr N;
• Mr N was the sole beneficiary; 
• the trustee was bound by its duty to act in the best interests of Mr N as the beneficiary; and
• the trustee enjoyed broad powers to use the trust fund or part of it to support Mr N and provide benefits to him as the sole beneficiary.

Against this background, the court found that while nothing could oblige the trustee to distribute the assets to Mr N, the primary objective of the trustee was the protection of Mr N’s interests as the single beneficiary. Accordingly, the court found “the retirement rights of Mr N were guaranteed under optimized conditions” and on this basis took the trust assets into account in determining the quantum of the prestation compensatoire owing to Mrs G.

Practical takeaways

While noting that the obligations of spouse beneficiaries and trustees of offshore trusts in the context of divorce proceedings remain somewhat unclear under French law, the following principles can be drawn from the above:

• Local law. In the scenario whereby a spouse argues that trust assets or interests ought to be taken into account, the court will likely analyse the trust in question closely, in accordance with the law under which it was established and is administered (see above and Ziesennis 20 February 1996, No. 93–19855). 
• Disclosure. While the French courts may request the parties produce documents relating to a trust (No. 14/08780), these orders are not obligatory and there is no basis to support an order directing trustees of an offshore trust to provide documents to the court directly. 
• Piercing the veil. The Approach of the Court of Appeal in No. 14/08780 suggests that trust assets may be taken into account, at least in some indirect way, by judges when determining the protestation compensatoire to be paid to a spouse in circumstances where the spouse is guaranteed to receive the trust asset or to benefit. 

As we note above, the French family court judge does not enjoy powers to enforce the parties’ disclosure obligations in the context of a divorce proceeding.

However, there are specific systems in place allowing for the enforcement of financial orders in family matters and specifically in respect of the non-payment of the protestation compensatoire. Typically, a bailiff will be engaged at the request of the spouse and may search the bank accounts of the debtor and/or seize their salaries and assets to prompt payment. The non-payment of the protestation compensatoire is also a criminal offence under articles 227-3 of the French Criminal Code. 

Special procedures also empower the French courts to assist with the enforcement of maintenance orders from EU countries pursuant to the 2007 Hague Protocol. In summary, if the member state is also party to the Protocol recognition of the foreign maintenance order is automatic and the enforcement process can be commenced immediately. If the member state is not a party to the Protocol, or the maintenance order originates from a country outside the EU, additional steps apply. 

In France, unlike in Anglo-Saxon jurisdictions, it is not possible for spouses to contractually organise all the financial consequences of their divorce in advance, alongside the administration and allocation of assets of the marriage.

However, spouses and future spouses in France are free to enter into a contrat de mariage, in which they agree on the matrimonial regime which they would like to apply during their marriage. As we have noted above, when the marriage terminates, the matrimonial regime of the couple is wound up and each spouse is allocated a portion of the assets accrued during the marriage based on the regime they have selected. 

In order for a contrat de mariage to be substantively enforceable, its terms must conform with public policy. So long as this condition is satisfied, the parties can insert special clauses into the contract to suit their circumstances. In addition, separate formal requirements apply which we outline below. French marriage contracts are often recognised and enforced in other civil law jurisdictions and with respect to common law jurisdictions, often given weight by the Judge in their exercise of discretionary powers.

The provisions of PNAs drafted in accordance with foreign law will, under certain circumstances, be recognised in France. For instance, pursuant to the Matrimonial Property Regulation ((EU) 2016/1103), the French courts will recognise foreign agreements between spouses or future spouses in which the spouses or future spouses organise their matrimonial property regime. Generally speaking, in order to fall within the ambit of the Regulation, the agreement must satisfy formal requirements set by the Regulation (outlined below), comply with the laws of the relevant member states and be absent of any implications contrary to French public policy. 

Domestic law

In order to be enforceable in accordance with domestic law, the form of a contrat de mariage must satisfy the following specific provisions: 

• FCC, Article 1394. The contract must be drawn up by a notary in the presence of the parties. 
• FCC, Article 1395. The contract must be concluded prior to the celebration of the marriage and shall take effect on the day of the marriage.
• FCC, Article 76. The spouses’ marriage certificate must indicate whether a contract has been entered into and the name and address of the witnessing notary. 

Spouses and future spouses may amend their contrat de mariage prior to their marriage, subject to the same formalities listed above. Further, parties may decide to change their matrimonial regime after their marriage however additional processes need to be followed. 

EU law

In order to enforce a PNA under (EU) 2016/1103, aside from the substantive requirements stated above, the agreement must be in writing, dated and signed by both spouses. 

Scope of agreements on divorce

As noted above, in France the recognised purpose of a contrat de mariage, or an equivalent foreign agreement, is to determine the matrimonial regime of the parties during their marriage. Bearing in mind that the matrimonial regime is the property of the parties held together or separately these agreements cannot provide for assets which may have been settled on a trust by either of the spouses as such assets are legally owned by the trustees and not the spouses. 

In addition, a contrat de mariage or foreign equivalent cannot cover a prestation compensatoire, because this form of compensation is born from a disparity arising from the breakdown of the marriage. Accordingly, it is not possible for the parties to agree on a prestation compensatoire or to waive it ahead of time.

In instances where a foreign PNA caps a prestation compensatoire, the French courts will likely verify whether the amount is “sufficient” or otherwise contrary to public policy (see Cour de Cassation, 28 November 2006 (No. 04-11520) and 4 November 2009 (No. 08-20355)). In instances where a foreign agreement waives a prestation compensatoire, the French courts are not likely to recognise this part of the agreement on the grounds that doing so would be contrary to public policy. 

By way of background, generally, when a couple separates in France, irrespective of whether they are married or not, the court makes an order with respect to parental responsibility, access (residency and contact) and child support.

In the case of divorce, the family judge will rule on each of these matters unless the divorce is by mutual consent. In this scenario, the spouses contractually agree to the divorce and all its consequences including parental responsibility, access and child support. This agreement can be set out in either a divorce agreement registered by a notary or in a parental agreement approved by the court. In all other circumstances, the court will determine parental responsibility, access and child support and the parties cannot seek to circumvent this process by way of a contrat de mariage or foreign equivalent as the scope of these agreement is in respect of the spouses’ matrimonial regime only. 

Pursuant to article 248 of the FCC, hearings on the cause and consequences of a divorce, as well as provisional measures are not public. Accordingly, divorce proceedings in France are heard in private courts and the press do not have access to proceedings.

In respect of the judgement determining the outcome of a divorce proceeding, article 1082-1 of the French Civil Procedure provides that third parties may only have access to the part of the judgment that has been announced in public, that being the part outlining the findings of the court. This part of the judgement is usually introduced by the words "For these reasons" and, depending on the circumstances of the parties and their reason for divorce, varies greatly in length and detail. The names of the parties are redacted and replaced by their initials.

The rest of the judgment, as well as any annexures, may become publicly available after a period of 75 years from the date of the document, which may be extended to 100 years in some cases, or 25 years from the date of death of one of the former spouses, whichever timeframe is shorter.