Family Asset Protection: Divorce, Finance and the Media
Even though Austria is a civil law country and therefore not familiar with the concept of trusts as it originated in common law jurisdictions, it nevertheless offers other effective ways for asset protection. Among the various corporate forms, the private foundation (Privatstiftung) is one of the most popular in this respect. In 1993, Austria adopted the Private Foundation Act (Privatstiftungsgesetz) and established the legal institute of the private foundation (Privatstiftung) into its domestic law, which was, to a considerable extent, modelled on the Liechtenstein foundation (Stiftung). The private foundation is a separate legal entity without shareholders, mainly used for asset protection and success planning purposes. Similar to a trust, a private foundation can be qualified and used as a will substitute and can be set up as a vehicle to protect assets that might otherwise be considered matrimonial assets.
The Private Foundation Act (Privatstiftungsgesetz) was created with the aim to attract foreign investors and to provide an asset protection and wealth planning vehicle to domestic HNWI. The private foundation has become a huge success since then. There are currently over 3,000 private foundations in Austria.
Not only its excellent and efficient legal system, but also its membership in the European Union make Austria an interesting place for asset protection. Therefore, the Country in the heart of Europe is an ideal jurisdiction in Europe to protect one’s assets from family disputes, including divorce proceedings.
1 . Divorce and trusts
Generally, Austrian law does not recognise the legal concept of trusts as it is known in common law jurisdictions, but it is familiar with the term ‘trust’. Some legal provisions explicitly refer to trusts and sometimes even contain a definition of a trust, such as the law on the register of beneficial owners.
Austria has not ratified the Hague Trust Convention, which governs the recognition of trusts in the signatory states. However, following a 2017 European Court of Justice ruling (Panayi Trusts) which upheld the cross-border mobility of trusts and foundations, Austria must accept the legal influx of foreign trusts.
Therefore, a ‘trust’ structure that is established under Austrian law must be reinterpreted as an agreement recognized by the Austrian legal system. However, it is generally assumed that according to the provisions of the Austrian international private law, a foreign trust and its legal consequences are recognized in Austria insofar as the applicable foreign law recognizes the trust. This basically means that in this case the trustee is considered to be the formal owner of the trust property and that the rights and obligations resulting from the trust deed or the relevant law apply between the parties involved.
Also, due to the fundamental principle of freedom of contract applicable in Austria, the agreement of a so-called Treuhand (fiducia) is recognized as permissible. This is in principle a contractual agreement where the trustee becomes the legal owner of the trust assets transferred to them. However, this legal institution and its consequences differ from the trust known in common law jurisdictions.
When a divorce is filed in Austria, if there is no agreement between spouses regarding the financial consequences of their divorce, the court must assess the maintenance and determine the division of assets in accordance with the principles of § 66 et seqq. Marriage Act (Ehegesetz).
In contrast to most other European countries, the statutory post-marital maintenance claim is based in particular on the degree of fault of the parties. However, income and assets of both the maintenance creditor and the maintenance debtor may also be relevant, especially for the amount of the claim. When determining the amount of income, the earnings from assets need to be considered, which may also include benefits from a (foreign) trust. In accordance with the so-called strain theory (Anspannungsgrundsatz), possible benefits to which the beneficiary would be entitled but which they do not claim may also be taken into account. In addition, the assets may be attributed to the settlor if they have a corresponding influence, i.e. has not made the so-called asset sacrifice (Vermögensopfer).
In the context of the division of marital property, it must be noted that according to § 82 (1) Marriage Act assets which a spouse has brought into the marriage, acquired by reason of death or which a third party has transferred to them via a donation (Schenkung) shall not be included in the assets to be divided (§ 82 (1) of the Marriage Act). Therefore, in many cases trusts may not be assessed in division proceedings. In order to prevent abuse, § 91 (1) Marriage Act provides protection against circumvention – if one spouse, without the consent of the other, has reduced the marital assets or the marital savings in a way that is contrary to the spouses’ way of living during the marital partnership, at the earliest two years before the divorce, the value of what is missing shall be considered in the division.
However, in addition, it must be mentioned that since 2019 in Austria the EU Regulation on Matrimonial Property Regime 2011/03 and the EU Regulation 2011/04 on Property Regime in Registered Partnerships are directly applicable. These so-called European Matrimonial Property Regime Regulations (Europäische Güterrechtsverordnungen) regulate the respective applicable national matrimonial property regime, the place of jurisdiction for matrimonial property matters and the recognition of court decisions in matrimonial property matters issued in another member state of the European Union. Thus, on the basis of these regulations it may well be the case that an Austrian court must apply the matrimonial law of another member state of the European Union in the division of a marital or partnership property. This applicable law may then provide for division rules that deviate from the system of the Austrian Marriage Act.
If a divorce is filed in a foreign jurisdiction, the provisions of the Marriage Act outlined above will not apply. Due to the EU membership of Austria, court decisions that were issued in other member states of the European Union are – as a rule – to be recognized, and can generally be enforced in Austria. Furthermore, there are numerous bilateral agreements under international law, which means that court decisions from various other jurisdictions around the world are recognized and enforceable in Austria as well.
1.1. Financial disclosure
Where divorce proceedings are filed in Austria, spouses have an interest in the determination of mutual assets for the purposes of division proceedings and the assessment of maintenance. Although the law does not generally grant a right to information and accounting, such a right is provided by Article XLII Introductory Act to the Code of Civil Procedure and the Jurisdiction Act (Einführungsgesetz zur Zivilprozessordnung und der Jurisdiktionsnorm) for civil procedures. The prerequisites are that the maintenance claim is justified on the merits, the person entitled to information could not, or only with considerable difficulty, make a specific payment claim, and the provision of information to remedy the situation is reasonable for the debtor. Confidentiality obligations, which the debtor has entered into contractually towards third parties (e.g. towards co-partners of his company), do not, in principle, restrict the duty to provide information. Since, from the perspective of execution law, this information disclosure is a so-called non-substitutable act (unvertretbare Handlung), i.e. one that cannot be performed by third parties, it can only be executed with fines or imprisonment. The Austrian Supreme Court grants such a right to information also in non-contentious proceedings and thus also in division proceedings.
Where divorce proceedings are filed in Austria, there are no specific statuary financial disclosure obligations of a trustee other from the spouse's general duties mentioned above. Unlike in the case of child maintenance, third parties are generally not obliged to provide information with regard to the assessment of post-marital maintenance between spouses.
However, if an Austrian court has to apply the law of a jurisdiction in which trusts are recognized, and which provides for corresponding disclosure obligations, these must be fulfilled by the parties. As always when foreign law is to be applied by an Austrian court, it must be ensured that the applicable foreign provisions do not contradict the Austrian ordre public.
As mentioned above, Austrian law does not impose any specific disclosure obligations on trustees, so that even if there are foreign divorce proceedings and Austrian law is applicable, only the general disclosure obligations under Article XLII Introductory Act to the Code of Civil Procedure and the Jurisdiction Act (Einführungsgesetz zur Zivilprozessordnung und der Jurisdiktionsnorm) are to be applied.
1.2. Financial orders
Since there is no such thing as an Austrian trust, where a spouse is the beneficiary of a ‘trust deed’ established under Austrian law, it needs to be converted into a valid agreement under Austrian law as it would have been concluded by bona fide and reasonable parties. Even though a reinterpretation into an Austrian private foundation would be the most obvious option, this will probably fail due to the formal requirements. Therefore, in many cases a Treuhand (fiducia) will have to be assumed as agreed upon. Depending on the specific agreement, the trust property could still be assigned to the settlor in terms of liability. As a result, neither the trustee's nor the beneficiary's creditors would be able to access the assets. However, the Austrian Supreme Court has not yet had the occasion to deal with such trust structures that were established under Austrian law. The same applies to decisions made by courts in foreign jurisdictions, if Austrian law must be applied.
If a trust were to be established under Austrian law, it would likely qualify as a fiduciary agreement, in concreto a Treuhand (fiducia). Although such a Treuhand (fiducia) is in principle merely a contractual agreement between the settlor and the trustee and the trustee therefore becomes the legal owner of the trust assets transferred to them, pursuant to the case law of the Austrian Supreme Court (and prevailing opinion in the literature) in the bankruptcy of the trustee the settlor is entitled to segregate the assets held by the trustee in favour of the settlor. This ultimately results in exclusion of the trust assets from the trustee’s creditors’ executive access. However, this does not apply in cases where there are grounds for suspicion of damage to creditors. Creditors of the beneficiary of a Treuhand (fiducia) may, however, under certain circumstances also assert their claims against trust assets, in any case if the beneficiary has a legal claim against trust assets and the creditors of the beneficiary have such claims transferred to them by way of compulsory attachment of claims (Forderungspfändung). However, if trust assets are situated abroad, the court(s) of the country in which the assets are located may have jurisdiction.
The same applies if the basis for the payment obligation is a divorce ruling recognized in Austria.
The Austrian (procedural) law does not provide for instruments like contempt of court orders. If a payment obligation is not met, it can be enforced in execution proceedings pursuant to the Code of Execution (Exekutionsordnung). This may result in the seizure and liquidation of assets, but not imprisonment of the obligated party. However, as mentioned above, the subject of disclosure obligations are so-called non-substitutable acts (unvertretbare Handlungen) which cannot be carried out by third parties and may therefore be executed with fines or even imprisonment.
2 . Prenuptial and postnuptial agreements (PNAs)
Pursuant to § 97 Marriage Act, spouses may deviate from the consequences of division in the event of divorce provided by law and conclude an agreement prior to or during the marriage, which relates either to all or only parts of the assets. The subject of such agreements can be both the marital savings and the marital assets, but there are different formal requirements (see below). However, it must be noted that under certain circumstances (such as inequity or significant deterioration of living conditions), the court may order legal consequences deviating from such an agreement. Under Austrian law, agreements in proceedings for divorce are also permissible (cf. § 97 (5) Marriage Act). There are neither formal requirements for such an agreement nor can the court order deviating consequences. Nevertheless, the general limits of the principle of freedom of contract must always be considered.
If foreign parties agree on a PNA or domestic parties conclude a PNA under a foreign applicable law, Austrian courts will generally enforce and uphold such agreements, provided that there was a valid choice of foreign law and that there are no ordre public issues that would suggest the PNA, or parts thereof, to be disproportionate or discriminatory. In such cases, it can be assumed with a high degree of probability that the Austrian courts would not enforce such a PNA and would consider it null and void.
2.1. Procedural requirements
If a PNA governs the division of marital savings or the marital home, it must be notarized in order to be legally binding. On the other hand, if a PNA regulates the division of the remaining marital property, the written form is sufficient (cf. § 97 (1) Marriage Act).
2.2. Spouse’s financial claims
Agreements modifying the division of the legal marital property division system are not limited to the election of a matrimonial property regime but, as outlined above, can be deviated by the court under certain circumstances.
2.3. Children’s financial claims
Between the parents no contractual agreement may be made that is detrimental to the child. This would be deemed an inadmissible and ineffective so-called contract to the detriment of third parties (Vertrag zulasten Dritter). Nevertheless, parents going through a divorce could, for example, contractually agree to divide child support among themselves or to pay higher child support than provided for by the law. Under no circumstances, however, may the amount of child support be reduced in such an agreement. In simple terms, all provisions in such agreements that are to the detriment of the child are invalid.
3 . The media and divorce/family law proceedings
Pursuant to § 140 Non-Contentious Matters Act (Ausserstreitgesetz), oral hearings in all non-contentious matrimonial and child-related matters are not public. Furthermore, the publication of certain circumstances of private and family life, the knowledge of which was obtained through the proceedings and in the secrecy of which there is a justified interest, is prohibited and may be subject to criminal sanctions. However, the court may, if no party objects, open the proceedings to the public, provided that no circumstances of private and family life are discussed and that this is compatible with the best interests of the represented person. Thus, the best interests of the child are always the centre of focus. In the case of contentious divorce proceedings, the hearing is not public either, pursuant to § 460 Code of Civil Procedure (Zivilprozessordnung).
Third parties who are not parties to the proceedings (members of the media) may only physically participate in oral hearings in matrimonial and child-related matters if the hearing is public, which, however, is only possible in exceptional cases pursuant to § 140 Non-Contentious Matters Act (Ausserstreitgesetz).
In principle, it is not possible for members of the media to gain access to or publish court documents. Pursuant to § 219 (2) Code of Civil Procedure, third parties may only gain access to court documents with the consent of the parties to the proceedings and, moreover, only insofar as this does not conflict with the overriding legitimate interests of another party or overriding public interests. In the absence of such consent, third parties may gain access to court documents only if a legal interest in the inspection of court documents is shown to be credible. Members of the media, however, have no legal interest in gaining access to court documents.
As mentioned above, oral proceedings in all matrimonial and child-related matters are not public and the public can only be allowed by court order within very narrow limits. However, even if an oral hearing should be made public in individual cases, cameras and recording devices are nevertheless not permitted, since Austrian civil procedural law prohibits the production of recordings during public hearings in general, i.e. not only in matrimonial and/or child-related matters.
3.1. Reporting restrictions
Austrian civil procedural law does not provide for a formal application to restrict reporting. However, such an application is unnecessary since, as described above, public presence at oral hearings in family law matters and the inspection of court documents by third parties is only possible if all parties to the proceedings give their respective consent.
Austrian civil procedural law does not provide for applications by the media for orders allowing them to report on proceeding issues or gain access to procedural documents.