Family Asset Protection: Divorce, Finance and the Media
The matter of family asset protection is growing in importance in Italy in a context where divorces are becoming more and more frequent and family events often take on transnational profiles.
Italian law traditionally struggled to recognise validity to family asset protection instruments since such activities have usually been deemed as fraudulent operations. However, as of today, and also thanks to the impulse in this direction provided by the decisions of the Italian courts, the use of asset protection instruments is recognized as a way of ensuring legitimate wealth preservation.
Therefore, despite the lack of Italian domestic legislation to trusts and the circumstance that prenuptial and postnuptial agreements are not provided for under Italian law, the use of the trust instrument is now widespread and continuous and there is some opening up of the courts with reference to the agreements that can be executed by the spouses.
1 . Divorce and trusts
Italy did ratify the Hague Convention of 1 July 1985 on the law applicable to trusts and their recognition (hereinafter the “Convention”) by Law 16 October 1989, no. 364, in force since 1 January 1992. However, as of today, Italy does not have a complete and organic internal regulation on trusts. Therefore, trusts set up in Italy have to be regulated by foreign governing laws, which must be laws proper to States that provide for trusts.
The foreign law which shall govern trusts must be selected by the settlor of the trust.
In light of the above, if compliant with the Convention and the relevant foreign governing law, trusts are recognized by Italian courts and enforceable in Italy, subject only to the overarching limitation of Italian public order principles; according to the consolidated Italian case law, “domestic trusts” (i.e. trusts in which the settlor, the beneficiaries and the trustee are Italian, the trust assets are located in Italy and the sole foreign element is the governing law) are also now fully recognized in Italy.
Such recognition will imply, in particular, that assets transferred to trust will be considered as a separate fund which is not part of settlor’s/trustee’s estate: it follows that trust assets cannot be affected by personal and property events which could involve the settlor or the trustee.
Despite the lack of Italian domestic legislation concerning trusts, the use of the trust instrument in Italy is now widespread and continuous. Therefore, Italian courts are increasingly faced with trusts even in the context of divorce proceedings.
In this perspective, in case there is a trust – compliant with the Convention and the relevant foreign governing law – that has been established by a spouse, who is thus the settlor of such trust, the Italian court will generally consider the assets part of the trust fund as separate assets that are not part of settlor’s/spouse’s estate.
It is understood, however, that in any case in which an Italian court declares the relevant trust as null and void for conflict with the Convention, the relevant foreign governing law or the Italian public order principles, the assets of the trust fund will be considered for all purposes to be owned by the spouse/settlor.
Conversely, in case one of the spouses turns out to be a beneficiary of a trust established by them or a third party, an Italian court could treat the trust and trust assets differently based on the characteristics of the beneficiary position and the nature of the beneficiary’s interest in the trust.
Should the spouse/beneficiary of such a trust have an unconditional right to the trust’s income or capital and do not have to meet any conditions for their interest to take effect (so called, “vested beneficiary“), the trust assets to which they are entitled could be considered part of the their estate.
By contrast, should the divorcing spouse have to meet certain conditions (such as surviving to a certain age, or surviving at the end of the trust) so that the trust assets can be transferred to them (so called “contingent beneficiary”), trust assets should not be taken into account by the Italian court for the purpose of determining the divorcing spouse’s financial position, because the latter shall not be able to claim (before the trust’s termination and/or before the relevant condition is fulfilled) any rights to the trust.
Moreover, it should be noted that trusts are increasingly being used by divorcing spouses directly in separation and divorce proceedings as a means of resolving disputes that have arisen about the headship and use of common property, with the aim also of ensuring the maintenance of children until they achieve economic independence. The establishment of trusts of this kind can be included in the record of consensual separation of the spouses, which is then subject to probate, or in the joint divorce action and confirmed in the subsequent court judgment.
1.1. Financial disclosure
Under Italian law, the spouses involved in divorce proceedings are subject to certain financial disclosure obligations in order to allow the courts to determine their financial positions.
In particular, the spouses are required to provide the courts with their personal income tax returns and any other documents relating to their income and property (both personal and common).
Accordingly, should one of the spouses be the settlor of a trust – which complies with the Convention and the foreign governing law – the latter should not be required to submit to the court any documents relating to the trust, since the trust assets should not be considered part of the settlor’s/spouse’s estate.
By contrast, should one of the spouses be a “vested beneficiary” of a trust established by them or a third party, such spouse could be required to comply with the mentioned financial disclosure obligations also in relation to their trust interests on a worldwide basis, since the right to receive trust assets could be deemed part of their personal estate.
In any event, please note that where case disputes arise with reference to the value of the spouses’ assets and the court becomes aware of the existence of trusts involving the spouses in any manner, the court could be entitled to order the spouses to disclose any information about the assets transferred to trusts in which they are involved (the value of such assets also being able to be considered as an index of the spouse’s financial position), and the spouses will have to comply with such order.
On the contrary, assuming the trustee of a trust is a third party – and not instead one of the divorcing spouses — there are no disclosure obligations imposed by Italian law burdening the trustee in the context of divorce proceedings filed in Italy. However, courts are given broad investigative powers also being entitled to order the trustees to disclose information about trusts and trust assets. Should instead such kind of requests to the trustee of a trust be made by one of the divorcing spouses, the provisions of the relevant deed of trust and/or the foreign governing law about trustee’s disclosure obligations must be taken into account.
Moreover, it should be considered that Italy recognises trusts established in accordance with a foreign governing law but does not provide for a domestic regulation regarding trusts. Therefore, in any case in which trusts involving the spouses in any manner assume significance in the context of divorce proceedings filed in Italy, the existence of any disclosure obligations incumbent on the relevant trustees shall be evaluated, also taking into consideration the provisions included under the relevant deeds of trust and foreign governing laws. In any case, a clause which sought to restrict the court’s right to make appropriate orders for procedural disclosure could be considered void as being an attempt to oust the jurisdiction of the court.
1.2. Financial orders
Should an Italian court order to a divorcing spouse, who is also a beneficiary of an existing trust, to pay a divorce award to the other spouse, the divorcing spouse/beneficiary will be required to pay such divorce award and they will be entitled to use any economic resources at their disposal for this purpose.
In the event that the spouse/beneficiary has no other economic resources that can be used to pay the divorce award imposed by the court and the court has determined that — in accordance with the provisions included under the relevant deed of trust and/or the foreign governing law — the spouse/beneficiary could obtain distributions from the trust, the latter will be obliged to obtain distributions from the trust in order to fulfil the payment obligations imposed by the court.
On the contrary, in the event that the spouse/beneficiary does not have other economic resources that can be used to pay the divorce award and does not even have the ability — in accordance with the provisions included under the relevant deed of trust and/or the foreign governing law — to obtain distributions from the trust, the court should not take their position as the trust’s beneficiary into consideration for the purpose of determining whether they will be able to pay the divorce award.
Should an Italian court order to a divorcing spouse, who is also a trustee of a trust, to pay a divorce award to the other spouse, the divorcing spouse/trustee will not be entitled to use the income and/or capital held in trust for this purpose, since trust assets should not be considered part of the trustee’s/spouse’s estate.
Should an Italian court order to a spouse, who is also a beneficiary of a trust, to pay a divorce award to the other spouse and to obtain — in accordance with the provisions of the relevant deed of trust and/or the foreign governing law — distributions (or specific assets) from the trust for this purpose, the trustee of such trust shall be required to execute such distributions in accordance with the relevant provisions of the trust deed and the law governing the trust.
Notwithstanding the above, when trusts involving the spouses in any manner assume significance in the context of divorce proceedings filed in Italy, the failure in complying with any disclosure obligations issued by an Italian court incumbent on settlors, beneficiaries and trustees could be punished under Italian Criminal Code (ICC).
Several offences could be envisaged and, among others, the following could be taken into consideration:
- Article 483 ICC, ideological misrepresentation committed by the private party in a public deed; and
- Article 495 ICC, false attestation or statement to a public official about identity or personal qualities.
With reference to the above offences it should be noted that a person may be punished with imprisonment from 1 to 6 years.
Furthermore, failure to comply with capital and income payment orders may be sanctioned by Article 570-bis ICC, which punishes the conduct of the spouse who breaches the obligation to pay any kind of cheque due in the event of divorce or violates economic obligations in the matter of separation of spouses and shared custody of children.
Depending on the concrete circumstances, the judicial authority could order the preventive seizure of the not-disclosed trust assets.
Failure to comply with a disclosure order issued by the foreign authority is not relevant under Italian law, however the foreign authority may activate institutional channels in order to carry out certain investigations on trust assets.
2 . Prenuptial and postnuptial agreements (PNAs)
PNAs are not provided for under Italian law. The only agreement allowed between spouses is a covenant by which they agree to change their matrimonial property regime from joint ownership to separation of property, or vice versa, without any reference to spousal support in the event of separation, divorce, dissolution, or marriage.
The Italian Civil Code does not mention the matter of spousal support among the subjects that a marriage agreement can deal with.
Therefore, from an Italian law perspective, PNAs would be considered null and void on public policy grounds, since they could impair the freedom of both parties to decide whether to dissolve their marriage or not: the parties’ legal married status — which is a personal legal status — is not negotiable.
However, recently, Italian courts are gradually changing their view on the matter and they have come to recognize agreements by which spouses agree:
- that, in case of divorce, a property will be transferred, as compensation, to the spouse who has paid the refurbishment costs of a property owned by the transferring spouse; and
- that only one of them is liable for the repayment of a loan in case of a future divorce.
In that perspective, it should be pointed out that in December 2018 a bill of law was brought before the Italian Parliament that would allow spouses to regulate — through PNAs — their personal and economic relationships, to prepare for any future crisis between them and to predetermine guidelines for the education of their children.
Without prejudice to the above, foreign PNAs are instead recognized in Italy if they are valid under the foreign law governing the property relationships between spouses.
Please note that, pursuant to Articles 29 and 30 of Law No. 218 of 31 May 1995 (the Italian private international law), the matrimonial property regime of the spouses shall be governed by their common national law (if any) or by the law of the State where their married life is mainly located; however, the spouses may agree that their matrimonial property regime shall be governed by the national law of one of them, or the law of the State where one of them resides.
2.1. Procedural requirements
With reference to specific procedural requirements for a PNA to be enforceable on divorce in Italy, no relevant provisions are included under Italian law since — as further explained above — Italian PNAs are deemed null and void for violation of public order rules. However, should the spouses have entered into a PNA pursuant to a foreign law which is recognized in Italy, the PNA shall be subject to the procedural requirements of the relevant foreign law for it to be enforceable on divorce.
2.2. Spouse’s financial claims
Likewise, with reference to the possibility for a PNA to fully cover a spouse’s financial claims on divorce (including claims against assets held in trusts) or deal with financial claims regarding children, no relevant provisions are included under Italian law since — again, as explained above — Italian PNAs are deemed null and void for violation of public order rules. However, should the spouses have entered into a PNA pursuant to a foreign law which is recognized in Italy, the PNA can have the content allowed by relevant foreign law.
2.3. Children’s financial claims
Notwithstanding the fact that PNAs are null and void under Italian law, please note that Italian courts do, however, admit agreements concluded by the spouses, in the context of consensual separation or divorce proceedings, by which they regulate their personal and economic relationships arising from separation/divorce, including financial claims and guidelines for the maintenance of children until they achieve economic independence.
3 . The media and divorce/family law proceedings
According to article 128 of the Italian Civil Procedure Code, discussion hearings must be held publicly under penalty of invalidity.
However, such general rule is waived by other provisions: for instance, access to public is not consented — pursuant to article 84 of the Implementing Provisions to the Civil Procedure Code — during hearings dedicated to collection and admission of proofs and evidences. Moreover, after the civil procedure reform of 1990, the “final discussion” hearing is no longer a mandatory step of the proceeding, so it is usual that an entire civil proceeding might take place without any public hearing to attend.
With specific regard to family law cases, since the COVID-19 pandemic, divorce and separation proceedings on mutual consent are all celebrated by remote audio-visual connection without the presence of the parties (subject to the parties’ written waiver of appearance). This practice has remained in force to this day. On the contrary, divorce and separation litigation proceedings (i.e., celebrated without mutual consent) are still held with the presence of parties and their appointed attorneys: however, it is widespread usage for the court in all cases to order the hearing to be held in camera and without the presence of the public.
It should also be noted that, according to Article 76 of the Implementing Provisions to the Civil Procedure Code, access to case documents is granted only to defence attorneys, parties and judges, whilst the public does not have the opportunity to obtain them. Moreover, in case of particularly sensitive proceedings for which it is appropriate to maintain the confidentiality of the information (also with regard to possible interference by the press), the parties are entitled to request the court that the documents and records of the proceedings be kept in a strongbox or other duly supervised place.
Likewise, it is a long-standing practice that appointed attorneys, in order to have access to the files of proceedings concerning the minor-aged, must submit a special application allowing them to inspect the relating files for a very limited time in order to avoid the risk of disclosure of sensitive information.
Furthermore, the rules governing publicity of the hearings meets certain boundaries even in an international context, as the ones set forth in Article 6 of ECHR and Article 14 of the International Covenant on Civil and Political Rights of 1966. This rule provides that press and public may be excluded from all or part of the trial in the interests of morals, public order or national security in a democratic society, where the interests of those who are under-aged, or the protection of the private life of the parties, so require. The aforesaid provisions also establish that any verdict pronounced in a civil or criminal trial shall be made public, unless the interest of minors requires otherwise, or the trial concerns matrimonial disputes or the custody of children.
3.1. Reporting restrictions
On October 1990, the Order of Journalists, the National Federation of the Italian Press, and Telefono Azzurro — a major Italian non-profit organization established in 1987 with the aim of defending under-age rights — entered into the Treviso Chart, which is a protocol with the intent of regulating the relationship between information and minors. The Chart, on the one hand protects the right to report news, and on the other hand clarifies the power that all media have in building a society that fully respects the image of children and adolescents. The main mission enshrined in the Chart consists of defending the identity, personality, and rights of minors who are victims or perpetrators of crimes, or otherwise involved in situations that could impair their harmonious psychological development. The same guarantees are also provided to those who are marginal in society.
The Chart has set some binding rules of self-regulation for Italian journalists and, more broadly, for all news workers: among others, it is established reporters are required to ensure the anonymity of minors involved in judicial and news events potentially damaging to their personalities; journalists must avoid publishing anything that could lead to the identification of a child involved in legal proceedings, whether it is data (parental details, home address, school, etc.) or a photograph or film; in cases of separation or divorce regarding parents with minor children, adoptions or foster care, the journalist is required not to emphasize or make spectacular the depiction of the facts. In addition, the anonymity of the minors involved in these cases shall be granted as well.