Family Asset Protection: Divorce, Finance and the Media
24,000 corporations, foundations and trusts are currently under management in Liechtenstein, a significant number when compared with the principality’s population of roughly 38,000. With 10,000 foundations, the civil law “alter ego” of the common law trust is still the most frequent asset protection structure in use.
Corporate laws date back to 1926, when Liechtenstein was the first jurisdiction in continental Europe to introduce the concept of an Anglo-Saxon trust. Liechtenstein’s legal and fiduciary practice has employed these legal instruments with in-depth experience and expertise for nearly 100 years.
Liechtenstein is a civil law jurisdiction and, sandwiched between Switzerland and Austria in the heart of the Alps, often borrows both statutory and case law professionals for roughly 120 trust companies from these two neighbouring jurisdictions, including many esteemed members of the judiciary. Courts and regulatory authorities are known to work efficiently: they have the resources and know-how to facilitate swift registration and licensing, as well as confidentially resolve complex, often international disputes involving significant wealth.
Due to its asset protection strengths, Liechtenstein’s foundations and trusts have often been considered ideal for protecting private wealth from the onslaught of creditors. This may include claims in family disputes, including divorce proceedings.
1 . Divorce and trusts
The concept of trusts is recognized in Liechtenstein. In fact, Liechtenstein was the first country in continental Europe to recognize trusts by implementing them into positive law in Art. 897 to 932 Persons and Companies Act (Personen- und Gesellschaftsrecht) as early as 1926, i.e., nearly 100 years ago.
When a divorce is filed in Liechtenstein, 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 Art. 67 et seq. Marriage Act (Ehegesetz).
When assessing a maintenance claim, the spouse’s income and assets, among other things, are taken into account (cf. Art. 68 (2) (e) Marriage Act). As a special asset, a trust could possibly be considered in the following cases:
- One of the spouses is the settlor and has, within the two years preceding the filing of an action for annulment of marriage, petition or action for divorce or separation, or, if the marital community has been dissolved prior to the filing of the action, at the earliest two years preceding such dissolution, reduced marital property or marital savings by initial or subsequent dedication of property to the trust property in a manner that is inconsistent with the spouses’ living arrangements during the marital community (cf. Art. 84  Marriage Act).
- One of the spouses is the settlor and has reserved a right of revocation.
- One of the spouses is a beneficiary of the trust, thus distributions from the trust are relevant for the maintenance assessment and the apportionment decision.
In the context of division proceedings, only division assets are considered, which includes any increase in assets achieved by the spouses during the marriage up to the dissolution of the domestic partnership which is not covered by exceptions specified in the law (Art. 74 Marriage Act). Pursuant to Art. 75 (1) (a) 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. Therefore, in many cases trusts may not be assessed in division proceedings. The division is made on an equitable basis (Art. 78 lit a Marriage Act).
If a divorce is filed in a foreign jurisdiction, the provisions of the Marriage Act already outlined above will not apply. Generally, it is not possible to seize the assets of a trust in Liechtenstein on the basis of a foreign court decision regarding a divorce, since foreign court decisions are generally not enforceable in Liechtenstein and enforcement agreements exist only with Austria and Switzerland. The situation may be different if the trust assets of a Liechtenstein trust are located abroad, because in this case the court(s) of the country in which the assets are located may have (sole) jurisdiction. Further, in Liechtenstein one can initiate the so-called Rechtsöffnungsverfahren, which is a kind of fast-track procedure in which foreign judgments are considered a suitable basis for a Liechtenstein enforceable title (Rechtsöffnungstitel).
1.1. Financial disclosure
In Liechtenstein divorce proceedings, generally, regarding both trust assets and other assets, 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 expressly grant a right to information and accounting in non-contentious proceedings (Ausserstreitverfahren), such a right is provided by Art. XV Introductory Act to the Code of Civil Procedure and the Jurisdiction Act (Einführungsgesetz zur Zivilprozessordnung und der Jurisdiktionsnorm) for civil procedures and applied analogously in non-contentious proceedings. The prerequisites are that the requesting spouse is able to provide information about any concealed or hidden assets and to certify a corresponding suspicion of asset concealment. 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 party may also be placed under oath, whereby a false statement constitutes a criminal offense under Section 288 (2) Criminal Code (Strafgesetzbuch). Also, regardless of whether the party is under oath or not, an intentional false statement may constitute a fraudulent act within the meaning of Section 146 Criminal Code. However, there are no instruments similar to contempt of court orders in Liechtenstein civil procedure law.
In cases where there are Liechtenstein divorce proceedings and Liechtenstein trusts, pursuant to Art. 923 (2) Persons and Companies Act, the trustee must render accounts and provide information to the auditor or, subsidiarily, to the settlor or, again subsidiarily, to the fixed interest beneficiaries, insofar as their rights are affected. Hence, members of a class of discretionary beneficiaries are not considered to have such rights to information. Moreover, professional trustees are subject to the duty of confidentiality (cf. Art. 21 Trustee Act [Treuhändergesetz]) and may be, in case of violation, subject to criminal prosecution.
Where the trust is not governed by Liechtenstein law, but by foreign law, such obligations are primarily governed by that foreign law. However, any trustee based in Liechtenstein will still be held to the general principle of confidentiality, and in cases of doubt, the trustee will need to seek advice or directions from the foreign court that has jurisdiction over the trust.
In cases where there are foreign divorce proceedings and Liechtenstein trusts, if a production order is addressed to a non-litigant based in Liechtenstein, the person making the request incurs criminal liability under Liechtenstein State Protection law, especially if coercive measures are used if the recipient refuses to comply with the order. If a Liechtenstein person is a party to such proceedings, cooperation with a foreign court order is legitimate as long as there are no sanctions and the party is free to dispose of the relevant documents. The deciding factor for triggering the blocking order in the Liechtenstein State Protection Act (Staatsschutzgesetz) is the amount of coercion used when making the request. The two highest courts of Liechtenstein, the Supreme Court and the Constitutional Court, took rather different views in a series of recent decisions. Ultimately, the Constitutional Court criticized the other courts involved for, according to the Constitutional Court, wrongly assuming that a beneficiary who was ordered by the Irish Supreme Court in divorce proceedings to request information from a Liechtenstein foundation was under no threat of being sanctioned. The Constitutional Court stressed that anyone complying with such contempt of court orders may be at serious risk of criminal prosecution in Liechtenstein, although it allowed the Irish beneficiary to receive the requested information on their beneficial interest from the foundation, as there was already a final judgment ordering the information to be divulged. Parties to foreign proceedings ordered to request information from a Liechtenstein party thus need to be very careful when considering, as the Constitutional Court ruled, the “sensitivity” of such cases and requests (see Constitutional Court docket no. 2021/064, LES 2022, 25). Where contempt of court orders carrying the threat of sanctions are imposed on such parties, it is unlikely that Liechtenstein courts will grant the application.
1.2. Financial orders
The creditors of a spouse beneficiary in a case involving Liechtenstein divorce proceedings may assert a claim against trust property by way of initiating execution or bankruptcy proceedings, but, according to Art. 914 (2) Persons and Companies Act, only insofar as the beneficiary has claims against trust property. However, the settlor may stipulate in the trust deed (Treuhandurkunde) that a beneficial interest which has been acquired against no consideration may not be withdrawn from a beneficiary by way of execution or bankruptcy proceedings. In this case, the creditors of the beneficiary have no claim against the trust property. The same applies to decisions made by courts in foreign jurisdictions, if these decisions are to be recognized in Liechtenstein law.
Trust assets are absolutely excluded from the trustee’s creditors’ executive access pursuant to Art. 915 Persons and Companies Act. However, creditors of the beneficiary can assert their claims against trust assets according to Art. 914 (2) Persons and Companies Act, but only if the beneficiary has a legal claim against trust assets, i.e., is not a mere discretionary beneficiary (Ermessensbegünstigter), or if the beneficiary is settlor and has reserved powers of revocation. The trustee is liable for obligations at the expense of trust assets only if it is not proven that the third party did not rely on a more extensive liability. As mentioned above, 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 Liechtenstein. However, if a spouse is a discretionary beneficiary (Ermessensbegünstigter) of a Liechtenstein trust and lives abroad, they need not fear a lawsuit in Liechtenstein: according to a decision by the Liechtenstein Supreme Court there is no domestic jurisdiction in this case and a lawsuit would be dismissed. However, this does not apply in cases where there are grounds for suspicion of damage to creditors.
As mentioned above, Liechtenstein (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, obligated parties may, as a last resort, be subject to fines or imprisonment if disclosure cannot be provided by third parties.
2 . Prenuptial and postnuptial agreements (PNAs)
Liechtenstein law regarding the monetary consequences of divorce is regulated in the Marriage Act (Art. 73 to 89a leg cit). The assets to be divided under matrimonial property law are described in Art. 74 Marriage Act as “any increase achieved by spouses during marriage up to the dissolution of the domestic partnership which is not covered by the exceptions listed in this Act”. Thus, in Liechtenstein, in principle, any asset that cannot be subsumed under one of the explicitly listed exceptions pursuant to the Marriage Act is subject to division under matrimonial property law.
Liechtenstein matrimonial property law provides for a deviation from this prescribed division order in very few exceptions. Pursuant to Art. 89a (1) Marriage Act, the division of matrimonial property may not be waived by contract in advance.
According to Art. 89a (2) Marriage Act, however, it is permissible for spouses to contractually agree (before or during the marriage) that companies or shares in companies are to be excluded from the division under matrimonial property law, provided that these are not mere investments. However, pursuant to Art. 89a (3) Marriage Act, agreements regarding the modification of the division of the total increase in assets in the meaning of Art. 74 Marriage Act can only ever be made with legal effect in (timely) connection with impending marriage annulment, divorce or separation proceedings.
If foreign parties agreed on a prenuptial or postnuptial agreement, Liechtenstein courts will generally enforce and uphold such agreements, provided that there was a valid choice of foreign law and that there are no public policy issues that would suggest the PNA, or parts thereof, to be disproportionate or discriminatory. In such cases Liechtenstein courts are likely not to enforce the PNA and consider it invalid.
2.1. Procedural requirements
According to Art. 89a (4) Marriage Act, agreements pursuant to Art. 89a (2) Marriage Act must be in writing and the signatures must be notarized in order to be legally binding. Agreements within the meaning of Art. 89a (3) Marriage Act, however, require court approval.
2.2. Spouse’s financial claims
Agreements modifying the division of marital property system are not limited to the election of a matrimonial property regime but, as outlined above, are only permitted in very specific circumstances.
2.3. Children’s financial claims
Pursuant to Art. 89g Marriage Act, in the event of a divorce the provisions of the General Civil Code (Allgemeines Bürgerliches Gesetzbuch) govern the settlement of (financial) child support.
However, in any case, no agreement between the parents 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 Art. 140 (1) Non-Contentious Matters Act (Ausserstreitgesetz), oral hearings in all non-contentious matrimonial and child-related matters are not public. Only if all parties to the proceedings agree may the public be allowed to attend oral hearings by court order, provided that no circumstances of private and/or family life are to be discussed and provided it is compatible with the welfare of the person (child) in care. Thus, the best interests of the fostered person (child) are always the centre of focus. In the case of contentious divorce proceedings the hearing and the pronouncement of the judgement are not public either, pursuant to § 522 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 Art. 140 (1) Non-Contentious Matters Act. Further, remote attendance by video link is not possible even if the oral hearings in family law matters are made public, since Liechtenstein civil procedural law does not provide for public attendance to oral hearings via remote media of communication.
In principle, it is not possible for the media to gain access to court documents or publish information from them. 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.
Even if an oral hearing should be made public in individual cases, cameras and recording devices are nevertheless not permitted, since Liechtenstein 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
Liechtenstein civil procedural law does not provide for a formal application to restrict reporting by the media. However, such an application is unnecessary: 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.