The judgment of Michael v Michael [2024] EWFC 463 demonstrates that the family courts continue to be willing to regard trusts used to present what are really personal assets as being held within an inaccessible trust fund as “shams”.

Emma Holland, Miriam Spencer and Basil Zirinis examine that decision (as well as the subsequent related decisions of Michael v Michael (No 2) [2025] EWFC 244 and Michael v Michael (No 3) [2025] EWFC 245) and how the law on sham trusts appears to be evolving in this area.

The facts

The two main parties involved in this dispute were Ms Stalo Michael (the “Wife”) and Mr Mario Michael (the “Husband”). The Wife had initiated divorce proceedings in May 2022.

The most valuable asset in dispute was the trust fund of the AB Trust (the “Trust”) with an indicative value of £38m.

The Husband’s position was that he had no legal or beneficial interests in any of the Trust’s assets such that they should not be treated as resources within the meaning of section 25 of the Matrimonial Causes Act 1973 (the “MCA 1973”) and that it was not a “nuptial trust” subject to variation by the court under s24(1)(c) of the MCA 1973.

The Wife’s case was that there was no valid trust: it was a nullity and a sham or hoax. The Judge, however, noted there was no cited authority for such different categories of cause of action and accordingly focused simply on whether the allegation of sham was made out. The Wife maintained that the assets which the Husband argued were held in the Trust were instead owned beneficially by him. Alternatively, the Wife argued that the Trust was a nuptial trust.

The sham analysis

The purported trust deed suggested the date of its creation was 16 July 2007. The Husband’s father, Christofis, was the settlor, and the Husband was the protector. The purported trustee was originally Proglobal Trustees Limited (“Proglobal”), a Cypriot professional trustee group. However, in late 2021, a resolution was passed purporting to replace Proglobal with the Husband and Wife as trustees. In mid-2024, the Husband alone purported to dismiss the wife as a trustee.

His Honour Judge Hess noted: “In analysing the genuineness and validity of this document and this situation, it is important at this stage for me to remind myself of the words of Munby J (as he then was) in A v A & St George Trustees [2007] EWHC 99: ‘Even in the Family Division, a spouse who seeks to extend her claim for ancillary relief to assets which appear to be in the hands of someone other than her husband must identify, and by reference to established principle, some proper basis for doing so. The court cannot grant relief merely because the husband’s arrangements appear to be artificial or even ‘dodgy’.’”

The Judge was confident there was such a basis and referenced numerous factual conclusions, including that the Trust’s purported settlor, Christofis, “had nothing whatever to do with the creation of the [Trust]. He never even saw the document. He did not sign or execute it. His signature on the document is a forgery.” Accordingly, he said: “Christofis plainly had no intention that the document created the legal rights and obligations which it gave the appearance of creating because he knew nothing about it.”

The Judge was of the view that this forgery went a “significant way towards undermining the validity of the trust documentation and the intentions of the participants”. He found that in addition to the Trust document being invalid, the arrangement between the true “settlor” (ie the Husband, not his father) and the trustee fulfilled Lord Diplock’s crucial condition in Snook v London and West Riding Investments Ltd [1967] 2 Q.B. 786 for a sham: an arrangement which is misleading by design with a common intention of the parties to “to give the appearance of creating legal rights and obligations different from the actual rights and obligations that they intend to create”. Indeed, the Judge noted that the witness from Proglobal who gave evidence “was not telling me the truth” and “Proglobal were content to go along with the deception the ‘trust deed’ represented”.

Applying the landmark cases of Masri v Consolidated Contractors International Co SAL [2008] EWCA Civ 1367 and JSC VTB Bank v Skurikhin [2015] EWHC 2131, the Judge said that assets are to “be regarded in equity as assets of the judgment debtor where he has the legal right to call for those assets to be transferred to him or to his order, or if he has de facto control of the trust assets… where no genuine discretion is exercised by the trustee over those assets”. He considered that the assets held in the Trust fell “squarely within the test” given that a disclosed service agreement between “Cypress Trustees [a former name of Proglobal] and the husband… meant that the only person who could give instructions to Cypress Trustees was the husband himself… In reality the professional trustees did exactly what the husband told them to do… and did not exercise anything which could amount to a trustee-like power”.

The Judge summarised his position in his most recent judgment relating to this case on 11 June 2025: “…the whole situation was false, designed to mislead, and the ‘trust’ and its documents were a sham and that this was known by Proglobal Trustees… There was no settlor. There was no trust. What happened was that the husband was investing his own assets into a structure for which the trust document was a cover story. In reality, he was the true beneficial owner of the assets at all times.”

With that in mind, His Honour Judge Hess included the AB Trust’s assets (less an indicative value for possibly significant tax consequences) within his schedule of realisable assets and debts which he later used to quantify the Wife’s claim on the sharing basis.

The impact of the Wife’s trusteeship

A nuanced area of analysis arose in the context of the Wife purportedly being co-trustee from late 2021, having replaced Proglobal, until her unilateral removal by the Husband in mid-2024.

The Husband’s solicitors referred to the principle elucidated by Mr Justice Munby in A v A [2007] EWHC 99 (Fam) “that if the original ‘trustees’ who were party to a sham transfer property to new trustees who are not party to the sham, then the new trustees will again take and hold as genuine trustees”.

However, the Wife’s lawyers successfully argued that by virtue of never having read the purported trust deed, and indeed having been lied to about its contents by the Husband (including that she was not told that neither she nor the Husband could benefit from it), the Wife had not been appointed as a new bona fide trustee on the basis of its terms. The Judge found: “She did not accept her appointment on that basis…. [Rather,] she accepted appointment as trustee of a trust, but not of the trust which [the Husband] says was established by the Trust Deed.”

Factors influencing His Honour Judge Hess’s decision

His Honour Judge Hess made a number of findings about the Husband’s conduct, which contributed to his overall finding that the Trust was a sham. These included that the Husband “is a dominating and menacing presence” and is a “fundamentally dishonest man”. He also found that he has a “willingness, indeed tendency, dishonestly to create documents, and/or dishonestly forge signatures on documents, which suit his purpose” and was “deliberately blocking disclosure” from the Trust, probably fearing the interrogating of some of the documents emerging”.

The appointment of receivers – a rarity in the Family Division

In his second judgment (No 2), His Honour Judge Hess exercised his power to appoint receivers over £1,315,150 owed by the Husband in respect of unpaid maintenance, legal fees and costs (including a sum of £850,000 toward the Wife’s costs). In his judgment, the Judge notes that this power is effectively copied over by Family Procedure Rules, Rule 33 (“FPR” and “Rule 33”, respectively) incorporating Civil Procedure Rules, Part 69 and “so for all practical purposes the power of the Family Court, at High Court level, to appoint a receiver is the same as it would be in the Chancery Division”.

Rule 33 is deployed rarely in family proceedings. Instead, other FPR powers, such as freezing injunctions and disclosure orders, are typically used in divorce-related financial remedy applications. Where trust assets are in play, family courts typically make orders under the MCA 1973 or under the Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA”).

Why then did the Judge choose to appoint receivers? It appears he concluded that the various tools offered by the MCA 1973, FPR and TOLATA, although designed to be implemented in disputes involving family dynamics, were unlikely to be sufficient in this case.

The Judge observed: “As a combination of the way in which these assets are held, the structure of the companies and also the [H]usband’s very obvious refusal to cooperate in any way with this, do in my judgment, mean… using the normal processes of execution, a normal charging order or other such enforcement order would be complicated in this context and the receivership order therefore is the sensible and appropriate way forward.”

It was also clear to the court that the Husband was “determined not to comply with [His Honour Judge Hess’s] orders and every document… from him makes that very clear”. For example, it was observed that on the same day orders for maintenance pending suit and a legal services payment order were made, the Husband “transferred from one of his companies to himself a figure of £535,000 and did not pay one penny of that towards complying with” such orders.

Outcome

The Husband was ultimately ordered – in judgment (No 3) – to pay to the wife a series of lump sums totalling £15m. In addition, he has been ordered to pay a number of inter partes costs orders, some of which are subject to detailed assessment on the indemnity basis.

Conclusion

Michael v Michael demonstrates the ongoing willingness of the family court, where appropriate, to declare trusts as shams. Naturally, this can have a significant impact on the assets available and, therefore, on the sums awarded in financial remedy proceedings.

It is also worth noting that such a finding can have other serious implications, including as to tax, on the basis that assets dealt with through sham trusts may also be deemed by HMRC as never having been placed in trust. In this case, the Judge estimated a tax liability of between £6m and £30m.

Further, this case highlights that where parties to divorce proceedings refuse to comply with court-ordered payments, enforcement methods that are more typically seen in commercial disputes, including receiver appointments, can be deployed.

Partner in our Family Team, Matt Humphries, comments:

“The decision in Michael v Michael sends a clear message to those who might seek to conceal assets behind complex trust structures. The Family Court has shown it will look beyond appearances and take a firm, pragmatic approach to ensure fairness between parties. The case also illustrates the court’s willingness to adopt commercial enforcement tools, such as receivership orders, where necessary to ensure compliance in high-value financial remedy proceedings. It stands as a timely reminder that attempts to obscure the true ownership of assets are not only likely to fail, but may ultimately strengthen the other party’s case.”

We understand that as at the time of writing this article, the Husband had applied to the Court of Appeal for permission to appeal.

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