A property developer used a sham trust to shield assets from his wife and is liable for a large tax bill

In a rare ruling, His Honour Judge Hess (sitting as a Deputy High Court Judge) has determined that the Trust set up by Mr Michael was indeed a sham and in reality Mr Michael controlled the Trust assets at his sole discretion. 
The England and Wales Family Court has concluded that

• A trust set up by London property developer Mario Michael was a sham, intended to shield significant assets which should have formed part of the total matrimonial assets to be shared on divorce.
• Michael controlled the trust assets at his sole discretion and ordered him to pay his ex-wife GBP15 million in a series of lump sums (Michael v Michael No 3, 2025 EWFC 245).

SHAM TRUSTS & MONEY LAUNDERING RISK CONSIDERATIONS

• Using sham trusts to conceal assets may involve:
• Concealment of the origin or ownership of funds, which is a hallmark of money laundering.
• False documentation and misrepresentation, which can be used to launder proceeds of crime.
• Asset shielding to avoid financial disclosure, which may breach anti-money laundering (AML) regulations.
• If the trust is used to disguise the proceeds of crime, or to evade tax or financial obligations, it could fall under the scope of the Proceeds of Crime Act 2002 (POCA) in the UK. This could lead to:
• Criminal investigation for money laundering.
• Asset recovery proceedings by enforcement agencies.
• Reporting obligations for legal professionals under AML regulations.

JERSEY TRUSTEE RISK IN SHAM TRUSTS

• AML Risk - Failure to conduct proper CDD or report suspicious activity may breach AML laws
• Regulatory Risk - Non-compliance with JFSC registration and supervision requirements
• Legal Risk - Exposure to civil or criminal liability if the trust is found to be a sham
• Reputational Risk - Damage to the trustee’s credibility and standing in the financial services sector

Although this case is now fully disclosed, and there is no mention of proceeds of crime coming into the trust, it is worth noting that.

• A tax issue exists because of the sham.

From the judgment https://www.bailii.org/ew/cases/EWFC/HCJ/2025/245.html the following is recorded

• 12 (ix) (e) On the AB Trust issue,
• The husband's case was that a large portion of the assets in the case (to which I attributed an 'indicative value' of £38,000,000) were held beneficially for others, i.e. not him, under the AB Trust; but the wife's case was that this arrangement was a sham and that these assets were really owned by the husband.
• I (the court) concluded: " In my view 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 / Eurofast. 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 ".
• It was known by the participants in the 2024 hearing that a finding to this effect might have significant, possibly very significant, tax consequences for the husband (to which I attributed an 'indicative value' of £15,000,000), for reasons I shall explore further below.
• 73. At some point prior to the Summer 2024 hearing, the husband was advised (in particular by a letter dated 7^th May 2024 from his accountant, Mr Yogan Patel of MHA accountants) that if I found the trust arrangement to be a  'sham' (which I later did - see above) then there was likely to be a tax issue arising from a transaction which took place on 24^th November 2020.
• 74.  The background was that, until 2020, the assets of the 'trust' were its 100% shareholding in AB Holdings Limited which in turn owned 100% of Hartsfield Investments Limited (Cyprus).
1. Both these companies were Cypriot companies and Hartsfield Investments Limited then owned numerous subsidiary companies in the UK.
2. On 23^rd November 2020 a new company was incorporated in the UK, namely Hartsfield Investments UK Limited, which was also 100% owned by AB Holdings Limited.
3. On 24^th November 2020 the subsidiary companies owned by Hartsfield Investments Limited (Cyprus) were all transferred to Hartsfield Investments UK Limited.
4. On the same day, 24^th November 2020, the shares of Hartfield Investments UK Limited were transferred by AB Holdings Limited to the 'trust' for a nominal consideration of £1.
5. The legal consequence of my (the court) declaring that the 'trust' was a sham was that the assets of the 'trust' were at all times beneficially owned by the husband.
6. As such, the transfer of the shares of Hartsfield Investments UK Limited to the 'trust', i.e. to the husband, might be treated by the HMRC in the United Kingdom as an income distribution of the entire open market value of the assets of Hartsfield Investments UK Limited, then said to have been worth £30,212,015.
7. Further, the income tax liability would have been due on 31^st January 2022. Interest would be due on late payment. In addition, absent unprompted disclosure, penalties might be imposed of up to 100% of the liability at the discretion of HMRC. The liability might be a substantial amount.
• 75.  Because the wife's team thought this unlikely, and did not accept the objectivity of Mr Yogan Patel, Mr Sladen of K3 Tax Advisory Limited was instructed, on a SJE basis, to give a view on the matters arising from the letter of Mr Yogan Patel.
• 76.  He produced an initial report on 12^th July 2024, and some responses to questions dated 25^th July 2024, and a final report dated 24^th March 2025 (Ep.1424).
• 77.  Mr Sladen notes the opinion of MHA that, as at 24^th November 2020 (at the moment of the share transfer) the assets of Hartsfield were worth £30,212,015.

Read more from Kingsley Napley’s Family team ,

1. Stalo Michael, a wife bringing divorce and financial proceedings against her husband, Mario Michael. Three separate judgments in these proceedings have now been published.
2. Over three years of litigation, Kingsley Napley, instructing Christopher Pocock KC, Thomas Haggie, Andrew Mold KC and Joseph Steadman, has successfully argued that Mr Michael has shielded significant assets in a sham trust which should form part of the overall matrimonial assets to be shared on divorce.
3. In a rare ruling, His Honour Judge Hess (sitting as a Deputy High Court Judge) has determined that the Trust set up by Mr Michael was indeed a sham and in reality Mr Michael controlled the Trust assets at his sole discretion. 
4. Mrs Michael commenced divorce proceedings in 2022, following a 22-year long marriage to Mr Michael, a prolific property investor and developer in North London who had an interest in over 200 properties. 
5. Mr Michael’s conduct from the outset triggered extremely complex and highly contested litigation requiring seven other parties, including a company operated by Mr Michael, to be joined to the proceedings and the court heard evidence from over 30 witnesses.
6. His Honour Judge Hess found that Mr Michael was a “fundamentally dishonest man, quite prepared to be wholly and deliberately dishonest when it suits him to be” who had a “deliberate intention” to leave Mrs Michael “homeless and in a financially parlous situation.”
7. The Judge further commented that Mr Michael had “unfortunately done everything in his power” to ensure that Mrs Michael “would not receive her fair share of the fruits of a long marriage.”
8. Mr Michael was said by HHJ Hess to be “a dominating and menacing presence” who “likes people to know that he is in charge and that doing what he says will generate a reward and crossing him will generate a punitive reaction.”
9. At a final hearing which took place in May of this year, which dealt with complex arguments regarding the true value of Mr Michael’s interests in his property investment and development businesses, Mr Michael was ordered to pay a series of lump sums totalling £15 million to Mrs Michael.
10. Jane Keir, Family Law Partner at Kingsley Napley who leads Mrs Michael’s legal team, comments:
1. Proving that a trust is a sham trust is a complex matter, particularly in circumstances where the party seeking to challenge the arrangement often does not have access to the key evidence. We are pleased the court has decided in our client’s favour and provided clarity on sham trusts in a family law context.  No one should be aided in the concealment of funds that should properly be considered shared matrimonial assets.
2. This has been a long and, at times, highly frustrating process for our client as she courageously fights to uphold her rights before the court. Her husband’s needless strategy of obfuscation has only served to worsen his position and increase costs.
3. This case should act as a warning to others tempted by creating a false trail designed to thwart the lawful interests of a former partner. The family court has shown it has no hesitation in exposing such misleading conduct.”
11. In a separate judgment also made within these proceedings and now public, the Family Court acceded to a rare request to appoint receivers to help enforce orders relating to monies owed to Mrs Michael by Mr Michael in unpaid maintenance and legal fees ordered in December 2023 (reported under PS v NB [2023] EWHC 3485 (Fam)) and a payment of £850,000 towards the wife’s costs. 
12. HHJ Hess recognised that Mr Michael had shown “no wish to comply with my order in any sense and had no regard for the importance of his obligation to comply with that order” and felt that his “very obvious refusal to cooperate in any way” meant that such an order was appropriate in the circumstances.
13. Mr Michael has been ordered to pay numerous costs orders, the most significant of which was an order to pay 85% of Mrs Michael’s costs incurred up to shortly after the substantive hearing in August 2024 on the indemnity basis. Efforts to secure full recovery of all sums due to Mrs Michael, including her award of £15million are active and ongoing.
14. Mr Michael has made several applications for permission to appeal to the Court of Appeal, one of which was refused by Lord Justice Moylan and the remainder await a decision.

Sources

BAILII = https://www.bailii.org/ew/cases/EWFC/HCJ/2025/245.html
Kingsley Napley (Mrs Michael's counsel) https://www.kingsleynapley.co.uk/our-news/press-releases/kingsley-napley-secures-rare-sham-trust-ruling-in-divorce-battle