Trusts can add a level of complexity to divorce negotiations or court proceedings but sometimes they can be the source of a solution that enables both parties to move on with their lives.
What is a trust?
A trust is set up by a settlor and looked after and administered by trustees on behalf of the beneficiaries. It has a separate legal identity. A key feature of a trust is that neither the husband or wife, owns the assets of the trust in the way that they legally own their house, car or savings. Trustees have a duty to look after the interests of the beneficiaries so requests for capital or income may be refused if this unfairly prejudices the interests of the others.
Trusts & divorce
How trust funds are dealt with in divorce depends on the circumstances of the trust and the case. The Court has a wide discretion when deciding what should be considered and in a range of circumstances, the power to vary or rewrite the trust agreement.
Nuptial trusts (nuptial settlements)
A nuptial settlement is when the husband and wife are beneficiaries connected to the trust in their capacity as spouses.
If the Court finds the trust to be nuptial, then it can exercise wide-ranging powers and can make an order to vary the settlement. For example, funds can be paid directly from the trust to a spouse, civil partner and/or any children of the family.
The court has the power to:
Change the trustees and appoint new ones
Transfer monies or property out of the trust
Change who benefits from the trust
Inter-generational or dynastic trusts
This type of trust is set up not only for this generation but for generations yet to come. Often there are clear intentions to preserve the assets of the trust for the family, particularly the bloodline.
If the trust was created before the marriage the Court will look at the history of the trust and why it was established.
In such circumstances the Court may be less willing to make orders that place pressure on the trust unless the needs of the non-beneficiary spouse cannot be met from other assets.The history of distributions out of the trust to the beneficiaries and whether this has taken the form of capital payments or income will be considered.
Trusts held offshore
For those trusts held offshore and therefore based in a different jurisdiction, it is important to understand what the attitude of the courts in the country are before you prepare your case.
It maybe that the courts of those jurisdictions will co-operate with an order made by the English court. In other jurisdictions the Court will not do so, as they are often complying with their own laws to preserve the sanctity of their trusts.
Our International Divorce team are on hand to advise British expats and overseas nationals who currently live in the UK, or have lived in recent years looking to divorce.
How do you challenge a trust?
A beneficiary or potential beneficiary must disclose a trust in divorce proceedings.
If the trust is not found to be nuptial, then the courts powers to procure money from the trust to fund a divorce settlement are limited; creative thinking is required to look at alternative solutions.
An option is to negotiate with the trustees and ask them to assist the parties to meet their financial needs. If they are not willing to help, then it may be possible for the court to place some “judicial encouragement” on the trustees by making orders against the beneficiary party so that the trustees are obliged to help.
How we can help
Trusts can be extremely complex with large amounts of money at stake so legal advice at an early stage is very important.
We have experience in cases involving trusts as part of the financial proceedings in the UK and offshore and have helped to protect beneficiaries of a trust or those seeking to include a trust in a financial award.
We advise trustees who are brought into divorce matters how to engage with the English courts because they may wish to co-operate but not subject themselves to the authority of the courts.
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