My first blog on trusts and divorce gave a general overview of trusts that may be the subject of dispute in divorce proceedings, what those involved in administering the trust or benefiting from it are called and the courts duty to consider all of the relevant circumstances of a case as well as the financial resources available to the parties.
In this blog, we will start to look in more detail at the way the court may treat trusts in matrimonial disputes and the powers it has available to make orders.
How the Courts Deal with Trust Assets in Divorce Proceedings
Given the increasing popularity of trust arrangements, family law has developed to deal with trust assets on the breakdown of a marriage.
The court has the power to vary what are called “nuptial settlements”, can use the law of property or trusts to show that a trust is a “sham” intended to prevent one spouse from claiming an entitlement to assets and it can treat trust assets as income or capital available to one spouse and therefore available for division between the parties.
In order to be valid, there must be an intention on the part of the “settlor” who provides the trust assets to create a trust, there must be certainty as to what the assets of the trust include and who is to benefit from them.
If these constituent parts exist, then further consideration will have to be given as to the appropriate way to deal with the trust on marriage breakdown.
Depending on the circumstances or ways in which the trust assets can be treated by trustees or beneficiaries, the court may have scepticism as to whether or not a trust is genuine. Judges are used to coming across trusts and deal with them frequently in the context of separation and will take a robust approach if they consider that a trust has been created to hide or obscure the financial reality. There is a duty on each party to be open and honest about their financial position and there could be serious consequences in cases where attempts are made to deceive the court, or your spouse, as to the true financial picture.
That being said, most trusts will be genuine and, in such circumstances, the resources that the trust provides to the spouse who is beneficiary will be of importance in deciding what the assets of the marriage are and how they should be divided.
In some circumstances, there may be other assets outside of the trust sufficient to meet the needs of the spouse who does not benefit under a trust but, if not, that spouse may have to claim against the trust assets themselves.
Any party to marriage breakdown should seek legal advice. However, this is even more important when the assets of that marriage include trust assets given the complex nature of a trust, the components to ensuring that a trust is valid and the varying extent of the trustees powers in respect of any particular trust and the rights and expectations on the beneficiaries who may also be third parties to the marriage.
Emma Davies is a specialist Family Law Solicitor at Nelsons. If you need advice on trusts and divorce or any other family related matter, please contact Emma and she will be happy to discuss your circumstances in more detail and give you more information about the services that Nelsons family law solicitors can provide. Emma can be contacted on 0800 024 1976 or by email [email protected]