The majority of trusts that we come across in divorce proceedings are genuine. However, trusts can be set up as a vehicle to protect assets that might otherwise be considered matrimonial. In some circumstances, parents might wish to protect assets given to their children on marriage. In other situations a one spouse might try to prevent the claims that their husband or wife might otherwise have by settling assets into trusts in an attempt to intentionally defeat their spouse’s claims against those assets.
Challenging a Trust
One way to challenge a trust, or to bring the assets of a trust into account in matrimonial proceedings, is to use trust or property law to attack the trust assets.
A trust may be invalid as a result of not having been created properly. Other courses of action, such as a proprietary estoppel may be available to a spouse attempting to claim an interest in trust assets. Alternatively, it may be argued that a trust is a “sham” trust. In other words that the trust is fake, i.e. that the settlor had no intention of creating a trust in accordance with the deed and the trustees knew this and joined the settlor in creating misleading documentation for example.
The “Sham” Trust
There are many ways in which it could be shown that a trust is a sham. Perhaps the trustees do not act in accordance with their duties. Perhaps the beneficiary or settlor treats the assets as if they were their own acting independently of the trust. The timing of the formation of the trust asset, trustees, beneficiaries, settlor and powers of distribution, including any letters of wishes in connection with the trust, may all give us an idea as to whether the purpose of the trust is genuine or not but consideration would also have to be given to many other factors.
It is difficult to prove that a trust is, in fact, a sham. In most cases the onus to prove that the trust is a sham is on the spouse making the allegation and this can be a costly and time consuming exercise.
It should always be remembered that there is a duty of transparency when it comes to financial remedy proceedings relating to divorce. Off shore accounts attempting to hide assets with the purpose of misleading your spouse and the court as to the extent of your true financial position will attract criticism and could result in hefty penalties in the court arena, such as orders for costs being made against you.
Ultimately every couple’s financial circumstances are different and, whether you are pursuing or defending claims against a trust in matrimonial proceedings, it is important that you obtain specialist advice.
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 emailing [email protected]