Trust Issues on Divorce18-Sep-2019
By Susan Alexander, Consultant Solicitor, Family and Mediation
Many families use trusts as part of their financial and tax planning, this article addresses some key questions relating to trusts should couples be faced with divorce.
Q. What happens with monies and assets held on trust when spouses divorce?
A. There are four ways that a court may consider dipping in to trust assets to achieve justice between the parties on divorce.
i) Where the court finds that the trust funds are accessible to one of the parties for example where there is a history of money or assets being made available to that party.
ii) Where the court finds that the trust is a nuptial settlement making provision for one or other of the parties.
iii) Where the court finds that the underlying assets still belong to the individual who set up the trust (the settlor) although ostensibly, they have been put into a trust.
iv) Where (in very rare cases) the court finds that the trust is a sham. In that case, the court would treat the assets as if the trust did not exist.
Q. How clear-cut is the law on trust assets on divorce?
A. Unfortunately the law is unclear with very few hard and fast rules. In each case the courts will look at the circumstances and make judgement based on the facts.
Q. What powers does the court have in relation to trust assets?
A. The court can make orders against a beneficiary of a trust. If the court finds that a trust is a nuptial settlement, it has wide powers to add or exclude beneficiaries, change the terms of the trust, remove or replace trustees and order payments to a person who is not a beneficiary. If the settlor is one of the parties, the court could revoke the trust, but this would be exceptional.
Q. How likely is a court to interfere with a trust?
A. The courts will not interfere with the trust more than is necessary to ensure justice between the parties. The courts will scrutinise the trust documents and review how a trust has been managed and used.
If you are worried about the effect of trust assets on separation and divorce or you are considering setting up a trust, please contact a member of the Family Law team on 01244 356 789 or email email@example.com
Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.