Family Trust Lawyers
Trusts are set up for different reasons. These include avoiding or managing taxes, protecting wealth for future generations, and investing in inherited assets.
What Is A Trust?
A trust contains assets given to it by the “settlor” and these assets are legally owned by the Trustees who hold the assets for the benefit of those specified in the trust as the “beneficiaries”.
Trust assets can include:
- Cash
- Investments (including shares in a private limited company)
- Properties
Are Trusts Relevant On Divorce?
From a divorce perspective, the Matrimonial Causes Act 1973, S25 states that the divorce court has an obligation to consider all the available assets and resources of each of the spouses.
If you or your spouse are beneficiaries under a trust and entitled to receive capital or income from the trust it is likely to be considered a financial resource within divorce and in some circumstances a matrimonial asset.
What Types of Family Trusts Are There?
Most family trusts are discretionary trusts. Discretionary trusts allow the trustees to make certain decisions regarding how any income and sometimes capital should be distributed to the beneficiaries.
Whilst it is the beneficiaries who are entitled to benefit from the trust, they usually have no right to receive any of its assets.
These trusts include:
- Nuptial trusts – It is likely to be a nuptial trust if it was established during the marriage by one or both spouses and one or both spouses and sometimes their children are beneficiaries.
- Intergenerational trusts – These are established to benefit current and future generations of a family. often to keep specific assets, such as a farm or a valuable property, in a family.
It is worth noting that not all trusts will be considered legitimate trusts for divorce purposes.
If one spouse has set up a trust during the marriage, transferring matrimonial assets into it in an attempt to put them out of the way of the other spouse to defeat their divorce claims, a court may find that this is a Sham Trust, which a judge has the power to set aside.
How Are Family Trusts Dealt With On Divorce?
In divorce proceedings there can be disputes regarding whether trust assets are matrimonial, and therefore should form part of the assets to be divided between the couple, or if they are non-matrimonial and fall outside of the assets to be divided.
Nuptial trusts are likely to be considered matrimonial assets when considering the assets available to the couple to be divided between them on divorce.
The court has wide powers to vary nuptial trusts on divorce, including:
- Changing beneficiaries to allow financial provision to be made via the Trust to one or both spouses on divorce
- Changing trustees and appointing new ones to make sure both spouses are treated fairly when it comes to benefitting from the trust
Most family trusts – which are not nuptial trusts – are unlikely to be considered matrimonial assets within divorce proceedings. However, a benefit that one spouse has under such a trust may be considered a resource available to them to meet needs.
From a divorce perspective, it can be difficult to assess the resources available to the beneficiary spouse, particularly when it is a discretionary trust.
The divorce court will consider what benefits have been received by the beneficiary spouse from the trust in the past and what they are likely to receive in the future.
If the couple has few assets and their lifestyle has been largely funded by a trust (which is not a nuptial trust) the divorce court can take the view that the trust will continue to meet the needs of the couple even after the divorce. They will then order that the trust beneficiary provide payments to their spouse on the assumption that the trustees will fulfil that order.
What About Trusts Abroad?
To further complicate matters on divorce, some of these trusts may be held offshore making the situation more complex on divorce, as many other countries insist that trusts are dealt with in accordance with their law. Some of these countries include:
- Cayman Islands
- Isle of Man
- Jersey
Due to this, they may not uphold an order made by an English divorce court for the trust.
If you or your spouse have an interest in a trust, it is important that you obtain specialist advice on this issue if you divorce.
Reach out to Our Specialist Family Trusts Team Today
Family law matters can bring financial uncertainties, which can be very overwhelming. Our team of family trusts lawyers have extensive experience in financial matters, to help guide you along the way with confidence.
To chat with our team, call us on 0333 202 6433 or email us at [email protected].
