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Trusts and Divorce

Many couples facing divorce hold valuable assets in trust. Our long history of advising high net worth individuals makes us expert at advising on the treatment of trust assets during the divorce proceedings.

If you are or your husband/wife is a beneficiary under a trust and entitled to receive capital or income from that trust it may be regarded as a financial resource and taken into account by the court in financial remedy proceedings. The court has wide-ranging powers in relation to trust assets depending on how the trust has been administered and who has benefited from it. It is therefore vital to ascertain from the outset of divorce proceedings how the court may approach the trust in question and what steps you might take in order to protect or attack the trust (depending on your position in the proceedings).

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Frequently Asked Questions 

Can I protect my assets on a divorce by putting them in a trust during our marriage? If assets are transferred to a trust during the course of your marriage then it is likely to be classed by the courts in England and Wales as a "nuptial settlement". This means that the court would have the ability to make an order to vary the settlement for the benefit of your spouse or civil partner. The court has wide-ranging powers in relation to trusts of this nature which include an order for the provision of capital or income for your spouse or children of the family, orders regarding the removal of trustees and so on.

If my assets are already in trust, will my spouse have a claim on them on a divorce? If the trust was created before your marriage or civil partnership then the court's approach will depend on the history of the trust. 

Even if the trust was created before your marriage it may include your spouse in the class of beneficiaries which would make it a "nuptial settlement" capable of variation.

If not, the approach of the court will depend on the course of dealings and it will be necessary to look at who has benefited from the trust in the past and to what extent, as well as how it has been implemented. A detailed analysis of the trust documentation will be required. The court will assess the availability of trust assets to you and will treat trust assets as a financial resource if it considers that you have sought to distance yourself from the true extent of your wealth and as such your spouse/civil partner may potentially have a claim on those assets on a divorce.

How does the family Court approach trust assets? If the court is satisfied that trust assets are a resource available to either party to a divorce and if it deems it necessary to do so the court can either make an order varying the trust (so that funds can be provided directly from the trust to your spouse/civil partner) or what is known as a "judicious encouragement" order. This would be appropriate in cases where the court considers that the trustee(s) will make available assets from the trust either to meet a financial order (such as a lump sum payment) or in order to replenish a beneficiary's assets after such an order has been met by him or her.

What is the court's approach to assets held in an offshore trust? Although the courts in England and Wales retain the ability to vary trusts governed by offshore law with offshore trustees, consideration must be given to the enforceability of any orders for variation. This will depend on the approach of the offshore jurisdiction in question. In practice, in cases where there are sufficient liquid assets within England and Wales it may be that more of those assets are used to fund an award rather than seeking to enforce an order against an offshore trust.

On divorce, what information will I have to provide about trust assets? Within your initial disclosure form (known as your Form E) you will need to provide details of the trust, stating your estimate of the value of your interest in the trust and when it is likely to become realisable. You may subsequently be ordered to provide more detailed information and documentation such as the original declaration of trust, any letters of wishes, the main governing and accounting documents of a trust, including deeds of retirement and appointment of trustees, instruments adding assets to the trust and any deeds of variation. If you do not have access to the documents in question, your spouse may seek to obtain these directly from the trustees. 

Will the trustees have to attend hearings? The court has the power to add trustees as a party to financial remedy proceedings. The court can do so of its own volition or following an application of either party to the divorce. In the event that trustees are joined as a party to the proceedings they will be required to attend hearings, give evidence and comply with orders of the family court for example for disclosure of documents.

 

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240 Blackfriars Road
London
SE1 8NW
DX 53 Chancery Lane

Telephone: +44 (0)20 7629 7411
Fax: +44 (0)20 7629 2621
Email: bh@boodlehatfield.com

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