News

Richard Kershaw discusses trusts on divorce and their role in financial planning strategies

  • November 09, 2020
  • By Richard Kershaw, Partner

Trusts on divorce

Trusts play an important role in many families’ financial planning strategies. In the event of divorce, trust interests can rapidly become contentious.

The approach a court will take to a party’s trust interests, including whether the court will be able to make orders directly against trust assets, depends on a number of factors.

Nuptial settlements – court has direct powers

The court can only make orders dealing with trust assets if the trust can be characterised as a “nuptial settlement”. If it can, the court has the power to redistribute trust assets to make provision for the non-beneficiary spouse.

A trust will be nuptial if it makes continuing provision for both or either of the parties to the marriage in their capacity as husband or wife. Dynastic trusts protecting the beneficiary spouse’s family wealth will not usually be nuptial; a trust set up by one party during the marriage of which they are a beneficiary usually will be. However, the position is not always clear-cut and specialist advice should be taken at an early stage.

Even where a trust is nuptial, it does not follow that its assets will be shared between the parties. The court will consider whether the trust assets are matrimonial – meaning they are the product of the parties’ endeavours during the marriage, or the matrimonial home. If so, then it is likely that the court will consider that the assets should be shared. If not, for example if the trust assets represent the beneficiary party’s inherited family wealth, then they are likely to be shared only to the extent necessary to meet the other party’s needs. The court will also take into account the trust’s other beneficiaries and other surrounding circumstances.

Non-nuptial settlements – court has indirect powers

If a trust is not nuptial, then the court cannot make orders directly against the trust’s assets. It can however take the beneficiary’s trust interest into account as a resource available to them. Whether a trust interest will be considered a resource will depend on a number of factors, including the terms of the trust, any letters of wishes, the past practice of the trustees, and any evidence of their future intentions.

If it is held that the trust interest is a resource of the beneficiary spouse, the court may adjust the orders made in respect of the parties’ other assets accordingly. As assets in a non-nuptial settlement are unlikely to be matrimonial, this is only likely to happen where necessary to meet the non-beneficiary spouse’s needs.

One option the court has is to give the other party a greater share of the non-trust assets. Alternatively, the court could make an order based on the assumption that the trustees will make certain funds available to the beneficiary party, for example to enable them to rehouse, or to pay a lump sum to the other party. This is sometimes termed “judicious encouragement”, although in recent judgments the court has been keen to emphasise that judges do not “encourage” trustees to make provision, but assess the likelihood that they will do so.

If you need advice on the treatment of trust interests on divorce, contact Richard Kershaw or any member of our Family Team on 020 7412 0050.


Related News

Sep 15, 2021
Henry Hood recognised in the Citywealth Leaders List Top 100 Private Client Lawyers 2021
Sep 14, 2021
Hunters recognised as one of the 2021 eprivateclient Top Family Law Firms
Sep 06, 2021
Hunters Law shortlisted at the Family Law Awards 2021
Aug 02, 2021
Henry Hood examines the Thwaite jurisdiction where a client seeks adjustment of a financial remedy order in The Review
Jul 29, 2021
Eri Horrocks discusses what happens to the children when separated parents differ on relocating in WealthBriefing
Jul 28, 2021
Eri Horrocks discusses a practical guide to emergency private children cases in The Review
Jul 27, 2021
Eri Horrocks discusses what separated parents wanting to relocate within the UK need to know in Family Law Week
Jul 22, 2021
Hunters’ success in the Chambers HNW 2021 Guide
Jul 12, 2021
Jo Carr-West and Lara Barton discuss recent recommendations that would assist divorcing couples in managing the CGT implications of separating their financial affairs in Family Law Week
Jul 07, 2021
Hunters’ success in the 2021 Spear’s Family Law Index

© Hunters Law LLP 2021 | Privacy NoticeLegal & Regulatory | Cookies Policy | Complaints Procedure.

Hunters Law LLP is authorised and regulated by the Solicitors Regulation Authority (number 657218)