Traditionally trusts have been used to protect fortunes from tax but now they are frequently used to keep wealth within a family and to protect it from financial claims that might be made on relationship breakdown.
The courts function in financial proceedings is to establish the assets of the marriage then divide them between the parties in a fair way. This process is troublesome at best but is much harder in cases where there are assets held in trust.
How safe is a trust fund from attack by my spouse?
Each case that comes before the court will be treated on an individual basis however the courts are showing a tendency to treat a trust fund with less sensitivity if it is necessary to call upon that particular resource to ensure that both parties’ needs are met.
Even offshore trusts are open to potential claims. Some jurisdictions will follow English court orders.
What can the court do?
There are two types of settlement that the court must consider when examining the extent of the parties resources. Those that have a ‘marital element’ (ante or post nuptial) and those which bear no relation to a marriage. An ante nuptial settlement is a settlement made prior to marriage and a post nuptial settlement is made after marriage.
Trusts that are neither ante or post nuptial settlements are treated differently and whilst the court cannot vary these settlements they are not to be ignored. The court has a duty to consider all the resources which a party has or is likely to have in the foreseeable future even under a discretionary trust.
Section 24 of the Matrimonial Causes Act 1973 gives the court power to vary the terms of both ante and post nuptial trusts and it has been known for the court to extinguish or reduce one party’s interest in a trust to make provision for the other.
How can I protect myself?
Your spouse may argue that the trust was set up, if post marriage, in an attempt to prevent him or her claiming an interest in that asset. This is also true of a trust set up in contemplation of separation. One spouse may argue that the trust was set up to intentionally defeat a claim. As a result, these types of trust are most vulnerable to the court’s wide discretion to vary the terms of the trust.
Take legal advice as soon as possible from one of our specialist family lawyers to avoid the pitfalls of ante or post nuptial settlements. Trusts should be established well before any marriage so that no link can easily be drawn. Even if this is not possible, the court has shown a willingness to distinguish assets which are as a result of joint matrimonial endeavour from those which are not. Inherited wealth in trusts would be an obvious example of this.
If you would like more advice please contact one of our specialist family lawyers.