Trusts and Divorce

Trusts in divorce proceedings are ever-increasingly common in divorce proceedings. They can arise in many circumstances including when spouses are unable to agree on how assets should be divided.

Our discretionary trusts and family law lawyers in Leeds can answer any questions you have, please contact us on 0113 243 2288 or email family@henryhyams.com.

How do the Courts deal with Trust assets in divorce proceedings?

Given the increasing popularity of trust arrangements, family law has developed to deal with Trust assets during marriage breakdowns.

UK courts have the power to vary what is called “nuptial settlements”. They can use the law of property or Trusts to show that a Trust is a “sham trust”, which was set up with the intention of preventing one spouse from claiming entitlement to assets. The UK court can treat Trust assets as income or capital available to one spouse, and therefore available for division between the parties.

In order to be valid, there must be an intention on the part of the “settlor” who provides the Trust assets to create a Trust. When setting up a new trust, there must be certainty as to what Trust includes and who is to benefit from the agreement.

Depending on the circumstances in which the Trust assets can be treated by trustees or beneficiaries, the Court may have scepticism as to whether or not a trust is genuine. Courts regularly come across Trusts in divorce proceedings and will take a robust approach if they consider that a Trust has been created to hide or blur the financial reality of one of the parties. There is a requirement that each party be open and honest about their financial position. Failure to do this could result in serious consequences in cases where attempts are made to deceive the Court, or your spouse, as to the true financial picture.

However, most Trusts are genuine and the resources that the Trust provides to the spouse will be of importance in deciding what the assets of the marriage are and how they should be divided.

Challenging a Trust

If there are any concerns about a Trust, you are able to challenge a Trust during divorce proceedings. One way to challenge a Trust in a divorce, or to bring the assets of a Trust into account, is to use Trust or property law to attack the Trust assets.

A Trust may be invalid as a result of not having been created properly. Other courses of action, such as proprietary estoppel may be available to a spouse attempting to claim an interest in Trust assets. Alternatively, it may be argued that a Trust is a “sham trust”. 

There are many ways in which it could be shown that a Trust is a sham, including:

• proving the trustees do not act in accordance with their duties. 
• showing the beneficiary or settlor treats the assets as if they were their own, acting independently of the Trust.  
• Showing that the timing of the formation of the Trust asset, trustees, beneficiaries, settlor and powers of distribution, including any letters of wishes in connection with the Trust,

The above may all give an idea as to whether the purpose of the Trust is genuine or not but it is difficult to prove that a Trust is a sham. In most cases, proof that the Trust is a sham is necessary from the spouse making the allegation and this can be a costly and time-consuming exercise with no guarantee that your accusations may be accepted.

Ultimately every couple’s financial circumstances are different and, whether you are pursuing or defending claims against a Trust in matrimonial proceedings, it is important that you obtain specialist discretionary trust divorce advice.

How Henry Hyams divorce lawyers can help you

Our team of family law lawyers have lots of experience with trust funds and divorces and have the experience and expertise to guide you through protecting your assets through a divorce. 

One of our discretionary trusts and family law solicitors can talk you through the legal process and costs and answer any questions about trust agreements and resolutions. Please contact our Leeds family law solicitors on the email below or contact us on 0113 2432288 for more information.

Contact our Leeds divorce solicitors:
family@henryhyams.com