Trusts and Divorce: Trusts as a Financial Resource

Trusts and divorce can be a complicated combination, especially when one or both parties have access to family wealth or inherited assets held in trust. In divorce proceedings, trusts are no longer seen as completely off-limits. The courts regularly examine them to assess whether they form part of the financial resources available to either spouse.

In this guide, we explain how trust interests are treated in financial remedy proceedings and the orders the court may make.

Trusts are increasingly a consideration for family courts so it important for you to consider if they are relevant to any financial settlement you wish to make, and to get the correct expert advice in this complex area.

A trust is a legal arrangement for managing assets. Trusts allow a third party (trustee) to hold assets on behalf of a beneficiary or beneficiaries.

It is important when dealing with a financial settlement on a divorce or civil partnership dissolution to understand whether either party is the beneficiary of a trust. If so, we assess what impact this might have on the overall financial outcome. Trusts are often set up by wealthy families to protect their assets. However, even families with more modest financial circumstances could find that there is a relevant trust which needs to be taken into account when looking at a fair financial settlement.

Trusts can be highly contested in divorce cases. They are often assumed to be untouchable but that is not the case, and they are regularly scrutinised by the courts.

The starting point for any fair financial settlement is for the parties, and ultimately the Court if necessary, to understand the financial resources of the parties.

S25 of the Matrimonial Causes Act 1973, which governs how the court considers financial provision, looks beyond the strict property interests of the parties and to the "other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future".

Any benefit which a party receives, or may receive in the future, from a trust can therefore be very relevant.

It is important for you and your lawyer to understand what type of trust is involved and to have full disclosure of the relevant documents. This will allow you and your lawyer to ask relevant questions of the trustees and / or beneficiary. Trust accounts, schedules of assets held by the trust and valuation evidence may be required.

The history of the trust may be relevant including:

• The circumstances in which it came into existence (and particularly if this this appears to have been deliberate to hide assets from a claim)
• Who set up the trust (the settlor) and are they also a beneficiary
• Any letter of wishes by the settlor which demonstrates the intention and purpose of the trust (and whether these been followed)
• The origin of the property in the trust (and whether this was matrimonial)
• The history of distributions from the trust

There may be other relevant factors that need to be examined. Such as the long-term purpose of the trust, the interests of other beneficiaries, and whether the trust assets are accessible (liquid) or tied up and not realisable. All of the relevant factors need to be considered on your behalf by a lawyer who understands the complexities and importance of these for your case. The key point to remember is that, if a trust exists, it may be relevant to the overall financial outcome.

The court cannot pressurise the trustees to act in a certain way, but they can offer “judicial encouragement” to ensure that any benefit from the trust is taken into account fairly in the overall financial settlement.

If the court considers that one party is likely to benefit from the trust in the future, they could award more of the non-trust assets to the other party. This could also have practical benefits of that party not having to pursue assets which could, for example, be held in another jurisdiction.

In some cases, the court might delay making a final decision about a financial settlement if it expects that one person could benefit from a trust in the future. While this doesn’t happen often, it’s something the court can consider if it’s relevant to the case.

Overall, trusts can add complexity to the resolution of financial provision. But they can also be key to the right and fair outcome, so need to be considered with the appropriate expertise.

At Winston Solicitors, we specialise in helping clients across Leeds, Harrogate, and Yorkshire as well as nationally with divorce cases involving family trusts and inherited assets.

Speak to our family law experts today.

Our Leeds-based team is ready to help you navigate trusts in divorce with clarity, confidence and expertise.