Are trusts exempt from divorce proceedings?

Jessica Morris, Paralegal in the family team, examines how the court may treat a trust on divorce and looks at the key considerations for clients where trust assets may form part of the wider financial landscape.

In short, trusts are not exempt from divorce proceedings but unfortunately it is not that straightforward. In England and Wales, when determining financial claims arising from the marriage, the court must consider the financial resource the parties have or are likely to have in the foreseeable future. This includes any interest a party may have as a beneficiary or potential beneficiary under a trust.

How will the court treat a trust?

Generally, the court will consider the following when examining a trust: -

·       Is it a financial resource available to one or both of the parties?

·       Can it be categorised as a nuptial settlement that the court is able to vary?

·       Is it a valid trust or is it a sham trust?

What will the court decide?

If the court determines that the trust is a financial resource, it may make an order against the beneficiary party where it considers that the trustees will make trust assets available to the beneficiary. This could be an order to make a payment of a certain amount or to transfer certain interests to the other party.

Where a nuptial settlement is identified, the court has the power to vary it depending on the circumstances of the case. This could include removing a trustee or making provision for income to be paid to a spouse or partner.

If the court is of the view that the document purporting to create the trust is a sham the consequences can be severe, ranging from tax liabilities to criminal liabilities.

The law on trusts is intricate and complex. Trusts can and will be considered within divorce proceedings where relevant, but how they are treated will depend on the particular facts, the terms of the trust and the wider financial circumstances of the case. Given the complexity and potential consequences, it is important to take specialist advice at an early stage. If you are concerned about how a trust may be treated on divorce, contact JMW’s expert family law team for tailored advice.