Trusts & divorce claims

Trusts are widely used by wealthy families as a tax-efficient means of protecting their resources for future generations. Upon divorce, however, there is often disagreement over the ways in which these settlements should be dealt with. 

The English Family Court’s approach to trust interests on divorce

Under English law the Court has a very broad discretion in determining the division of assets and the level of financial award to be made on divorce. The Court is required to take into account all resources of each party, and that includes assets held by trusts and benefits a party might receive from trusts.

Depending on the circumstances (including where and when the trust was created and how the trust assets have been used during the marriage), the English Court also has the power to treat certain trusts (whether English or foreign) as settlements they can vary for the benefit of a spouse.

Withers regularly represents beneficiaries or spouses of beneficiaries making or defending claims against trusts. For example, in the reported case of BJ v MJ we successfully argued on the husband’s behalf that a high proportion of the award received by the wife should be retained in trust to ensure that the settlement ultimately benefitted the parties’ son and future generations. We also advise trustees who are drawn into financial proceedings, for example where requests are made for information or where they are formally joined to proceedings. In the Jersey case of In the matter of the Representation of U Limited, we represented the trustees whose decision not to submit to the jurisdiction of the English Court was approved by the Jersey Court. 

Stress testing trusts from a family law perspective

High profile divorce cases such as Charman v Charman (in which Withers acted for the husband) have highlighted the potential dangers posed to trusts by financial remedy orders of the English Family Division. However, the enforceability of trust related orders will depend on various factors including the location of the trustees (and whether they have been joined to and participated in the proceedings), the situs of the trust assets (in England or offshore), the structure in which the underlying assets are held, and the governing law of the trust. Many offshore trust jurisdictions have tightened their protective firewall legislation to combat potential claims.

Withers brings together specialist expertise in family law, trust litigation and wealth planning to ‘stress-test’ trusts from the planning stage onwards, as our experience is that prevention is much better than cure. We help clients identify potential vulnerabilities in trust structures so that steps can be taken to protect against or minimise the risk of unfavourable outcomes, such as attacks on the settlement by a divorcing spouse, as well as fiscal authorities, government bodies, creditors and disappointed heirs. We also advise on the enforcement of awards, which is likely to be relevant where assets are held in trust or corporate structures. This advice is given in conjunction with tax and other structuring / asset-protection advice.

Our litigators and wealth planners work together in advising on and creating effective ways of holding assets, as well as using tools such as pre-nuptial agreements to protect trust assets, so as to minimise exposure to potentially costly litigation in the future.

Leaders in the field

We are acknowledged experts in this area – the Family Law, Contentious Trust and Succession and International Wealth Planning teams are all consistently ranked in the top tier in the legal directories. One of the leading textbooks (International Trust and Divorce Litigation) was co-authored by members of the Withers family law and trust litigation teams.

With offices in Europe, the US, Asia and BVI, we are uniquely positioned in this specialist area as we are able to draw seamlessly on expert trust advice from around the world.

Our trusts and divorce work

  • Representing the husband in BJ v MJ dealing with the treatment of offshore trusts in financial claims.
  • Representing the husband in the leading divorce case of Charman, which centred on significant trust-related issues.
  • Advising the Trustees in the recently reported Jersey case of In the Matter of the Truro Trust and the PF Life Interest Trust as to whether or not they should submit to the jurisdiction of the English Court in divorce proceedings between a husband and wife. The Royal Court of Jersey endorsed the decision of the Trustees not to submit to the jurisdiction and approved their stance in relation to the provision of information.

  

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