19 March 2019 - Article
When it comes to family trusts, it is usually the beneficiaries of the trust who get all the attention, but it is the role of the trustees that interest me.
Trustees have a somewhat strange and difficult job – they own the assets held on trust but they hold them for the benefit of beneficiaries, and so have a duty to act in those beneficiaries' best interests. The trustees can control and manage the assets but only within the parameters of the trust.
In circumstances where one of the beneficiaries is getting divorced, the trustees' job becomes ever more difficult and complicated, particularly if there are contested financial remedy proceedings.
In the event of a divorce, the court will only interfere with a trust to the extent that it is necessary to do justice between the parties, and will be very slow to deprive innocent third parties of their rights under the settlement.
The first 2 questions that the court must answer in relation to the trust are:
i) Is the trust a nuptial settlement (which means that it makes continuing provision for both or either parties to the marriage)? If so, the court will have wide ranging powers to vary the terms of the trust on divorce.
ii) Are the trust assets a resource available to one party of the marriage, which can be taken into account when determining an appropriate financial settlement?
The court will look to the trustees to help them to answer those questions. The trustees must have in mind the interests of all the various beneficiaries to the trust, some of whom may be parties to the marriage, children of the marriage, or entirely unrelated to the marriage.
The trustees may become joined to the proceedings so that they, along with the spouses, are parties to the litigation, and/or there may be orders made against them to provide documentation to the court. In these circumstances it is wise for the trustees to seek their own legal representation.
Even in circumstances where a beneficiary is happily married, in order to best protect the beneficiaries' interests, the trustee may need to consider how the management of the trust may be perceived on divorce. The court will look over the history of the trust, why it was established, who has benefited from it and who has control of it, in order to determine how trust assets should be treated on divorce. This is something for a trustee to keep in mind. The court will also look at particular transactions within the trust, to see if additional settlements have been made that might be considered nuptial – for example if the trustees have used trust assets to purchase a property for the spouses to live in together.
In Withers we are very fortunate to have both family law and trusts law experts who can work closely in these complicated cases, to find solutions.