Published: Suffolk Business Magazine

Date: 14th April 2011

Author: Stephen Williams

In many farm-related divorces the business can be a complex mixture of partnership, Limited Company and Trusts. Unravelling these various enterprises within divorce proceedings can be a difficult and highly emotive task. Trust assets can, and frequently do, become the source of much heat and rancour within divorce proceedings.

The reason why it becomes so difficult stems from a lack of response given by beneficiaries to Trusts, who are enquiring about the Trust assets. A common response is often along the lines of “there is a Trust or Trusts but they are not my assets, therefore they should be ignored.“

This approach is unlikely to assist the party that asserts such a view, and infact the Courts have often taken a dim view of those who take this stance.

In a nutshell, the Courts are likely to take the following position in relation to Trust assets within divorce:

1. Trusts are a resource available to the beneficiary husband or wife.

2. The Courts will expect Trustees to support the beneficiary spouse in reaching a financial settlement in divorce.

3. The Courts will want to know how the Trustees would respond to a request by a beneficiary spouse to draw down Trust assets and in doing so, the Courts need to be appraised of any likely detriment to other beneficiaries.

In the rather solitary Case of B v B the husband had several million pounds in Trust, however he approached disclosure in an unhelpful manner and was punished by the Court for his lack of candour. The Court in this Case made an award to the wife for £5M - over 71% of the assets - and made a swingeing Costs Order against him for what it viewed as litigation misconduct.

There are also some factors that need to be carefully thought through when considering the use of a Trust in these circumstances.

· Clarity of purpose: make sure that the intention of the Trust is clearly documented.
· Class of beneficiary: make sure that consideration is given to ensuring a breadth of beneficiaries.
· Concerns about marital instability: consider not making a Trust at all!
· Composition of the Trust: is there any possibility of placing some of the assets comprising of the Trust offshore?

Trusts remain an important tool in terms of financial family planning but when divorce strikes, a Trust established without regard to the potential of divorce may well be attacked in the divorce and produce results unforeseen at its inception.

This article is for general information purposes only and does not constitute legal or other professional advice. You should not act or rely upon this information.

For further information please contact Stephen Williams, Partner & Head of Family Law