Date: July 2011

Publication: Places & Faces

Author: Stephen Williams, Head of Family Law

The Case of Whaley and Whaley, which is hot off the press, has once again made it clear that those who think that Trusts provide an unassailable bastion against claims in divorce cases need to think very carefully.

This Case concerned the appeal by a husband against a Financial Order in divorce that he viewed to be too favourable to his wife. The two parties - as in many of these cases - were not exactly on the bread line. The wife owned a house in England, the husband a home in Spain, along with assets to the value of about £10.4 million, £7 million of which were held in two Trusts. Trust One comprised of shares in hotel owning companies. The husband was a beneficiary of this Trust. The second Trust was created by the Trustees of Trust One for tax reasons. Although the husband was not a beneficiary of this Trust, it did own the freehold of a Golf Course, which was leased to a Management Company.

Even though the husband was not a beneficiary of Trust Two, the Court had found that the value of this Trust should be taken into account because he could be added as a beneficiary at any time. He had also sought to decrease his potential exposure to the claims of his wife by transferring assets from Trust One to Trust Two.

The Judge, in the first instance, had made an Order to the wife that gave her £3 million and maintenance payments up until the point that the sum was paid. The Judge also made maintenance provision for the couple’s four children and provision for school fees.

The husband appealed against the Order on the basis that:

1. The Judge should have left Trust Two out of the equation as the husband was not a beneficiary and the Court had placed improper pressure on the Trustees regarding the funds they could provide the husband with.

2. The property in Spain had been over valued, and the Judge had failed to properly assess the effect of the Order on the Golf Course and Management Company, i.e. the Golf Course would have to be sold, and the impact of this on the Management Company had not been taken into account.

3. The Judge had been over generous to the wife for a variety of reasons.

4. The issue of income needs had been misjudged.

The Court of Appeal had no difficulty in confirming that the Judge had been right to ask the central question of whether the Trustees would advance capital to the husband and had come to the “unassailable” answer that they would do whatever the husband asked. It also confirmed that the Judge was right to treat the assets of the second Trust as part of the husband’s overall assets. The Court indicated that the Judge had come to an appropriate view as to the value of the husband’s property and had taken into account the effect of the Order on the assets of the second Trust.

The Court also confirmed that the award to the wife had been founded on principles of need and appropriate sharing of assets, and that the Judge had given due consideration over where the assets came from.

In short, the Court of Appeal gave a clear indication that those who try to use Trusts to avoid potential loss on divorce need to take extremely careful advice prior to entering into a marriage, or else risk those assets marching off into the sunset with their departing spouse.

If you would like further information on this topic please contact Stephen Williams

This article is for general information purposes only and does not constitute legal or other professional advice. We would advise you to seek professional advice before acting on this information.