Family Trusts & Divorce Settlements

Family trusts can complicate the process of making a financial settlement during divorce as they can, potentially, be considered part of the marital assets for division. Whether you are the beneficiary of a family trust or your spouse is, getting the right legal advice can ensure your financial security is protected during divorce.

At IBB Law, our specialist lawyers are experienced in dealing with family trusts and divorce, as well as other complex assets. With particular expertise handling assets in the £2-10 million range, we can guide you towards achieving a financial separation that meets your needs and those of your loved ones even under the most complicated circumstances.

Wherever possible, we will aim to avoid court proceedings and help you achieve a settlement using our strategic negotiation skills and methods such as mediation, collaborative law and arbitration. This approach can help you to achieve a fair settlement faster and at lower cost, with much less conflict and stress.

However, if court proceedings are required to ensure the right outcome for you and your family, our team have the experience and advocacy skills you need. We can represent you through every stage of applying to a court for a financial order, making sure your long-term financial interests are taken care of.

To speak to a member of our family law team about dealing with a family trust during divorce, or to arrange an initial fixed fee consultation, give your local IBB Law office a call in Beaconsfield, Reading or Uxbridge, or email familylaw@ibblaw.co.uk.

We take pride in offering exceptional client service. Your case will be handled directly by one of our experienced family lawyers through every stage of your divorce, so you will always know who you can turn to when you have a question or need an update.

Why IBB Law are the right choice for advice on family trusts and divorce

IBB Law is one of the top firms for divorce and family law in the South East, having achieved recognition from leading client guides the Legal 500 and Chambers & Partners. We hold the top Tier 1 ranking from the Legal 500 for Bedfordshire, Buckinghamshire, Hertfordshire and Middlesex and Band 2 ranking from Chambers & Partners for Watford, Uxbridge and the surrounding areas.

Our Family Law team is headed by Amanda Melton, a highly experienced solicitor with particular expertise in complex divorce finances, including family trusts. Amanda has been consistently recognised by the Legal 500 and Chambers & Partners for her “exceptional professional knowledge” and “strong interpersonal skills”.

The team includes a number of members of Resolution, an organisation committed to reducing conflict in divorce and family law. Family Law Partner Kate Ryan is a Resolution-trained mediator with experience in mediating settlements involving family trusts.

As well as our exceptional legal knowledge related to trusts and divorce, we also offer outstanding personalised client service. Your case will be dealt with by one of our experienced family lawyers from start to finish and you will always be able to contact them directly for an update or to ask a question.

Commonly asked questions about trusts and divorce

In divorce proceedings, how do the courts handle trust assets?

As trust arrangements become increasingly popular, family law has evolved to address the treatment of trust assets in the event of a marriage breakdown. The court retains the authority to modify “nuptial settlements” and can make use of property or trust laws to demonstrate that a trust is a “sham” created to prevent one spouse from making a claim on the assets. The court can consider trust assets as income or capital available to one spouse, making them eligible for division between the parties.

For a trust to be valid, the settlor, who provides the trust assets, must have the intention to establish a trust. There must also be clarity regarding the assets included in the trust and who will benefit from them. If these essential elements are present, further consideration must be given to determine how the trust should be handled in the event of a marriage breakdown.

Depending on the circumstances and the actions of trustees or beneficiaries regarding the trust assets, the court may be sceptical about the genuineness of a trust. Judges are accustomed to encountering trusts in divorce cases and will adopt a strict approach if they believe a trust has been created to conceal or distort the true financial situation. Each party has a duty to be transparent and truthful about their financial position, and there can be serious consequences if attempts are made to deceive the court or one’s spouse regarding the actual financial circumstances.

However, most trusts are genuine, and in such cases, the resources provided by the trust to a spouse will play a significant role in determining the marital assets and their division. In certain situations, there may be additional assets outside the trust that are sufficient to meet the needs of the spouse who does not benefit from the trust. If not, that spouse may need to make a claim against the trust assets themselves.

Are trusts considered marital property?

The assets held in a family trust can potentially be treated as part of your combined marital assets for the purposes of a financial settlement. This means, if you or your spouse were to apply to a court for a financial order, the court could well decide that some of the assets or income from the trust will need to be paid out to a spouse who is not named as the beneficiary of a trust.

There are various factors that may affect whether a court will consider a family trust as part of the assets to be divided during a divorce, including:

• Whether assets or income from the trust are needed to meet the non-beneficiary spouse’s needs
• Whether there are children under 18 whose needs can only be met with income or assets from the trust
• The length of the marriage
• The parties’ contribution to the marriage
• Whether there are any other beneficiaries of the trust who could be affected

Our divorce experts are used to dealing with complicated financial assets, including family trusts. We can advise you on whether a trust is likely to be affected by your divorce and the steps you can take to protect it.

In most cases, we are able to arrange a settlement with your spouse through negotiation, mediation and other non-confrontational approaches. This may make it easier to agree a financial separation that protects a family trust while being fair to both parties.

Varying the terms of a trust

A court can potentially vary the terms of a family trust to provide for the needs of a beneficiary’s former spouse or their children. Whether a court is willing to make such an order will heavily depend on the circumstances, so expert legal advice is highly recommended.

If you wish to seek financial support from your former spouse’s family trust or your former spouse is seeking to vary the terms of your family trust to secure financial support, we can help you to find a positive solution. It is normally possible to negotiate an outcome that works for both parties, saving you time, money and a lot of stress.

Our family law solicitors are highly experienced in dealing with applications to vary the terms of a family trust, so we can ensure you have clear legal guidance and strong representation to secure the right outcome for you and your loved ones.

Does a trust protect assets from divorce in the UK?

After a relationship breakdown, trusts can potentially be used as a way for the spouse who earns more to protect their property and prevent it from being included amongst the shared assets during their divorce proceedings. Assets that are owned solely by one spouse might have been put in a trust before the marriage. Despite this, there is a common misconception that the court cannot take trust assets into account when it is evaluating the financial situation of both parties and deciding on what is a fair division of the marital assets.

During legal proceedings, the court may have to analyse the financial situation of both parties rather than take the complex details of a trust at face value. Just because trustees have legal ownership of trust assets, doesn’t mean that the benefits obtained from the trust will be ignored when the shared assets are evaluated. This also applies if the trust was created before the marriage.

According to the Matrimonial Causes Act 1973, the court has an obligation to take into account all of the financial resources that are available to both parties, should they be in the present or to come in the future (this includes any interests within a trust). The court has the ability to decide on what is fair in each situation, which may involve granting the non-beneficiary spouse a larger portion of the assets that are not part of the trust. This means that trust assets are able to be treated as either income or capital income that can be considered in the division of assets.

Protecting a family trust against the possibility of divorce

If you are getting married or are currently married and are worried about the impact divorce could have on a family trust, it may be worth considering a prenuptial agreement or postnuptial agreement. This can allow you to agree with your fiancé or spouse that the family trust will not be included in any financial settlement you make in the event of divorce.

While prenuptial and postnuptial agreements are not legally binding, if they are created in the right way they will usually be taken into consideration by a court. This means they can significantly reduce the likelihood of any conflict over a family trust if your relationship ends and act as a guide to the terms of any settlement you reach voluntarily.

What is a ‘genuine’ trust?

There are many reasons why individuals choose to establish trusts, including:

• Tax avoidance or management
• Investing inherited assets
• Safeguarding wealth for future generations
• Providing beneficial interests in property to third parties
• Offering discretionary income or capital to specific classes of beneficiaries

If your spouse is a beneficiary under a Trust, it becomes important to consider the potential income or future capital they may receive based on other entitlements they have. The Court will take this income, capital, or other benefits into account when determining the available resources for your spouse and the extent to which Trust assets are presently or will be accessible in the future. Naturally, the resources available to a beneficiary spouse under a Trust depend on the Trust assets themselves, as well as the terms outlined in the Trust deed. As mentioned earlier, different types of Trusts are established for specific purposes and contain assets of varying values based on the Trust’s intent.

The Court consistently emphasises the need to look beyond the intricate structure of the Trust itself and focus on the actual circumstances and financial or other benefits received when one spouse is a beneficiary of a Trust. When assessing the reality of the situation, the Court often asks whether the trustees would immediately or in the foreseeable future distribute all available capital from the Trust.

What is a ‘sham’ trust?

In general, most trusts that we have encountered during divorce proceedings are genuine. Unfortunately, a small number of Trusts are sometimes set up in order to safeguard assets that could be considered matrimonial. In some situations, parents have attempted to protect assets given to their children via marriage. In other circumstances, a spouse may try to prevent the claims that their ex-spouse may have by moving these matrimonial assets into Trusts.

Speak to our expert divorce solicitors in West London, Buckinghamshire, and the Thames Valley 

To speak to a member of our team about dealing with a family trust during divorce or to arrange an initial fixed fee consultation, give your local IBB Law office a call in Beaconsfield, Reading or Uxbridge, or email familylaw@ibblaw.co.uk.