Protecting your assets a divorce using trusts
Over recent years we have seen a definite shift in the court's willingness to award higher and more far reaching settlements on divorce than ever before. High profile cases such as that involving Paul McCartney have raised the ceiling on financial settlements to staggering heights.
As such, those looking to protect family wealth are turning to vehicles such as Trusts in order to avoid the court being able to attach financial settlements to large parts of their assets.
However, care must be taken when creating and administering such Trusts. If they are categorised by a court as a "Nuptial Trust" the court has full authority to vary any terms, including ordering a distribution of Trust funds to one of the parties to the marriage.
In deciding if a Trust is classed as Nuptial, the court has wide discretion, but historically has looked at indicative factors such as:-
- who is the Settlor?
- what was the Settlor's intention?
- who are the beneficiaries?
- when was the Trust made?
- What are the terms of the Trust?
If a Trust is not classed as Nuptial then the court has no power
to order either a financial settlement of the Trust funds or to
force the Trustees to act in a certain way. However, the court is
now more sophisticated in looking at the reality of the situation
and has the discretion to regard the existence of the Trust funds
as a notional resource of the beneficiary spouse.
As a consequence, whilst a court cannot order a direct contribution
from the Trust, they may end up awarding the spouse not having the
Trust a larger settlement than may otherwise have been the
case.
The advice to those looking to use Trusts to avoid assets forming part of a financial settlement on divorce must be to consider the use of a Pre-Nuptial Agreement and to try to ensure that any Trust established is not classed as Nuptial. Whilst the court has a wide discretion, by following sound legal and financial advice, wealth can be protected from unwelcome claims by a divorcing spouse.
If you require further advice or assistance please contact the Family department at Higgs & Sons by calling 01384 342100.
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