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Trust Me, its Foreseeable..


We are increasingly seeing the existence of trusts within families that need to be considered when there is a separation of the husband and wife.  How are these regarded by the Courts?    Under section 25 of the Matrimonial Causes Act 1973, the existence of a trust must be disclosed along with all the other assets of the marriage, including those held by the husband and wife individually or in which either party may have an interest as a beneficiary, this would include inheritances for example.   The Court must consider what capital and financial resources each party has now or is likely to have in the foreseeable future.  If either party was a beneficiary of a trust fund, or inheritance, the court must look at when and under what circumstances that interest will be received.   

It is the case that, if trusts have been put in place as a means to try to salt funds away from the marriage to defeat a financial claim by one of the parties against the assets of the other, that those trusts can be set aside and the funds distributed in the way of the other matrimonial capital and income.   

The recent case of C v C (Ancillary Relief: Trust Fund) [2009] examined the issue as to whether the husband's interest under a trust was a "financial resource" which he "has or is likely to have in the foreseeable future".   The husband was one of a class of beneficiaries in a trust fund settled by his deceased father worth between £4million and £6million.  The trust provided for the deceased's wife (the husband's stepmother), who was 74 at the time of the hearing and on her death to the deceased's four children (the husband being one of them) in equal shares.  The trustees had power to advance funds to the widow regarding her well being, not the interests of the other beneficiaries which were to be disregarded.  Any monies advanced to the children had to be with the widow's express consent.

The court held that because the trust was not discretionary and whilst the widow was still alive, the husband could not receive any funds from the trust without the express consent of the widow who could give or refuse such consent as she liked.  Whilst the husband had a 25% interest in the trust, it was possible that the trust would be exhausted at the time of the widow's death.  

Despite this, however, the court held that the husband's interest was indeed a resource under the matrimonial case, as it could be anticipated that he would inherit his share in around 15 years time, by which time, although the fund may be depleted this was unlikely to be to the extent that it would effect the value of the main estate.

This meant that the court has found that a resource, that was unlikely to even be received by one of the parties for a further 15 years was taken into account now as an asset upon which the husband had to rely as part his matrimonial settlement.

It is fair to say that it is usual for such assets, which would include inheritances, that are not going to be received for a long time to normally be disregarded as a reliable asset in matrimonial settlements.   It is indeed a stretch to consider 15 years to be "in the foreseeable future".   However, this case cannot be ignored.  The court does have power to adjourn applications if it is thought that assets are going to come into the "pot" which will have a significant impact upon it and the court feels that those assets should be received and then the divisions made.  However, adjournments are usually made where property is to be received in 2 or 3 years (eg, an inheritance, or personal injury claim or other settlement).  The judge in this case held that 15 years was "considerably in excess of any period which could possibly justify an adjournment".    The order was therefore made final on the basis of the husband's interest in the trust.

There has been a second case, again involving how the court looks at family trusts which I will blog about next week.

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