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Trust Me....It's taken into account


Further to my recent blog in relation to whether the receipt of the benefit from a trust in 15 years was an asset to be received by a party in  "the foreseeable future", the Court has also been concerned with regard to trusts in another recent case.   SR V CR (Ancillary Relief:  Family trusts) [2008].  Whilst it is fair to say that the case involving several millions of pounds is not perhaps the most common set of circumstances, the Court has given further guidance as to the way a family trust can be treated upon the breakdown of the marriage.

Briefly, the facts of the case were that the parties who were both in their 40s at the time of the settlement with three children aged between 7 and 16 had assets of between £7m and £8m after the sale of their family home.  The husband had had mixed fortunes as a property developer and as Chairman of a family company.  The wife had not worked for some years.  The husband's father was extremely wealthy and controlled the family fund and the business.    The father had, from about 5 years before the marriage settled family wealth into trusts, in which most of the husband had a beneficial interest.  The trusts were managed by Swiss trustees and held around $170m.  One group of the trusts excluded the wife and the father from the class of beneficiaries, leaving the husband first in line.   It was found that that benefit would be around $23m alone.

The parties had enjoyed an extremely comfortable standard of living to the tune of approximately £1m per year.   However, having only approximately £7m - £8m total assets, there was insufficient capital to re house both the parties at the standard they had enjoyed during the marriage. 

The wife therefore claimed that she required all of the capital for herself and the children on the basis that the husband's other resources from his father and the trust funds should be taken into account.  The husband sought equal division of the matrimonial funds on the basis that he would pay child maintenance and school fees from capital until his income improved.

The Court examined how the trusts had operated during the marriage and it was found the trusts, and the father, had made gifts to the husband throughout the marriage.  However, the husband claimed that these were for business purposes and therefore not to be relied on by him personally.  The father supported this argument.  They claimed that no further funds would be provided to the husband as a result of the father losing faith in the husband's business incompetence (he was unemployed at the time).

The Court made a finding that the funds that had been provided to the husband had not been solely for business purposes and the court preferred the wife's evidence that, in reality, there was a blurring between the business and the family purposes.    It was further found that the husband had not been full and frank with his disclosure.    As a result, the Court provided the wife with a lump sum of £6.25m from the matrimonial pot leaving the husband with £1.6m and his interest in the trust.

It is clear from this and indeed previous cases that where trusts exist within families that they will be taken into account upon any divorce of one of the beneficiaries to the trust.  The Court must examine the history of transactions in the trust and may well find that, whilst the beneficiary may not be able to liquidise the benefit, that orders made be made in ancillary relief proceedings that mean the party has no choice but to rely on that benefit rather than receive a greater increase in the matrimonial capital.  The court must bear in mind the needs of the parties and children but also their standard of living.   It is possible even for the court to set a trust aside completely if it finds that the purpose of the trust was to try to place funds beyond the reach of the court in any matrimonial proceedings.

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