At Evolve, the divorce financial settlement team is led by Robin Charrot, a specialist in divorce financial proceedings involving trusts. Robin has worked as a family lawyer for over twenty years, including as a partner at a leading national family law firm and as a team leader at an offshore law firm. Robin’s UK and international experience includes advising and representing trustees as well as beneficiaries of trusts and financial claimants caught up in divorce proceedings. As part of his expertise in international divorce and trusts law and as a Fellow of the International Academy of Family Lawyers, Robin has a particular interest in the use of prenuptial agreements and postnuptial agreements to ringfence or protect trust assets.
Understanding your needs
Trusts are complicated legal structures and it can be tricky to understand the legal nuances of trust law. Most people struggle with the trust jargon, such whether a trust is a ‘nuptial settlement’ and the discretionary nature of trust distributions. At Evolve, our expert divorce financial settlement solicitors understand the need to make the complex simple and to focus on your needs and goals with clear legal advice, delivered with a personal approach, tailored to your family circumstances.
Why choose the divorce financial settlement solicitors at Evolve Family Law?
Partners, Robin Charrot and Louise Halford lead an experienced team of dedicated family solicitors who have the experience and expertise to advise on financial settlements involving complex asset structures, trusts and international family law aspects. At Evolve we combine legal expertise with a personal touch, focussing on delivering a tailored divorce financial settlement to meet your needs.
Divorce And Trusts – Your Questions Answered
If you or your husband, wife or civil partner are the beneficiaries or the potential beneficiary of a trust it is best to get expert family law advice on the relevance of the trust to your divorce financial settlement. Trusts should not be ignored just because they are complex legal structures but equally most trusts are not like a savings bank with a drawdown facility to be used at will.
What is a trust?
A trust is a useful device to protect family wealth from divorce. If a spouse has an interest in a trust, it is a resource that might be available for distribution on divorce.
A trust is set up by a settlor and is administered by trustees for the beneficiaries of the trust. The trustee’s powers are governed by the trust deed and relevant trust law. The law depends on where the trust is based. Most discretionary trust funds allow the trustees to provide beneficiaries with discretionary income or capital distributions from the trust or provide loans to beneficiaries out of trust resources.
Trusts give flexibility and allow the trustees to exercise their discretion on who is a class of beneficiaries should receive money from the trust fund and when to make capital or income payments. Trustees are guided on how to make their decisions by a letter of wishes prepared by the settlor who put the family money into a trust.
A beneficiary of a discretionary trust fund does not normally have an entitlement to demand trust funds and a trust beneficiary is not the legal owner of the funds in the trust or a set proportion of the money. Trust resources, therefore, have to be very carefully considered in divorce financial settlement proceedings.
What’s the point of a trust?
People put money into a trust for a variety of reasons including tax and to protect family money for future generations. Whatever the type of trust, the fact that money is held in trust creates more of a hurdle to overcome for the spouse who wants the family Court to take into account the trust assets in their divorce financial award.
Careful advice when the settlor sets up the trust and when the trustees consider distribution options, combined with the beneficiary having the protection of a prenuptial or postnuptial agreement, gives the best possible chance of protecting trust money from financial claims on divorce.
There is no hard and fast rule as to how a trust will be treated in divorce financial settlement proceedings. In some scenarios, a trust may not be deemed relevant. For example, a short marriage with no children where there have been no trust distributions during the marriage or the husband and wife signed a prenuptial agreement to ringfence the trust and to protect the trust from financial claims on divorce. In other family situations, depending on the nature of the trust, a trust can be highly relevant and the Court can use its powers to make Financial Orders in relation to the trust.
Is a trust a nuptial trust or a non-marital trust?
In divorce financial settlement proceedings, it is important to establish if the trust is a nuptial trust or a non-nuptial or non-marital trust. The nature of the trust is important as the divorce Court powers depend on whether the trust is ‘nuptial’ or not.
Long-standing family trusts set up with the express purpose of protecting future generations from divorce, bankruptcy and the other vagaries of life will be regarded as non-marital in nature. As a general rule, non-marital trusts won’t be invaded by the divorce Court where the needs of the other spouse can be met out of the marital assets built up during the marriage. Needs is a very loose legal concept and the extent of ‘needs’ depends on a number of factors, including the standard of living enjoyed by the family.
If a trust is set up during the course of or in contemplation of the marriage benefiting one or both spouses then the trust is likely to be regarded as being nuptial. The definition and nature of the trust are important because if the trust is classed as nuptial, it is capable of variation by the Divorce Court.
Is trust money safe in divorce financial settlement proceedings?
The relevance of a discretionary trust and how it comes into play in a divorce settlement will depend upon a range of factors including:
- The powers are given to the trustees.
- The trust documentation.
- Whether there is a prenuptial agreement or postnuptial agreement in place and its terms.
- The extent to which the trustees have exercised their discretion in favour of the divorcing spouse prior to the divorce. If there is a pattern of the trustees having paid out income or capital then the Court will be quicker to infer that the trust resources might be available in the future. That is why it is important that trustees and beneficiaries take early family law advice about the impact of distributions on any financial award in divorce proceedings.
What Financial Settlement Orders can a court make over a trust?
The Financial Orders the Court can make depends on whether the trust is a nuptial trust or not.
If the Court decides the trust is nuptial then it has very wide powers. The Court can:
- Change the trustees and appoint new ones.
- Transfer monies out of the trust.
- Change who benefits from the trust.
If the trust is non-nuptial, the Court can still take the trust into account and could, for example, award the other spouse a greater share of the non-trust assets if the Court thinks it is necessary to do so in order to meet the spouse’s needs. Needs will be partially based on the standard of living enjoyed by the family during the marriage.
What happens if a trust is off-shore?
If a trust is offshore and based in a different jurisdiction then specialist international family law legal advice should be taken. There can be tactical issues and practical problems in enforcing Orders against overseas trusts as the English courts have limited jurisdiction abroad. Robin Charrot is a Fellow of the International Academy of Family Lawyers, the world’s leading organization of expert international family lawyers. Where there are off-shore assets and trusts, Robin works with specialist solicitors in different countries to make sure that no stone is left unturned when either protecting beneficiaries of trusts or seeking a financial award on behalf of a spouse.
Does a discretionary beneficiary have to disclose a trust in divorce financial settlement proceedings?
Although the beneficiary of a trust does not legally own the assets held in trust, the beneficiary is under a duty to provide full and frank financial disclosure in divorce financial settlement negotiations and financial proceedings. That duty extends to disclosing interests in trusts.
If a beneficiary of a trust is getting divorced, they must disclose any trust interests in the financial settlement proceedings, even if they are only a potential beneficiary of a discretionary trust and may never receive anything from the trust fund. If they don’t make full financial disclosure then any financial agreement they reach or any award that the Court may make within divorce proceedings could be overturned at a later date. Non-disclosure adds to the cost and complexity of any financial Court proceedings.
The Court can order the beneficiary of the trust to disclose certain trust documents and they may request information from the trustees. Trustees have to consider the interests of the beneficiaries as a whole when they are asked to produce information or make decisions. Trustees may be joined to divorce financial settlement proceedings. The trustees may be asked to explain the practice of distribution or to provide the trust accounts, deeds and records of distributions if the Court considers it necessary to see these documents to determine the relevance of the trust assets to the divorce financial settlement and Financial Court Order.
How can Evolve Family Law help?
The divorce financial settlement team at Evolve have the expertise and experience to help:
- Beneficiaries of trusts who are involved in divorce proceedings and facing financial claims.
- Potential beneficiaries of trusts who are facing financial claims on divorce based on the possible benefits they may get from the trust.
- The spouses and civil partners of beneficiaries and potential beneficiaries of trusts who want the Court to take into account trust assets when making a financial award.
- Engaged couples who are entering into prenuptial agreements to ring-fence or protect trust assets.
- Spouses and civil partners who are entering into postnuptial agreements to ring-fence or protect a trust distribution.
- The trustees of trusts who need advice on how much information to give out within divorce proceedings or require representation in financial Court proceedings.