Do you have to disclose the existence of a Trust when negotiating a divorce financial settlement?

Top London divorce and financial settlement solicitors are often asked if a husband or wife will be able to make a financial claim against a Trust fund within divorce and financial court proceedings. Frustratingly even the best London divorce solicitors cannot answer the question “can I claim against a Trust” without information about the individual family circumstances, the Trust documents and Trust accounts and whether there are any additional family assets, such as a family home, business or pension provision.

Although a lot of divorcees want to know if they can make a claim against a Trust fund during their financial settlement court proceedings an equal number of spouses do not know about the existence of a Trust or assume that they will not be able to make a claim for capital or income out of a family Trust fund. That is why it pays to get top London divorce and financial settlement solicitors’ advice on financial disclosure so the existence of any Trusts is discovered. If there is a Trust fund spouses need expert London divorce solicitors’ advice on the relevance of the Trust to their divorce financial claims.

What is the purpose of a Trust?

There are many different types of Trust but most Trusts are set up to safeguard property and money from:

• Dissipation by dissolute family members who are spendthrifts or who could face bankruptcy proceedings; or
• To protect family money on death so that wealth cannot go out of the family or outside the class of beneficiaries the Trust was set up to benefit; or
• To protect family money on divorce because of the fear of losing family money on divorce.

Do you have to disclose the existence of a Trust?

If you are getting divorced and you are a beneficiary or a potential beneficiary of a Trust then top London divorce and financial settlement solicitors will advise that the existence of the Trust should be disclosed as part of standard financial disclosure. If either spouse starts financial settlement court proceedings then as part of the financial court process a document called a Form E is completed and this form specifically asks about the existence of any Trusts.

Even if financial settlement court proceedings have not been started and spouses are reaching a financial settlement by solicitor negotiation or mediation or arbitration the existence of any family Trust should be disclosed, even if a potential beneficiary has not received any income or money from the Trust as the trustees have not exercised their discretion in his or her favour.

Disclosure orders against Trustees

The court can order the beneficiary of a 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 can be joined into financial settlement court proceedings and maybe asked to explain the practice of distribution or to produce accounts, deeds and records of distributions which the court considers necessary to decide on the financial settlement.

What happens if a Trust is not disclosed?

If the Trust is not disclosed and you and your spouse reach a financial settlement in solicitor negotiations, through mediation or a judge makes a financial court order after contested financial settlement proceedings, then if your ex-spouse later finds out about the existence of the Trust he or she could ask the court to set aside the agreement or financial court order because of the lack of full financial disclosure.

Setting aside a court order for lack of disclosure

This type of court application is expensive and therefore the best divorce and financial settlement solicitors’ advice is to disclose the existence of the Trust fund and, if a spouse wants to ring fence the Trust funds from the divorce financial settlement, to then argue that the Trust is not a family or matrimonial asset and the funds should therefore be ignored for the purposes of the financial settlement. Whether the court accepts that argument depends on a number of factors including what other assets the couple own.

Cost orders

If a spouse finds out about the existence of a Trust after a financial settlement has been agreed or a financial court order made and an application is made to set aside the agreement or court order the judge hearing the application to set aside the agreement or financial court order could order that the spouse who did not provide full and frank financial disclosure should pay all or a proportion of their spouse’s legal costs in making the application to set aside the agreement or court order.

What’s the point of a Trust if it has to be disclosed in divorce and financial settlement proceedings?

Settlors of Trusts put money into Trust for a variety of reasons including tax and to protect family money from foolishness, bankruptcy or divorce for the benefit of future generations. In the opinion of the best London divorce and financial settlement solicitors if money is held in Trust this creates an additional barrier or hurdle to overcome for the spouse who wants the family judge to take into account the Trust assets in the divorce and financial settlement proceedings. It will be more difficult to persuade a divorce and financial settlement court to take into account if the list of be the existence of the Trust if the definition of the beneficiaries excludes any spouses or prospective spouses.

A Trust can be thought of as a little bit like a prenuptial agreement or a postnuptial agreement  –  depending on the type of Trust and the funds in it the Trust can be challenged in divorce  and financial settlement court proceedings  but, with careful advice from top London Wills, and estate planning solicitors when the settlor sets up the Trust and when  the Trustees consider distribution options and the classes of beneficiaries plus combining the Trust protection with either a  prenuptial agreement or a postnuptial agreement prepared by the best London divorce  and financial settlement solicitors  this gives the best possible chance of keeping money within the family.

If prenuptial or postnuptial agreements have not been prepared to help protect Trusts in divorce  and financial settlement court proceedings there is still a lot that an experienced top London divorce  and financial settlement solicitor can do to ring fence the Trust, to preserve it from divorce and financial claims.

OTS Solicitors advise on all aspects of divorce and financial settlement law and have experience in divorce and financial settlement cases involving Trusts and complex assets.  OTS Solicitors provide specialist divorce, family and children law advice especially where there are international elements. Please get in touch with us on 0203 959 9123 to arrange an appointment to speak to one of our experienced divorce and financial settlement solicitors.