Trusts frequently feature in financial remedy proceedings on divorce, particularly in higher-net-worth matters or where family wealth has been structured for asset protection, succession, or tax planning.
The following are common misconceptions:
- It’s in a trust, so it’s untouchable. Not necessarily, the court can treat it as a resource, and nuptial settlements can be varied. People often assume that assets they hold in trust are ring-fenced from divorce proceedings, however this is not always the case. When a couple are divorcing, the court will look at everything owned by the parties and seek a fair settlement based on the parties’ needs.
- Offshore means immune. The court’s focus is on reality; while enforcement can be complex, practical availability still matters.
- No disclosure is safer. Both parties have an obligation to provide full and frank disclosure. Lack of transparency usually results in worse outcomes.
Under section 25 of the Matrimonial Causes Act 1973, the court needs to consider all the financial resources the parties have available to them which includes a beneficial interest in a trust including
- Full details of the trust;
- such as how much your share is worth;
- when you would expect to benefit from the trust.
The treatment of a trust will depend on the trust’s nature, terms and administration, the extent of a party’s interest, and the factual matrix of control and benefit. This article outlines the core principles applied by the Family Court in England and Wales and the practical steps for those facing divorce where a trust is in play.
What Do We Need to Know About the Trust?
First, what type of trust is it?
Bare, interest-in-possession (life interest), nuptial, discretionary, protective, or offshore structures (including underlying companies).
Second, what interest does the spouse hold?
Fixed entitlement, life interest, discretionary expectation, or mere hope.
Third, who controls the trust?
The identity and independence of trustees, power-holders, protectors, and whether the spouse effectively influences decision-making.
Fourth, how has the trust been operated?
What have been the historic distributions, pattern of support, funding of lifestyle, and responsiveness to requests?
Fifth, what resources are realistically available?
The “reality” approach: whether the trust is a resource likely to provide funds now or in the foreseeable future.
Each case turns on its facts. The court’s priority will often be needs-based outcomes, particularly where there are dependent children.
Nuptial Settlements and Variation
A nuptial settlement that makes continuing provision for one or both spouses in their capacity as spouses (broadly interpreted). The court can vary a nuptial settlement, under s.24(1)(c), to achieve fairness, but the court will avoid destroying the trust more than necessary and will consider the interests of other beneficiaries.
Non-nuptial trusts cannot be varied under s.24(1)(c), but may still be treated as a resource.
Disclosure: What will need to be provided?
Below are some specific and categories of documents relevant to disclosure when trusts are in play:
- Trust deed and any supplemental deeds
- Letters of wishes and trustee resolutions/minutes.
- Financial statements for the trust and any underlying entities.
- Historic distribution schedules and correspondence evidencing decision-making.
- Domicile, governing law, seat of administration, and trustee identity/independence.
- Valuation evidence for underlying assets and liquidity analysis.
Non-disclosure is not advised and is counterproductive and the court can and may draw adverse inferences, make robust findings, or tailor orders to combat failing to properly provide disclosure of trust assets.
Do Trusts Have an Effect On the Courts Approach to Dividing Matrimonial Assets On Divorce?
The court’s first port of call is needs. Trust income and realistic access to capital can meet housing and income needs, especially where children are involved.
Where wealth has been generated during the marriage and settled into trust, the sharing principle is highly relevant. However, third-party and remaindermen rights also remain relevant.
An Example
A spouse with a life interest (income) from the “Life Interest Trust” would usually have that income treated as a resource in maintenance and needs assessments. Whereas capital access turns on trustee powers and whether the settlement is nuptial. If nuptial, variation may be considered to adjust provision, balancing fairness with protection of remaindermen.
Trusts add complexity but not uncertainty for its own sake. The Family Court focuses on fairness, needs, and the practical availability of resources. Outcomes turn on the trust’s terms, how it is run, and the extent to which it has supported family life. With thorough disclosure, specialist legal and financial input, and constructive negotiation, workable and tax-efficient settlements are achievable.
For further guidance on trusts in financial remedy proceedings please contact our family team here.
