York If you are preparing for marriage or civil partnership, or if you are navigating a divorce or dissolution, it may be necessary to consider how any trusts will be considered.
Trusts can be complex and it is important to identify and understand any interest that you or your partner may have under the terms of a Trust
Trust interests can be included in a prenuptial agreement and can be considered as part of a financial settlement after divorce or dissolution. This is important where you want to ensure that any assets are managed in line with intentions and protected from unnecessary risk.
It is of utmost importance that you seek specialist advice as soon as you know that a Trust is relevant to your nuptial agreement or divorce. They can be complex structures to navigate and you really need to be armed with the right knowledge and advice from the outset.
A Trust is a legal arrangement in which a ‘settlor’ transfers assets to ‘trustees’ to manage on behalf of ‘beneficiaries’. For example, one parent of your partner might have married again and then set up a Trust in their will allowing their second spouse to live in the family home until their death, at which point the home would pass to your partner and any siblings.
There are many kinds of Trusts, but discretionary trusts are often relevant because they tend to be flexible when it comes to distributing assets.
Can I protect trust assets via a prenup?
A prenup can help to protect your interest in a Trust, provided that the prenup meets certain criteria. In particular;
- there must have been full financial disclosure by the parties.
- both parties must have understood the terms of the agreement, ideally having had the benefit of independent legal advice.
- both parties must have entered into the agreement freely.
- the terms of the agreement must not leave one party in a position of real need. Therefore, you will have to disclose any interests in a Trust as part of the disclosure process when entering into a prenup.
It is also important to note that if the Trust interests are available for sharing, they may not be ring-fenced if required to meet the needs of either party. However, this will all depend on the interest in the trust and how the trust operates at the time.
How are trusts dealt with in a financial settlement?
During divorce proceedings, the court has broad powers to achieve a fair outcome for you, which can include examining Trust assets. The treatment of trust assets depends on several factors:
- Nuptial agreements: the court will consider whether you have a qualifying pre- or postnuptial agreement in place, which specify whether any Trusts should form part of your financial settlement, and how. As long as the terms are still relevant and fair at the time of your divorce, and the agreement meets all of the criteria, the court is likely to uphold it.
- Matrimonial assets: the court has to determine whether or not a relevant trust is an asset of the marriage, or whether it falls outside of the matrimonial pot. This will depend on factors such as when the Trust was created, when you or your partner became a beneficiary, and whether Trust assets have been mingled with the marital finances, or required to meet needs.
- Access to assets: courts may treat Trust assets as a financial resource for one of you, potentially reducing the share of the matrimonial assets for the beneficial party as a result.
- The courts will look at whether any trust has been created to hide or shield assets from your claims against each other, and may scrutinise them in great detail. This could be time-consuming and expensive if experts are required to advise the court. The court has the power to decide a trust is a ‘sham’ and can ‘break’ it; essentially undoing the ties to expose the assets and include them in your divorce settlement.
How we can help
If you would like further advice in relation to a Trust interest in the context of wealth protection prior to marriage, or upon relationship breakdown, please contact our Family Law Team in York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or law@warekay.co.uk.
York –