How are Trusts viewed by a divorce court and what relevance do they have for couples who are marrying or divorcing later in life?
The government statistics for divorce show that those over 65 are bucking the trend when it comes to both marriage and divorce. Whilst younger people are marrying and divorcing less, the older population are marrying more frequently than they did before and divorce rates have increased by 20 percent in the last decade.
The reality is that many of these are second marriages where the parties came to the marriage with established financial security which they wish to retain or protect.
What is the relevance of trusts to people marrying or divorcing in later life?
What happens to Trusts on divorce
Trusts are often seen as a good way of protecting family assets from divorce and indeed they can be an effective tool. However, in certain cases, the divorce court can make orders in relation to trust assets.
Firstly, the court has to decide whether an established trust is a nuptial trust and therefore capable of being directly varied by a divorce court. This is a complex area and specialist legal advice should always be sought from a lawyer familiar with both divorce law and trusts. In simple terms, to be nuptial, the trust has to make some sort of provision for both or either of the parties to the marriage.
Even if a divorce court decides that a trust is not nuptial and therefore protected from direct variation by a divorce court, the court still has the power to assess that the assets of the trust can be deemed a financial resource of a spouse who is being divorced if they are a beneficiary of the trust.
Layered over this complexity is the issue of whether the trust would be considered to be matrimonial property and thus divisible by the court.
Are Trusts considered matrimonial property?
In a situation of an inter-generational trust which has been in existence well before the marriage took place, it is likely that a court would consider that this trust is not matrimonial property.
Let us take an example of an elderly couple who married later in life, both with good financial security and pensions, but one of them being the beneficiary of a family trust that existed long before their marriage. It is highly unlikely that the divorce court would regard that trust as matrimonial and make provision from the trust for the non-beneficiary spouse. If, on the other hand, one of the parties was not financially secure, the court could still consider that provision should be made effectively from the trust assets, as the court will be concerned to meet the needs of both divorcing parties, especially as the elderly are unlikely to have any future earnings to enjoy.
The relevance of trusts to divorce in later life is therefore to some extent dependent on the financial resources of both parties as well as the terms of the trust itself.
There is no presumption of equal division in relation to trusts on divorce. The subject is complicated and depends on the history of the trust. Specialist advice is essential, as is taxation advice if someone wishes to consider the creation of a trust to try to protect assets on divorce.
Trusts can provide a good level of protection for assets in relation to divorce but few trusts are immune from consideration by a divorce court if the needs of one of the spouses cannot be met from non-trust resources.
Additionally, trusts can be used alongside a pre-nuptial agreement to attempt to protect the trust from subsequent attack if the marriage breaks down. This would afford a greater degree of protection for the spouse who has an interest in trust assets. Either way, getting specialist advice is key.
If you would like to speak to one of our specialist advisors, please get in touch.