Trusts: Every Penny Counts

• Published date: 25 May 2021
• Subject Matter: Family and Matrimonial, Family Law, Divorce, Wills/ Intestacy/ Estate Planning
• Law Firm: Stevens & Bolton
• Author: James Lister and Sean Hilton

Case law demonstrates the need for absolute clarity from the outset, the nuanced nature of cases involving trust assets and the enhanced duties of the lawyers involved to give judges proper guidance so as to avoid unsafe decisions.

It has always been a difficult task for the courts to meet the needs of a divorcing couple where the dynamics are changing so significantly. Resources are often stretched thinly in meeting the needs of both husband and wife, especially where children are involved. While one 'pot' might have covered the needs of one family, that same 'pot' will often struggle to meet the needs of two separate family units. An inescapable reality of the Covid-19 pandemic has been even greater financial pressures on families and, for those couples divorcing, this will result in fewer assets being available. While we tentatively look forward with optimism, one of the issues that the judiciary will undoubtedly face for some time is an increase in cases before the court where a deeper exploration of the available assets is required. Before making an award, a judge must first ascertain the extent of the assets in discussion. Section 25(2)(a), Matrimonial Causes Act1973 (MCA 1973) requires the court to look beyond the obvious assets to the 'other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future'. The wide-ranging discretionary powers conferred to family judges under ss23-25A, MCA 1973 (as amended) allow them to include trust assets as a financial resource available to divorcing spouses.

Trust assets

Statistics show an increase in divorce cases over the last 24 months, which the general feedback from family practitioners mirrors. Family lawyers will therefore need to be more alive to the court's approach to cases where assets are held in more complex structures, for example trusts. It seems inevitable that, whereas previously the court was more frequently able to 'ring fence' trust assets and meet needs from other matrimonial resources, the situation now will result in a more detailed analysis where trusts are involved and an increased willingness by the courts to 'invade' these resources where it considers that it can, or is necessary to ensure an equitable division of the available resources between the spouses. A steady stream of recent case law has supported established principles on this issue, but a renewed look at these cases has given helpful guidance to practitioners operating in the family court, beneficiaries of trusts and professional trustees.

Fixed-interest trusts

The first step in dealing with cases involving trusts is to establish the nature of the trust itself. In relation to fixed-interest trusts, it is likely that the court will infer that the spouse's beneficial interest in the trust is an asset available to them, or likely to be so in the foreseeable future. The court must still seek to value the spouse's interest. This may not always be simple where the trust deed does not define this in clear monetary terms, but the court will usually deal with that by ordering the production of accounts for the trust either by one party to the proceedings, or by the trustees themselves if they are parties. The court must also look at whether the interest will be received 'in the foreseeable future'. Case law gives differing views on what 'the foreseeable future' can be considered as, but the current position is set out in PJC v ADC [2009]. Here, the court...