Posted by Hannah Porter on 2nd July 2020

If you are or your spouse is a beneficiary under a trust and entitled to receive capital or income from that trust it may be regarded as a financial resource and taken into account by the court in financial remedy proceedings of a divorce.

For these cases each situation will be unique and so having an experienced team of experts is crucial to the outcome.  Experienced Financial Adviser Stacey Seaborne-Hall and Divorce Solicitor Hannah Porter answer some of their clients frequently asked divorce and trust assets questions.

I have assets in a trust, will the court share these with my spouse?

Whether or not the court can have recourse to assets in a trust when determining a financial settlement upon breakdown of the marriage, will depend upon the type of trust, and whether it is considered to be a nuptial or non-nuptial trust settlement.

If the trust is considered to be non-nuptial, then the court cannot directly interfere in the trust but can encourage the assets in the trust to be used in a specific way.

If a trust is considered to be nuptial, the question of whether or not it should be varied as part of a divorce settlement, is fact specific and discretionary. A question the Court will want to consider when deciding upon matters involving a nuptial trust is whether or not a trustee would have been likely to advance capital from the trust immediately or in the foreseeable future. The needs of the parties will also be a relevant factor and the Court will ask itself whether the parties needs can be met without recourse to the trust.

From a Financial Planner’s perspective we would support you and your Solicitor by providing an answer to the question of need. You will see through our articles over the past few weeks that this has been a real underlining theme.  We can use Cashflow to support clients in understanding any proposed settlement and how this may impact them over their lifetime. This can highlight any potential shortfall/surplus which can be reviewed and adjusted.

The results of a Cashflow can provoke useful questions, for example, can any gaps be bridged by reviewing expenditure, tax allowances, investment products or the risk profile? If there is a surplus does it provide the option to reduce exposure to investment risk or increase expenditure? This information is based upon evidence and is factual.

If there is a requirement to share assets from a trust then use of the Cashflow can help provide guidance on how much would be required. We can then update the Cashflow to show how this injection of capital would change the client’s overall picture.  Your Solicitor can utilise this information as a guide to determine need with the courts.

Can I protect my assets on a divorce by putting them in a trust during our marriage? 

If assets are transferred to a trust during the course of your marriage then it is likely to be classed by the courts in England and Wales as a “nuptial settlement”. This means that the court would have the ability to make an order to vary the settlement for the benefit of your spouse or civil partner. The court has wide-ranging powers in relation to trusts of this nature which include an order for the provision of capital or income for your spouse or children of the family, orders regarding the removal of trustees and so on.

If protecting your assets is important to you, then you may want to consider working with your spouse to create a post-nuptial agreement.  During this process you can again consider Cashflow.

Cashflow doesn’t have to be one sided and I have worked with a number of clients where I have acted for both parties neutrally, as their Financial Adviser. This can be undertaken by sitting down with both clients (either together or separately) to show both sides of the analysis and how each person’s plan over their lifetime looks. We can then work together to aid clients’ understanding of the position and mediate a remedy to ensure both parties can feel comfortable with the agreement.

How does the family Court approach trust assets?

If the court is satisfied that trust assets are a resource available to either party to a divorce and if it deems it necessary to do, so the court can either make an order varying the trust (so that funds can be provided directly from the trust to your spouse/civil partner) or what is known as a “judicious encouragement” order. This would be appropriate in cases where the court considers that the trustee(s) will make available assets from the trust either to meet a financial order (such as a lump sum payment) or in order to replenish a beneficiary’s assets after such an order has been met by him or her.

My divorce has been finalised and I have received a lump sum within the settlement, what should I do now?

Once a settlement has been agreed, and you receive the document to confirm that you are divorced, this can be a time of mixed emotions. A common response is that they feel relieved but also anxious about starting a new chapter especially if you haven’t been in control of the finances previously.

At this stage, you need to understand your goals and objectives. Once you identify your short term goals such as a house purchase you can then focus on the medium and long term financial goals.

With the medium to long term goals a Financial Planner would use Cashflow to build a picture about you and bring your finances to life.  You’d need to understand things like your risk profile, what access to capital you need or any key objectives over time you want to fulfil to create your financial plan.

This process aims to give you a sense of security and focus for the future. Things will change over time and so we always recommend this as an ongoing process. Meeting each year to review the plan and investment(s) held to ensure they remain suitable and are working for you is important. If something has changed we can revert to the Cashflow, update the information and show how this changes the overall picture.

Seeking early legal and financial advice on the situation will help you to be best prepared for this technical and often emotive situation. Both Tilney and The Family Law Company have experience in acting for both private clients and business owners.

This article is based on our understanding of current legislation which may change, for more information about divorce and trust assets please do get in touch with Hannah or Stacey.

Hannah Porter
Tel: 01392 421777    Email: [email protected]

Stacey Seaborne-Hall
Tel: 01392 260 652    Email: [email protected]

Information Articles

+ More Blog Articles
Would you like to speak to someone? Find out how to get in touch...