Can trusts be trusted in the event of divorce?

Preserving family wealth is uppermost in many families’ minds.  Therefore, knowing how structures created to hold family wealth will perform in the event of a family member divorcing is crucial.

Unfortunately, the treatment of trusts on a beneficiary divorcing is to some extent uncertain.  The legislation is clear enough: anyone with an irrevocable, fixed interest in a trust (e.g. life tenant/capital remainderman) can have their interest transferred to their spouse or child in the event of a divorce or separation.  The terms of ‘nuptial settlements’, be they discretionary or fixed interest, can also be varied to permit a spouse and/or children to benefit.  Therefore, trusts that want to remain outside the divorce courts will take care not to be regarded as nuptial settlements. 

Asset protection: careful what you promise...

Threats to wealth come in many guises.   Mr Southwell was described by the judge in Southwell v Blackburn at the Court of Appeal as ‘shrewd, cautious and guarded’.  He knew that if he married Ms Blackburn, who had two children from a previous marriage, she would have a financial claim against his assets in the event of divorce.  He also knew that, when he bought a property for her and her teenager children to live in with him, putting her on the title with him would be risky too, so he made sure that didn’t happen either.  He bought the property with the help of a repayment mortgage and he made all the repayments.  Exemplary thus far.