Divorce Trust Funds

Trust funds and divorce

The Court has to consider 'the income earning capacity, property and other financial resources which each of the partners to the marriage has or is likely to have in the foreseeable future".

Legal title of trust property is vested in Trustees. However, the Court can make orders against a spouse that the individual cannot personally afford, but can if the Trustees help him or her out by making a payment from the Trust

This is called 'judicious encouragement' and we quote one of judges in the relevant cases

'The Court is not obliged to limit its orders exclusively to resources of capital or income which are shown actually to exist. The availability of unidentified resources may, for example, be inferred from a spouse's expenditure or style of living, or from his inability or unwillingness to allow the complexity of his affairs to be penetrated with the precision necessary to ascertain his actual wealth or the degree of liquidity of his assets.

Where a spouse enjoys access to wealth but no absolute entitlement to is (as in the case for example, of a beneficiary under a discretionary trust or someone who is dependant on the generosity of a relative), the Court will not act in direct invasion of the rights of, or usurp discretion exercisable by, a third party. Nor will it put upon a third party undue pressure to act in a way which will enhance the means of the maintaining spouse. This does not however, mean that the Court acts in total disregard of the potential availability of wealth from sources owned or administered by others. There will be occasions when it becomes permissible for a judge deliberately to frame his orders in a form which offers judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court's review of the justice of the case. There are bound to be instances where the boundary between improper pressure and judicious encouragement proves to be a fine line, and it will require attention to the particular circumstances of each case to see whether it has been crossed.'

The Judge then set out a number of principles

a. 'Where a husband can only raise further capital, or additional income, as the result of a decision made at the discretion of the Trustees, the Court should not put improper pressure on the Trustees to exercise that discretion for the benefit of the wife.

b. The Court should not, however, be Îmisled by appearances'; it should look at the reality of the situation'.

c. If, on balance of probabilities, the evidence shows that, if Trustees exercised their discretion to release more capital or income to a husband, the interests of the trust or of other beneficiaries would not be appreciably damaged, the Court can assume that a genuine request for the exercise of such discretion would probably be met by a favourable response. In that situation, if a Court decides that it would be reasonable for a husband to seek to persuade Trustees to release more capital or income to him to enable him to make proper financial provision for his children and his former wife, the Court would not in so deciding be putting improper pressure on the Trustees.'

Divorce Trust Funds

Trust funds and divorce

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