On divorce a family Judge has a surprisingly wide discretion when distributing the resources of
the couple. These can include company shares, pensions and even interests in trusts.

Recent case law has shown that judges can take a headstrong view of trusts, deciding on how assets should be distributed between the couple and then appearing to interpret the law to suit the circumstances. How the court will view trusts will depend on whether the trust is an ante (before) or post (after) nuptial settlement or not.

The Matrimonial Causes Act 1973 gives the court the power to vary the terms of ante and post nuptial settlements and can make orders directly against the trustees to make payments or transfer property. The courts view which settlements fall within the scope of this Act very widely and their interpretation of ‘nuptial’ is encompassing of many trusts. It is likely that
any trust created after marriage could fall within the term ‘nuptial’ and any made prior to
the marriage will also be included if there is a connection to the spouse or marriage. Case
law shows (see for example K v K [2008] 3 FCR 773) that settlements made prior to a marriage, even where the parties were living together, would not fall within the definition where marriage was not in the contemplation of the parties.

The provision to vary settlements has its origin in s.45 of the Matrimonial Causes Act 1857. In
circumstances where a wife had committed adultery the section gave the power to the Court to deprive her of benefits under settlements that contemplated that she would remain faithful to her husband and the marriage would not fail.

An extreme use of the law can be seen in In E v E where an extremely wealthy father settled a
home on his son and his family. The beneficiaries of the Trust were the husband, the wife, their three children, any future children, and any future wife of the husband.

The father was the Protector of the Trust.

Divorce

When the daughter-in-law left the home to live in rental accommodation with another man, the father was furious.

The Court directed that £250,000 should be “pulled out of the Trust and made into a separate fund for the wife” and that: “£50,000 should be given absolutely to the wife and the balance of £200,000 should be settled on her for life…” Even if the trust is offshore the court can still
vary the terms of the trust without joining the trustees as parties but the court will have to
consider the enforceability of varying the trust (i.e. binding the trustees).

Where a trust is not considered to be a ante or post nuptial trust the court cannot make orders varying the trusts but any benefits of the respective party will not be ignored.

So what advice can you give your clients?

Ensure that if they wish to use trusts that they are set up well in advance of their children
deciding to marry. This will lessen the risk of the courts being able to vary the terms and
make payments to the spouse on divorce.