Will my family trust be taken into account on my divorce?

The Family Court has very wide powers in deciding a fair outcome and it will take into account all the assets available to the parties. A family trust may be taken into account by the court if the court believes it has been a financial resource available to you, for example if the trust provides a regular income to you. Alternatively, the court could think your trust is a “nuptial settlement”. This is a highly fact specific question and the court will need to look into when and why the trust was established, and the existence and extent of any connection between the trust and your marriage. If a judge decides a trust is a nuptial settlement, the judge has the power to vary or change the trust as part of an overall financial settlement.

Can trust assets be protected from divorce?

It can never be guaranteed that trust assets will be entirely protected from a divorce as they will be looked to if there is a particular financial need that needs to be met. However, there are certain things that trustees and beneficiaries can put in place to protect trust assets as far as is possible: Enter a pre-nuptial agreement if a beneficiary is considering marriage. If prepared using the correct legal procedure, and provided it meets the needs of the other spouse at the time of the divorce and is fair in all the circumstances, then the court will give the agreement considerable weight in making its decision. Avoid, where possible, the trust assets being used as a financial resource to one of the parties, as the court may then think that the beneficiary will receive trust assets in the future and include them in the settlement.

Are discretionary trust assets protected in a divorce?

Discretionary trusts are not automatically protected. The court will ask whether the trustees are likely to advance capital to a beneficiary to enable financial provision to be made to the former spouse if that beneficiary made a genuine request to the trustees for it. The court, on the facts, may decide that the trustees would agree to do that, and the court could therefore take the discretionary trust into account. In order to protect a discretionary trust as far as possible, settlors should provide the trustees with a clearly drafted letter of wishes providing an indication of how they would like the trustees to approach requests from beneficiaries for capital distributions.

Is there a difference between onshore and offshore trusts?

How English family law applies to offshore trusts depends on the country in question, for example whether the trust is based in the Cayman Islands, Jersey, Guernsey etc. You should seek specialist legal advice as soon as possible if you have concerns about an offshore trust in the context of a divorce.

Divorce and family trusts

Whether part of a wealth protection strategy, or a resource from which income or capital can be received in a financial settlement, trusts are complex. Sensible, specialist advice is crucial.

Family trusts are established for a wide variety of reasons. They can be part of a wider family strategy of wealth protection for the tax efficient transfer of assets between generations, set up to hold property assets, or be part of the overall structure of a family business or investment company.

From understanding the legal and commercial dynamics of a trust to advising clients on whether a trust can protect assets in the event of a divorce, our long-standing reputation as experts on both onshore and offshore trusts means that we are the leading advisers in this complex area of family law. We also work closely with our award-winning tax and trust colleagues to ensure our clients have the full picture.

Trusts can play a critical role. From presenting a trust skilfully in negotiations to successfully attacking or defending the arrangement in court, we have a well established reputation as experts in this highly specialised area.

Our lawyers

Be confident in our ability to advise and guide you. Our nationally renowned team represents both beneficiaries and trustees in trust matters on divorce, combining a deep knowledge of the technical aspects of trusts law with clear, practical guidance. We regularly and expertly advise on both onshore and offshore trust arrangements for our clients. Recent examples of our work include:

Advising on one of the largest cases ever brought in the High Court which involved a complex structure of trusts and companies. Representing the beneficiaries of trusts that were under attack, our advice ensured a successful outcome for our client, enabling the trusts to continue to provide financial support for future generations.
Giving detailed advice on the tax consequences of extracting capital from trusts and providing the key to unlock a financial settlement where the trust assets included shares in property development companies and farms.
Regularly advising trustees on wealth protection strategies for the next generation, enabling them to preserve family assets and businesses with pre and post marital agreement and family investment company structures.
Successfully representing the interests of the trustees of a substantial land holding and farming business in a divorce including a trust beneficiary, helping to structure a financial settlement that achieved our clients’ aim of avoiding the trust being broken up.

What you need to know

Many families now use discretionary trusts as part of their overall financial planning for the next generations. However trusts, and the assets held within them, can be taken into account by the court if one beneficiary divorces or separates from their partner. Beneficiaries, and the trustees of the trusts, need to know how trust assets are going to be viewed and treated by the court.

How a judge will treat trust assets will depend on the facts of each case and on how the assets have been treated throughout the course of the marriage or relationship. Specialist legal advice at an early stage is critical.

Frequently Asked Questions

Will my family trust be taken into account on my divorce?

The Family Court has very wide powers in deciding a fair outcome and it will take into account all the assets available to the parties. A family trust may be taken into account by the court if the court believes it has been a financial resource available to you, for example if the trust provides a regular income to you.

Alternatively, the court could think your trust is a “nuptial settlement”. This is a highly fact specific question and the court will need to look into when and why the trust was established, and the existence and extent of any connection between the trust and your marriage. If a judge decides a trust is a nuptial settlement, the judge has the power to vary or change the trust as part of an overall financial settlement.
Can trust assets be protected from divorce?
It can never be guaranteed that trust assets will be entirely protected from a divorce as they will be looked to if there is a particular financial need that needs to be met. However, there are certain things that trustees and beneficiaries can put in place to protect trust assets as far as is possible:
- Enter a pre-nuptial agreement if a beneficiary is considering marriage. If prepared using the correct legal procedure, and provided it meets the needs of the other spouse at the time of the divorce and is fair in all the circumstances, then the court will give the agreement considerable weight in making its decision.
- Avoid, where possible, the trust assets being used as a financial resource to one of the parties, as the court may then think that the beneficiary will receive trust assets in the future and include them in the settlement.
Are discretionary trust assets protected in a divorce?

Discretionary trusts are not automatically protected. The court will ask whether the trustees are likely to advance capital to a beneficiary to enable financial provision to be made to the former spouse if that beneficiary made a genuine request to the trustees for it. The court, on the facts, may decide that the trustees would agree to do that, and the court could therefore take the discretionary trust into account.

In order to protect a discretionary trust as far as possible, settlors should provide the trustees with a clearly drafted letter of wishes providing an indication of how they would like the trustees to approach requests from beneficiaries for capital distributions.
Is there a difference between onshore and offshore trusts?

How English family law applies to offshore trusts depends on the country in question, for example whether the trust is based in the Cayman Islands, Jersey, Guernsey etc. You should seek specialist legal advice as soon as possible if you have concerns about an offshore trust in the context of a divorce.

What others say...

"Mills & Reeve has a fantastic reputation and its talent across all UK regions is exceptional"

"They are forward and innovative thinkers with a can-do attitude."

Divorce and family trusts

Our lawyers

What you need to know

Frequently Asked Questions

Further reading

Bennifer breakup: what does a short marriage mean for their divorce?

What does “matrimonialisation of assets” mean and why should it bother me?

Visitors

Existing clients

Staff

Divorce and family trusts

Our lawyers

What you need to know

Separate well with one lawyer

Frequently Asked Questions

Further reading

Bennifer breakup: what does a short marriage mean for their divorce?

What does “matrimonialisation of assets” mean and why should it bother me?

Visitors

Existing clients

Staff