Trusts can become an important issue during divorce, especially where one spouse is a beneficiary or where trust assets have been used to support the family during the marriage.
Trusts are often complex, and it is not always clear whether trust assets should be treated as part of the financial settlement. In some cases, a trust may be considered a financial resource. In others, the court may look closely at how the trust has operated, who has benefited from it, and whether it is connected to the marriage.
Mediation can help separating couples discuss these issues in a structured and constructive way, while also identifying where independent legal or financial advice may be needed.
Trusts and Financial Settlements
If a trust is considered a nuptial settlement, meaning it is connected to the marriage, it may be taken into account during divorce financial proceedings. The court has powers to vary certain nuptial settlements where it considers this necessary to achieve a fair outcome.
Even where a trust is not treated as a nuptial settlement, it may still be considered as a financial resource. For example, if one spouse is a beneficiary and has historically received regular payments from the trust, the court may consider whether that support is likely to continue.
The court may also look at the purpose of the trust, how it was created, the history of payments, and any relevant letters of wishes. These factors can help establish whether the trust should be treated as available, partly available, or separate from the matrimonial assets.
Trusts Created for Specific Purposes
Some trusts are created for a specific reason, such as holding compensation received after a personal injury or medical negligence claim. These trusts may still be considered during divorce, but the purpose of the funds will be important.
For example, where money was intended to meet future care needs, this may be treated differently from funds received as general compensation. The court will usually consider the needs of both parties, but it will also look carefully at why the trust exists and what the funds are intended to provide.
In many divorce cases, financial needs are a key consideration. If the court has the power to do so, it may make orders that take account of trust assets where this is necessary to meet the needs of the parties or any children.
Offshore Trusts
Offshore trusts can also be relevant in divorce proceedings in England and Wales. The court may seek information from trustees, consider whether the trust is a financial resource, and, in some cases, make orders involving the trust.
However, offshore trusts can raise additional complications. The location of the trust, the location of the assets, and the laws of the jurisdiction where the trust is based will all be important. Some offshore jurisdictions have asset protection laws that may affect whether an English court order can be enforced.
Where offshore trusts are involved, specialist legal advice is usually essential. Trustees and beneficiaries should be careful before taking any steps, particularly where there may be obligations under both English law and the law of the trust jurisdiction.
Requests for Information from Trustees
During divorce proceedings, trustees may be asked to provide information about the trust, its assets, past distributions and potential future support. Trustees must balance any request for information with their duties to all beneficiaries.
In some cases, trustees may be joined to financial remedy proceedings so that the court can obtain information or make directions. This can be particularly relevant where the trust is central to the financial issues in dispute.
Trustees should take legal advice before responding to requests for information or becoming involved in proceedings. This is especially important for offshore trustees, who may need advice from lawyers in the trust jurisdiction as well as family law specialists in England and Wales.
Constructive Communication
Constructive communication is important where trusts are involved in divorce. In some cases, cooperation from trustees can help clarify the position and avoid unnecessary disputes, enforcement issues or costly litigation.
Clear information can help both parties understand whether the trust is likely to be treated as a financial resource and whether it may affect the overall settlement.
Mediation can also help separating couples discuss trust-related issues more calmly. Although a mediator cannot provide legal advice or make decisions for either party, they can help identify the questions that need to be answered and support discussions around possible settlement options.
How Lakes Mediation Can Help
At Lakes Mediation, we help separating and divorcing couples discuss complex financial matters in a structured and impartial setting. This can include conversations about trusts, pensions, property, savings, income, debts and wider financial arrangements.
Where trust assets are involved, mediation can help both parties identify the key issues, consider what information is needed, and work towards practical next steps. We can also help couples understand when specialist legal, financial or tax advice may be required before any agreement is finalised.
Our aim is to reduce conflict, improve communication and help both parties move towards a fair and workable financial outcome.
Contact Lakes Mediation Today
If you are going through a divorce and trusts form part of the financial picture, Lakes Mediation can help you understand how mediation may support constructive discussions.
Contact Lakes Mediation today to find out how we can help you work through financial issues during separation or divorce.