Trusts in high net worth divorce or dissolution of civil partnership

When navigating high net worth divorces or dissolutions of civil partnerships, trusts require careful consideration due to their complexity and the significant assets they often encompass.

Trusts, particularly family trusts where a spouse or civil partner is not the only beneficiary, can present complexities in divorce or dissolution proceedings. The treatment of high net worth trusts will vary based on specific circumstances, making it essential to seek guidance from a specialist.

Understanding how these trusts are addressed within the divorce or dissolution context will require tailored legal advice to navigate the complexities.

What is a trust?

Trusts are legal arrangements where assets are held by one party for the benefit of another. They are commonly used for asset protection, tax planning, and estate planning. In the context of high net worth divorces or dissolution of civil partnerships, trusts can play a pivotal role in determining how assets are divided.

Types of trusts involved in divorces

• Discretionary trusts: Where trustees have discretion over how, when, and to whom distributions are made.
• Fixed trusts: Beneficiaries and their entitlements are clearly defined.
• Revocable trusts: The person who establishes the trust maintains control and can alter or terminate the trust.
• Irrevocable trusts: These are generally not subject to alteration post-establishment, offering higher asset protection.

Key legal considerations

Transparency and disclosure

Trust assets must be disclosed during divorce or dissolution proceedings. Non-disclosure can lead to legal penalties as ‘inferences’ can be drawn as to why open disclosure is not forthcoming. Transparency ensures all assets are considered for equitable distribution.

Trust structure and jurisdiction

The structure of the trust and its jurisdiction can significantly impact its treatment in a divorce or dissolution. Trusts governed under jurisdictions with strong asset protection laws might be more resistant to claims in divorce or dissolution proceedings.

Beneficiary rights

Determining whether a spouse or civil partnership has an enforceable right to trust assets depends on their status as a beneficiary and the type of trust. The distinction between vested and discretionary interests in a trust is crucial.

Challenges with trusts in divorce

• Valuation of trust assets: Accurately appraising the value of trust assets, particularly if they involve businesses or international investments, is complex.
• Control and access: Determining who has control over and access to trust assets can influence their division in divorce or dissolution.
• Asset protection vs. marital property: Trusts set up before marriage or civil partnership for asset protection may not be considered marital property, but those funded with marital assets during the marriage or civil partnership might be.

Strategic approaches to handling trusts in high net worth divorce

Pre-divorce planning

Engaging in pre-divorce or dissolution financial planning can help in understanding the implications of trusts on the divorce or dissolution outcome. Consulting with legal and financial experts specialised in trusts and high net worth assets is advisable.

Negotiation and settlement

Negotiations can address trust assets, especially when parties seek to achieve a settlement without contentious litigation. Mediation can also be a viable approach to handle disputes related to trusts.

Litigation

In cases where negotiation fails, litigation may be necessary. This might involve challenging the validity of a trust or arguing about the interpretation of trust documents.

How Moore Barlow can help

Trusts add a layer of complexity to high net worth divorces or civil partnerships, requiring a nuanced understanding of legal principles and a strategic approach to asset division. Effective handling of trusts in divorce or dissolution necessitates expert legal advice from high net worth divorce lawyers to navigate the intricate interplay between trust law and family law.

By adequately preparing and employing skilled professionals, parties can ensure that their interests are protected and the divorce or dissolution proceedings are conducted fairly.