Setting Aside Trusts in Divorce Proceedings

An unscrupulous spouse may secretly place matrimonial assets into trust, thinking that they will be beyond the reach of the other party when divorce is on the horizon. If this happens, the good news is setting aside the trust will restore the assets to the matrimonial asset base so that you can claim against them.

It is essential to take expert legal advice as soon as possible to see if you can challenge the transfer, have the trust set aside and restore the property and assets in into the “matrimonial pot”.

Setting aside trusts in divorce proceedings is a complex process that requires careful examination of the facts and consideration of legal, financial, and interpersonal matters.

By being prepared and having the right legal team, you can effectively advocate for your rights and interests on divorce, and claim against all of the assets.

Understanding Trusts

What is a trust? A trust is a fiduciary arrangement where one party (the trustee) holds and manages assets for the benefit of another (the beneficiary). Trusts can come in various forms, but for the purpose of this article, we will focus on fixed and discretionary trusts.

On divorce, trusts complicate asset division as they may not be counted as marital property subject to equitable distribution, depending on when and the circumstances in which the trust was created.

For instance, assets placed in a trust before marriage may remain separate property, while later dealings may not. Whether a trust can be set aside in divorce depends on several factors, including the intention and timing of the transaction.

In divorce, trusts often become contentious, particularly when they involve substantial assets which reduce the asset base and the impact of a financial award.

Grounds for Setting Aside Trusts

Setting aside a trust during divorce proceedings involves a legal challenge that claims the trust should be set aside for specific reasons.

Transfers

If one spouse transferred assets into a trust to conceal them from the other spouse or to avoid equitable distribution, this could constitute a transfer open to challenge. Courts may set aside trusts or reverse such asset transfers, reinstating the assets into the marital estate for division.

Where an application is made with respect to a disposition which took place less than three years before the date of the application or with respect to a disposition or dealing with property which is about to take place, and you can show it was to defeat claims, there is a presumption it was done to defeat claims.

If you know a transfer is about to take place, you should act immediately to stop it. If the transaction has already happened, you should take urgent advice to see if you can apply to have this set aside.

Money or property put into trust will sometimes be placed in either a discretionary or fixed trust.

Discretionary Trusts

The trustee has the discretion to determine how much of the trust’s assets are distributed to beneficiaries. This can lead to disputes, especially in divorce cases, as spouses may argue that, for example, if the settlor is also the trustee, that they remain in complete control and the intended beneficiaries may not benefit at all.

Fixed Trusts

Fixed trusts (also known as non-discretionary trusts) are trusts where the trust deed specifies how the assets are to be distributed exactly. The trust defines what the beneficiaries are entitled to and the intention to create the trust.

Trustees in a fixed trust must manage the assets in the trust for financial success, but they do not have the ability to change what the beneficiaries receive.  Fixed trusts are also open to challenge on divorce if they have been created to defeat financial claims.

Asset Disclosure

Failure to disclose a trust can lead to serious legal ramifications. Courts are increasingly scrutinizing the financial dealings of parties, especially if they suspect that one party is attempting to hide assets. In divorce, there is a duty to provide full disclosure, but when this doesn’t happen, you may seek orders for disclosure or use forensic accounting to trace trust assets.

Valuation of Trust Assets

Valuing trust assets can also pose challenges. Many trusts consist of illiquid assets, such as land (real estate), property or businesses, which can make valuation difficult.

If there is a dispute over valuation, courts may appoint independent valuers to provide an accurate assessment, ensuring fairness in the division of assets.  Your lawyer will advise on this to make sure the assets are maximised.

Legal Advice

Due to the complexities surrounding trusts, it is prudent to engage a knowledgeable solicitor with experience in these matters.  family law solicitors with expertise in setting aside trusts on divorce can provide invaluable guidance tailored to specific situations.

Mediation and Alternative Dispute Resolution

Given the complexities and emotional strain often associated with trusts in family proceedings, mediation or alternative dispute resolution (ADR) should be approached with caution. These ADR approaches promote cooperative solutions and can reduce the adversarial nature of traditional litigation, ultimately leading to less animosity among family members, but if there is suspected dishonesty or financial abuse, this route may not be suitable.

Court Proceedings

If you need to set the trust aside, there may be no alternative but to commence court proceedings to deal with this issue.  Time is of the essence, and if this does happen, you should act as soon as possible.

This article is for information only and does not constitute legal/financial advice. Please contact us for advice tailored to your specific position. Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance.
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