Courts are increasingly allowing spouses, at the end of the marriage, to successfully make claims on property that has been put into a trust.

The Family Court has the power to make orders dividing trust property or to vary the terms of a trust.

Who Can Make a Claim?

Either party to a dissolved marriage may make a claim under section 182 of the Family Proceedings Act. Unlike the Property (Relationships) Act, section 182 does not apply to de facto relationships.

How do the Courts Apply It?

  1. The court asks two questions:  Is the trust a “nuptial settlement”?
  2.   Should the court exercise its discretion to make an order?

What is a Nuptial Settlement?

A nuptial settlement is a transfer of property where there is a connection between the settlement and the marriage.

There are two types of nuptial settlements; those entered into before marriage (ante-nuptial settlements) and those entered into after marriage (post-nuptial settlements).

The courts have made it clear they will take a “generous approach” to finding a nuptial settlement.

For example, the Supreme Court recently held that a discretionary trust was a nuptial settlement, because it was sufficiently connected to the marriage (it was set up shortly after the marriage and both parties were beneficiaries of the trust). This was despite the trust being for business purposes, and the wife having signed a pre-nuptial agreement disclaiming a share in the husband’s business interests.

The Supreme Court has said that there may be a sufficient connection to the marriage where just one of the parties to the marriage is a beneficiary of the trust. This is regardless of who settled the trust and who the other beneficiaries are.

What About Trusts Settled Before the Marriage?

Trusts settled before the marriage can be a nuptial settlement, although it may be harder to establish a connection to the marriage.

For example, the High Court recently held that a trust created before the marriage was a nuptial settlement. That case concerned a family farm. The trust was settled by the husband’s mother, with the purpose being to establish how the farm would be passed down through successive generations.

It was held to be a nuptial settlement because the particular marriage was in contemplation at the time the trust was created.

How does the Court Determine Whether to Make an Order?

The court will look at the surrounding circumstances such as

  •           The circumstances of each party
  •           The parties’ relative financial positions
  •           The parties’ expectations
  •           The interests of any children or other beneficiaries involved

There is no presumption of equal division of property under section 182. The courts instead take a holistic view of the circumstances to make an order at their discretion.

This power for the courts to make orders in relation to trusts that it decides are nuptial settlements removes a layer of protection over trust property from claims after a marriage is dissolved.

If you are unsure whether this could apply to your trust, or are looking to create a trust, it is important to take legal advice to ensure the assets are protected from future claims.