Chasing the Assets

Posted On: 25 September 2009

Author: Janys M Scott QC

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Janys Scott QC took part in the Central Law Training event "Family Law - The Complex Issues Conference" on 21 September 2009.  Her paper entitled "Chasing the Assets" considered difficulties presented by property in trust, and how these might be addressed for the purposes of financial provision.

CHASING THE ASSETS

"these sophisticated offshore structures are very familiar nowadays to the judiciary ...  They neither impress, intimidate, nor fool anyone.  The courts have lived with them for years"
Coleridge J in J v V [2003] EWHC 3110 (Fam), 2004 1 FLR 1042

[1]  That may be so in the Family Division of the High Court, where judges have a broad discretion in relation to the distribution of wealth between parties on divorce or dissolution of civil partnership.  Offshore trust arrangements have been encountered less frequently in Scottish financial provision cases under the Family Law (Scotland) Act 1985 and when they do arise they are much more difficult to deal with. 

[2]  The difficulty is this.  When property is held by trustees, they have title.  The person or persons entitled to a beneficial interest under the trust does not hold the property.  Section 9(1)(a) is the starting point in a claim for financial provision and is usually the most valuable consideration for a claimant.  It requires the net value of the matrimonial or partnership property to be shared fairly.  Section 10(4) of the Family Law (Scotland) Act 1984 defines matrimonial property as "all the property belonging to the parties or either of them at the relevant date..."  The definition excludes property inherited or donated by third parties.  Unless property falls within the definition in section 10(4), its value is not available to be shared under the principle in section 9(1)(a).  Trust property may be difficult to classify as matrimonial property.   If an interest in a trust is a resource, then it may be relevant to bearing the burden of caring for a child under 16, adjusting to loss of support, or avoiding serious financial hardship as a result of divorce in terms of section 9(1)(c), (d) and (e), but these principles are not often resorted to and awards tend to be low.   An interest in a trust that is a resource is relevant to financial provision (section 8(2)(b)), but only to moderate, not to increase, a claim (Latter v Latter 1990 SLT 805, Welsh v Welsh 1994 SLT 828).  So what do we do with these trusts?


Possible approaches
[3]  There are three possibilities:
1. Argue that any interest the spouse or partner has in the trust is matrimonial (or partnership) property, and/or is available as a resource.
2. Ask the court to set aside or vary the spouse's or partner's transfer into the trust.  This raises difficult issues in relation to the position of trustees.
3. Ask the court to make an incidental order setting aside or varying a term of the trust.  The argument has some bearing upon matrimonial partnerships. 

(Continued. To read the full paper please click on the link at the top of this page.)