“Just before a couple married with the accrual system finalised their divorce, the husband created a trust and transferred money and property to the trust. The result is the husband’s estate is considerably reduced when it comes to the accrual calculation. Is this acceptable and does it mean his estate is reduced, or can his wife claim that these assets transferred to a separate trust be included in the calculation?”
A trust is defined as an arrangement where the trust founder transfers ownership in assets to a trust to be managed by trustees for the benefit of trust beneficiaries in accordance with the trust instrument. In this way the founder transfers assets from their personal capacity into a trust. But, does this legal arrangement ensure that a spouse can ‘hide’ assets from the other spouse when it comes to divorce proceedings and determining the accrual in the respective spousal estates?
This aspect has recently come under scrutiny by the Supreme Court of Appeal (SCA), where a husband, shortly before the divorce proceedings in court created a trust with the trustee being his brother and the trust beneficiary his minor child and donated a substantial sum of money to the trust. The husband argued that the trust had been established for the maintenance of his child and accordingly the amount transferred to the trust be excluded from the calculation of accrual.
In evaluating the allegation that the trust form had been abused by transferring assets to a trust to reduce the value of their estate for accrual purposes, the SCA held that the court was not precluded from investigating such an allegation, and that in such an investigation if confirmed that the trust form had been abused the court was further empowered to pierce the trust veneer and order that the value of the assets be taken into account in calculating the accrual. The SCA confirmed that this right to pierce the veneer of the trust did not emanate from legislation, but was part of the common law powers of the court to prevent such prejudice.
Additionally, the Supreme Court of Appeal confirmed that the requirement of control of the trust assets did not need be satisfied i.e. whether the husband was in control of the trust assets, which in this case it appeared legally to not be the case (he was neither trustee nor beneficiary), and that the fact that the donation was made with the apparent intent to frustrate the other spouse’s accrual claim was sufficient to justify the piercing of the trust veneer.
[Jan]
