Trusts and financial orders

Updated August 2012

Are trustees obliged to advance funds to finance a divorce settlement? This question was considered in the recent case of RK v RK [2011] EWHC 3910.

Background

A husband and wife and their children were discretionary beneficiaries under a number of trusts relating to a family farm, which was founded by the husband’s great grandfather 100 years ago. The wife was 40, husband 39 and there were three children aged eight, six and four. The children’s school fees were paid by the husband’s father and/or the trusts.

During the marriage the husband received loans and gifts from the trusts. There was evidence that the trusts were disinclined to “bail out” the husband again.

At the divorce hearing, the husband had debts of £300,000, a pension fund of £230,000 and income of £49,000 per annum net. The wife had debts of £245,000, a pension fund of £8,000 and state benefits of £10,000 per annum. The family home was provided by the family company together with significant indirect benefits.

The financial benefits from the trusts and the family company were central to providing homes and incomes for the family after the divorce.

Trustees’ position prior to the final hearing

The trustees corresponded and met with the wife’s advisers and offered to provide the wife with a life interest in a £375,000 property. They explained that “there is only so much that they can do to help, given the limited liquidity within the trusts and their legal obligations to other potential beneficiaries”.

Is the trust a financial resource available to the husband to provide for the wife?

Mr Justice Moylan considered previous authorities and noted that the central question is, “whether, if the husband were to request it (the trust) to advance the whole (or part) of the capital of the trust to him, the trustee would be likely to do so”. The balance is between judicious encouragement of and improper pressure against the trust to put the beneficiary in a position to pay the other party.

The outcome

The judge considered the trustees’ offer to provide a capital fund of £400,000 for the wife to be marginally low and thought it should be increased to £425,000. He was also concerned to reduce the wife’s debts and expected the trust would provide the husband with £50,000 to pay to the wife. In the event, the trustees accepted the judge’s view and provided the suggested funding which was £75,000 more than they had offered.

Sting in the tail

The wife had unpaid costs of £174,000 and the husband £44,000. Whilst the husband’s costs could be paid by the trust or his family, it is unclear how the wife could discharge her costs.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2012. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.