Trusts and divorce

Trusts and divorce

If a party to a marriage/civil partnership is a beneficiary under a trust and entitled to receive income or capital from it, that income or capital may be regarded as a financial resource of that party and be taken into account by the court. The court's approach will depend on the type of trust in question and the reasons for which it was set up. The court's ability to consider trusts assets as a resource of a party arises from the section 25(2)(a) of the Matrimonial Causes Act 1973 (MCA 1973) and paragraph 21(2)(a) of Schedule 5 Part 5 to the Civil Partnership Act 2004 (CPA 2004). A trust may also be varied if it is a nuptial settlement. In addition, there may be trusts or property law considerations within family proceedings.

There are three main methods of approaching trusts on divorce/dissolution:

•
treating trust assets as a resource available to one of the parties and thus available for distribution by the court—see Practice Note: Introduction to trusts within financial proceedings—Trusts as a financial resource
•
variation of nuptial settlements under MCA 1973, s 24(1)(c)

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This Q&A considers whether the life tenant of a testamentary trust can validly assign their life interest by executing a deed of variation under section 142 of the Inheritance Tax Act 1984, despite the trustees having previously exercised a power to advance capital to a beneficiary.