How Divorce will Affect your Trusts

By Ronel du Preez

As unpleasant as it may be, divorce is unfortunately a possibility that must be faced and, accordingly it is a factor that we must keep in mind when establishing a trust. One of the benefits of having assets owned by a trust is that these assets will then be protected from divorce proceedings. However it is extremely important that a trust is correctly drafted ab initio, and that the trust is thereafter correctly administered.

I will turn to the rulings of our courts’ in various divorce matters to look at what they took into consideration when determining the redistribution of assets during divorce proceedings.

1.When was the trust formed and by whom?

In the case of VAN DER MERWE v VAN DER MERWE (2002) the court took into consideration firstly if the trust was formed whilst divorce proceedings had been instituted and were pending, and secondly whether the assets were moved into a trust with the sole purpose/intention of removing assets from the matrimonial estate. The facts in this case were that the husband had sold the family home to a trust he had founded, at a value well below market value. The court held that the family home was still to be considered part of the husband’s estate for the calculations of the redistribution of assets.

2.How was the trust administered?

In the case of BADENHORST v BADENHORST (2001) the husband had retained full control of the assets of the trust and there was no clear ‘independence’ in that the trustee had reached all decisions by himself, the court held that the trust was merely the alter-ego of the founder and trustee. Once more the assets in the trust were considered part of the husband’s estate for the calculations of the redistribution of assets.

In summary should a party be in the process of a divorce, that party can not move assets from their estate to a trust for the sole purpose of divesting their estate of assets.

A trust must at all times be carefully drafted by a trust expert to ensure that there are no elements of control that will result in a trust being deemed a “sham” trust which is merely the alter-ego of the founder and trustee.

Lastly, it is of paramount importance that a trust is properly administered so that the independence of a trust is clear to all parties. Not only must there be an independent trustee on the board of trustee of a trust, but that independent trustee must also play an active role on the board of trustees.

In conclusion, be proactive, ensure that your assets are protected from all the unpleasant possibilities, such as divorce, by setting up your trusts before things go wrong.