Divorce is almost always an emotionally and financially challenging process. When a marriage comes to an end, the division of assets becomes one of the most sensitive and potentially contentious aspects of the separation. Matters become substantially more complex when certain assets are not held directly by either spouse but are instead held in trust for the benefit of their children. This particular situation raises a series of intricate legal, financial and moral considerations that require delicate navigation and, in most cases, expert advice.
When trusts are involved—especially those established for the well-being and future of children—the presumption is often that these assets should be protected from the uncertainties and negotiations of marital breakdown. However, the way trusts are treated in divorce proceedings is far from straightforward. While the fundamental principle in family law is that the needs of any children are paramount, this does not mean that trusts are automatically immune from evaluation and scrutiny by the court. Whether the trust is considered independent, merely a deferred financial reservoir for the children, or a mechanism created to shelter assets, will be influential in determining how it is treated during divorce proceedings.
In this article, we will explore the critical issues both spouses must consider when navigating a divorce involving trusts for their children. From understanding the different types of trusts and their implications, to the legal standpoint taken by the courts and potential options moving forward, this guide aims to offer comprehensive insight for individuals facing this complicated life event.
The Nature of Trusts for Children
To fully comprehend the challenges posed by divorce in this context, it is essential first to understand what a trust is and how it functions. A trust is a legal arrangement whereby one party (the settlor) transfers property or assets to another party (the trustee), who holds and manages those assets for the benefit of a third party (the beneficiary). Trusts can be set up for various reasons, including safeguarding family wealth, providing for education, or protecting assets from potential creditors or claims.
When a trust is specifically created for children, its focus is usually to provide long-term security. This might be for educational expenses, future property purchases, or simply as an inheritance. The trust deed outlines the nature of the trust, including how and when funds can be distributed, and under what circumstances. Trusts for children may be discretionary—with the trustees given broad discretion on how to distribute the funds—or they may be fixed, specifying precise terms of distribution.
The structure and intention behind the trust significantly influence how it will be viewed during a divorce. Trusts created long before the marriage may be considered outside the matrimonial pot, especially if they were funded by third parties such as grandparents. However, if the trust is closely interlinked with marital finances or funded by one of the spouses during the marriage, its contents may come under scrutiny.
Legal Treatment of Trusts in Divorce
From a legal perspective, English and Welsh courts have wide discretion under matrimonial law to determine a fair settlement between divorcing parties. The main legislation governing financial settlements is the Matrimonial Causes Act 1973, which provides several guiding principles, including the needs of the children, the standard of living during the marriage, the contributions of each party, and the available financial resources.
When considering trusts, the court makes a distinction between assets that form part of the financial resources of either spouse and those which are entirely separate. Where a trust exists, especially one for the benefit of children, the court must determine whether the trust is an accessible resource for the parents, specifically the spouse liable for maintenance or financial provision.
This becomes particularly relevant if one of the spouses is the trustee or has historically received distributions from the trust. If the court believes there is a realistic likelihood that the spouse could benefit from the trust in the future—even if it’s technically earmarked for the children—it might regard this as a financial resource worth taking into account when determining settlements. The question becomes less about legal ownership and more about practical reality: will the funds be available to support lifestyle, accommodation, or education?
In some cases, the courts may even go as far as inviting the trustees to provide statements or appear in hearings, in order to better understand the trust’s purpose, operation, and likely future distributions. This has increasingly brought trustees into the delicate position of balancing their fiduciary duty to the beneficiaries with transparency required by family law procedures.
Protecting Children’s Trusts From Divorce Fallout
For parents or settlors wishing to protect children’s trusts from the consequences of a marital breakdown, there are thoughtful steps that can be taken either pre-emptively or reactively. The first and arguably most effective approach is the inclusion of solid, thoughtful language in the trust deed at the time of its establishment. Drafting the trust to explicitly exclude either parent as a beneficiary, embedding anti-alienation clauses, and including a clear letter of wishes can go a long way toward reinforcing the independence and ultimate purpose of the trust.
It is also advisable, wherever possible, to have independent trustees—those who are not party to the marriage and who have professional fiduciary experience. This helps ensure that any decisions taken regarding distributions are clearly aligned with the trust’s original intent and cannot be seen as influenced by family dynamics or financial negotiations arising from divorce.
Where a trust already exists, and divorce proceedings have begun, seeking expert legal and financial advice becomes paramount. Not only will legal counsel help in arguing for the trust’s exclusion from the matrimonial pot, but they may also offer advice on offering alternative financial provision in the settlement plan to offset any perceived benefit the trust might afford. For example, one spouse might retain the family home, while the other agrees that the children’s educational expenses will be met through the trust, thereby acknowledging the trust’s role without directly including it in the division of assets.
The Interests of the Children in Family Proceedings
One integral element that should not be underestimated is the true role of the trusts: to protect and provide for the children. Family law courts repeatedly assert that the welfare of the children is of paramount importance. This overarching principle implies that trusts established for minors or dependent children should, in most cases, be preserved rather than diluted through marital settlements.
However, where one spouse is left financially vulnerable or unable to provide appropriate accommodation or education support due to exclusion from trust resources, courts have been known to scrutinise whether the trust has become, in essence, a way for one spouse to shelter matrimonial assets. This is particularly contentious in high-net-worth families where significant wealth exists but is seemingly out of reach of one spouse because it is held in discretionary arrangements labelled as ‘for the children’.
In such cases, the court may apply what’s known as the ‘judicial arm’—an assessment of whether the trust is a genuine, independent resource or a device over which a spouse has effective control. If the latter is perceived, the trust could be counted as a resource, affecting the final division.
Regardless of the approach, it’s essential that both parties focus on cooperation and respect to ensure that children’s futures are not compromised. Complex family dynamics, if played out through legal means, can sometimes lead to longer, more hostile proceedings that ultimately benefit no one.
Future Planning for Reconstituted Families
Following divorce, families often evolve. One or both parents may re-marry or enter into new relationships. The presence of a trust creates long-term implications not only through the divorce itself but in how future relationships and commitments are handled.
In such cases, a well-constructed trusteeship and carefully managed trust strategy become critical. For example, a parent who remarries might be tempted to seek distributions from a child’s trust to support a new household. Ethical trustees should be wary of such requests if they do not clearly align with the child’s best interests.
Future estate planning, particularly if there are subsequent children, also needs to be approached with care. Trusts can be updated if discretionary mechanisms are in place, but it is worth considering whether the creation of separate trusts for different children or branches of the family is more appropriate to avoid disputes years down the line.
Collaboration between lawyers, financial advisors, and trustees is essential in constructing a future strategy that maintains fairness, transparency and alignment with the initial purpose of creating a trust for the children.
The Role of Mediation and Collaborative Law
Given the sensitivities around children and finances, alternative dispute resolution methods such as mediation or collaborative law can be highly effective. These allow couples to work through complex issues such as trust asset treatment without resorting to the adversarial and often destructive process of court litigation.
In mediation, a neutral third party helps facilitate a constructive dialogue so both spouses can discuss concerns, needs and possible compromises regarding the trust in question. This might include agreeing on how trust distributions can be managed post-divorce or acknowledging the existence of the trust while securing sufficient independent support for the spouse in need.
Collaborative law, which brings both parties and their solicitors together in a series of discussions, offers a similarly respectful and future-focused method. It ensures that both clients, their children and future relationships are considered holistically and practically, often leading to more durable and amicable agreements.
Practical Examples from Case Law
There have been several landmark cases in England that illuminate how courts interpret and treat trusts in divorce proceedings.
In Charman v Charman (2007), the Court of Appeal considered a case involving an offshore trust to which substantial marital assets had been transferred. The court held that the assets in the trust were matrimonial in nature and could therefore be taken into account in the settlement. This judgment reinforced the view that courts will ‘look through’ legal structures when appropriate to ensure fairness.
In contrast, in the case of Minwalla v Minwalla (2004), the court looked at multiple offshore trusts dealing with family wealth. It concluded that where a trust is credible, independently managed, and demonstrably not a financial resource readily available to the spouse, it should not be automatically included as a divisible matrimonial asset.
These examples demonstrate the fine balance that courts seek to maintain—respect for genuine trusts and their beneficiaries, including children, alongside ensuring that financial provisions between spouses are handled equitably.
Conclusion: A Balancing Act Demanding Precision
Divorces involving children’s trusts sit at a fascinating and delicate intersection of family law, trust law and long-term financial planning. The key challenges revolve around questions of accessibility, intention, perceived control, and the genuine needs of all parties, especially the children.
For those either creating a trust or involved in a divorce where one already exists, awareness and expertise make a critical difference. Whether it is through robust documentation, seasoned trusteeship, professional legal advice, or constructive dialogue between spouses, the goals of protecting children’s futures and ensuring fair settlements can, and should, be complementary rather than conflicting.
Ultimately, the objective must remain clear: to respect the sanctity and purpose of trusts created for children, while ensuring that divorce settlements are realistic, fair, and conducive to the healthy restructuring of family life for everyone involved.