In week 4 of our 10 part blog series on high-net-worth divorce, we discuss how trusts are treated in high-net-worth divorce, including discretionary and offshore trusts, inherited wealth, disclosure and protecting trust assets.
Trusts are often a central feature of high-net-worth family wealth. They may have been created for succession planning, tax efficiency, asset protection, inheritance planning or the long-term preservation of family assets. However, when divorce proceedings arise, trusts can become one of the most complex and contested areas of financial settlement.
For clients involved in high-net-worth divorce, it is important to understand that trust assets are not automatically excluded from consideration. Equally, the existence of a trust does not necessarily mean those assets will be divided in the same way as personally owned property. The court will look closely at the nature of the trust, how it has been used, and whether it represents a real financial resource available to one or both spouses.
This article explores how trusts are treated in divorce, including discretionary trusts, inherited wealth, offshore structures, and the circumstances in which trust assets may become relevant to financial proceedings.
Why Trusts Matter in High-Net-Worth Divorce
In wealthy families, trusts are commonly used to hold:
- Family businesses
- Investment portfolios
- Land and property
- Inherited wealth
- Offshore assets
- Generational family wealth
- Shares in private companies
- Income-producing assets
A trust may have been created many years before the marriage, sometimes by parents or grandparents. In other cases, one spouse may have established a trust during the marriage as part of tax, estate or succession planning.
When divorce occurs, questions often arise over whether the trust should be treated as part of the family’s financial resources.
What Is a Trust?
A trust is a legal arrangement under which trustees hold assets for the benefit of beneficiaries.
Trusts can be structured in many different ways. The type of trust, the identity of the beneficiaries and the powers of the trustees can all influence how the court approaches the trust in divorce proceedings.
Discretionary Trusts and Divorce
Discretionary trusts are especially common in high-net-worth families.
Under a discretionary trust, beneficiaries do not usually have an automatic right to receive capital or income from the trust, it is the trustees that decide when, if and how a beneficiary should receive monies from the trust fund. This in itself can create a dispute between the parties, particularly where during the marriage there has been monies received from the trust.
The court will look beyond the formal structure of a trust, and look to factors such as who are the beneficiaries and what, if any, distributions have been made from the trust fund.
If the evidence suggests that trust assets are likely to be available to a spouse, then the court may view this as a financial resource available to the party that is a beneficiary under the trust, that is not to say that the parties potential share in the trust fund is open to an equal division, and the treatment of the trust fund will turn upon the facts of the case. .
Inherited Wealth Held in Trust
Trusts are often used to protect inherited wealth and keep this within the family.
Inherited wealth can be viewed from wealth generated during the marriage. It may be considered non-matrimonial property, particularly where it was received before the marriage or kept separate from family finances.
Inherited wealth is not automatically excluded from the matrimonial pot for division, and placing this in trust does not itself ringfence this. However, in a high-net-worth case, the source of the wealth, and how this has been held will play a greater part in the overall determination, as it is more likely that the inherited wealth will not be needed to ensure a fair settlement to the other party where there is plenty of wealth elsewhere to provide this.
When Trust Assets May Become Part of Divorce Proceedings
A trust that either part has an interest in must always be disclosed in the resolution of the financial aspect of the case, how this is treated depends as we have referred to above.
There will be cases in which funds from the trust have been intermingled in family life/finances, such as the following examples:
- Trust income paid school fees, household expenses or mortgage costs.
- Trust capital was used to buy the family home.
- The trust was created during the marriage.
The full details of the trust should be disclosed at the earliest point, and your chosen legal representee will then obtain further information from you to be able to provide advice on
Offshore Trusts
Offshore trusts are common in international high-net-worth wealth planning, established in jurisdictions such as Jersey, Guernsey, the Isle of Man, the Cayman Islands or other offshore financial centres.
Offshore structures can add complexity because the English court may need to consider:
- The governing law of the trust.
- The location of trustees.
- The situs of trust assets.
- Enforcement issues.
- Tax consequences.
- Disclosure obligations.
An offshore trust does not place assets beyond scrutiny as English divorce courts can still consider offshore trust interests when assessing financial resources. However, practical enforcement may require specialist cross-border advice.
Sham Trusts and Asset Protection Arguments
In some cases, one spouse may argue that a trust is a genuine family wealth structure. The other may argue that it is a device created to conceal or protect assets from them as part of the division of the finances.
A trust may be challenged where there is evidence that:
- The settlor continues to control the assets.
- Trustees simply follow one spouse’s instructions.
- Trust assets are used as personal funds.
- The trust was created shortly before divorce.
- There has been inadequate separation between personal and trust property.
- Disclosure is incomplete or misleading.
Courts will examine substance over form. If a trust is found to be artificial or improperly used, this can have serious consequences.
Disclosure of Trust Interests
Financial disclosure is central to any high-net-worth divorce involving trusts.
A spouse may be required to disclose:
- Trust deeds
- Letters of wishes
- Accounts
- Trustee correspondence
- Distribution history
- Beneficiary details
- Asset schedules
- Tax documents
Protecting Trust Assets Before Divorce
Trusts should be prepared by a specialist in trust law, and the trustees should be made aware of their duties, ensuring that all distributions from the trust and actions taken on behalf of the beneficiaries are fully documented. A trust on its own does not protect the assets held within should you divorce, and a means of strengthening the protection of a trust fund would be the preparation of a pre/post nuptial agreement.
The Role of Prenuptial and Postnuptial Agreements
Nuptial agreements can be particularly valuable where family trusts or inherited wealth are involved.
A prenuptial or postnuptial agreement may record:
- The existence of trust interests.
- Whether trust assets are intended to remain separate.
- How inherited wealth should be treated.
- What provision should be made if the marriage ends.
- How housing and income needs should be met.
Although such agreements are not automatically binding in England and Wales, courts often give them significant weight where they are entered into freely, with independent advice, full disclosure and fair terms.
Why Specialist Advice Is Essential
Trust cases require expertise across several areas, including:
- Family law
- Trust law
- Tax
- Offshore structures
- Company law
- Property law
- International enforcement
Summary and Final Thoughts
Trusts can provide important protection for family and inherited wealth, but they are not immune from scrutiny.
The court will look carefully at how the trust was created, the purpose of the trust, whether there has been any distributions from the trust and if so, how have they been utilised.
For clients with trust interests, the key is preparation, transparency and specialist legal advice. Properly managed trusts can remain an important part of long-term wealth planning, but where divorce proceedings arise, they must be handled carefully to protect both legal and financial interests.
Divorce Advice from Consilia Legal
High-net-worth divorce cases require specialist advice, strategic planning, and careful management of complex financial issues. At Consilia Legal, our experienced family law team advises clients on sophisticated financial arrangements, business interests, trusts, international assets, and sensitive family matters. If you are considering divorce or separation and would like tailored advice regarding your circumstances, contact our team on 0113 322 9222 for a confidential discussion.