When Trusts Meet Divorce: the lessons of TP v TF
Most people assume that putting wealth into a trust puts it beyond the reach of a divorce court. The Family Court’s decision in TP v TF suggests otherwise. A trust allocation worth hundreds of millions of pounds was found to be realistically available to the husband, treated as matrimonial property, and shared equally after tax. Our latest article from Rachel Mayston at Thomson Snell & Passmore looks at what the judgment means for anyone with family wealth held in trust, whether as a beneficiary or as the spouse of one, and why the questions of purpose, treatment and practical access are worth asking long before a dispute arises.
What happens when a dynastic family trust, a hugely successful family business and a divorce collide? The Family Court’s decision in TP v TF offers a particularly striking illustration. The case centred on a trust allocation worth hundreds of millions of pounds, which, although it sat within a much wider family structure, the court found was realistically available to the husband. The court concluded, crucially, that the funds were allocated for the husband’s benefit to reward his work in the family enterprise rather than as a straightforward inheritance and, therefore, he could be ordered to make a payment which (without assistance from the trust) he would not have been able to afford.
The figures may be eye-catching, but the judgment has plenty to say to trust and succession planning practitioners more generally, and to individuals thinking about protecting family wealth. How much weight will the court give to what trustees say? When does practical access matter more than strict legal entitlement? Can trust-derived wealth become matrimonial property under Standish v Standish? And what tax should realistically be allowed for when funds are extracted? Above all, the case is a useful reminder that even careful trust planning may not keep an allocation outside the matrimonial pot if its purpose, treatment and availability tell a different story.
Careful trust planning is often used to reduce the financial risks divorce can pose to family wealth, particularly where the hope is to preserve assets for future generations. But settling wealth into a trust does not, by itself, put it beyond the divorce court’s consideration. The starting point in TP v TF was the familiar Charman question: if the husband asked, would the trustees be likely to advance some or all of the trust assets to him now or in the foreseeable future? Put more simply: could he actually get the money if he wanted it?
The response from the trustees mattered enormously. The allocation of 2.5% of the trust’s ABC equity to the husband was known as the Capital Allocation Plan, or CAP. In a letter, the trustees indicated they “would be minded to make available to [the husband], the vast majority, and potentially the entirety, of the value of CAP”. The husband argued this was not a firm commitment and other beneficiaries’ interests and possible challenges still had to be considered. The judge nevertheless concluded the whole allocation was likely to be available if requested, offering a useful reminder that trustee evidence may establish access to wealth just as readily as it may establish limits on it.
The decision confirms a beneficiary may not own an underlying asset outright, yet still have a resource the court can take into account. Equally, being a beneficiary does not mean the entire family trust will be treated as theirs for the asking. In this case, the finding concerned the husband’s CAP allocation, not an unrestricted claim on the wider family fortune. For anyone wondering what a partner’s trust interest really means for their own financial security, that distinction is worth understanding: the court was prepared to treat the CAP as available, but still gave considerable weight to the trustees’ independence, their duties to future beneficiaries and their assessment of the wider family structure, recognising limits to how far it could pressure them to release funds.
Money being available is only the first question. Whether it should be shared is another. Standish v Standish confirmed the sharing principle applies only to matrimonial property, and not simply to everything and anything either spouse can access. Wealth brought into a marriage or received by inheritance does not become shared property just because the marriage lasts a long time. Its source matters, as does whether the couple’s treatment of it over time shows that they regarded it as shared.
In TP v TF, the Court found that although the CAP pre-dated the marriage, it rewarded the husband’s work in the family business, with its value accumulating during the marriage. The wife had supported the husband and enabled him to perform his work during the marriage, and the court treated the CAP as matrimonial property to be shared equally on a net basis.
Another consideration in this sort of situation is the tax liability. A trust valuation is not the same as cash available to spend once funds have been extracted. In this case, tax consequences and liabilities were reflected in the calculation of the award; the CAP’s net value being approximately £229 million. For a reader looking at their own position, the important distinction is between a headline asset figure and what a settlement would actually deliver after tax. The answer depends on the particular structure and the proposed route for releasing funds, so trust, tax and family-law advice need to fit together rather than operate in separate conversations.
The wife’s overall award was approximately £120.4 million. That does not mean every spouse of a trust beneficiary can expect half of the family fund to come their way, or that trusts have stopped serving a useful purpose in succession planning. It does however mean that “it’s all in trust” is not a complete answer. Whether you have family wealth of your own, stand to inherit, or have built a life alongside someone whose wealth sits in a trust, the useful questions are much the same: why was the allocation made, how has it been treated, what could realistically be released, and what would be left after tax? Those are conversations worth having while there is time to understand the answers, rather than discovering them for the first time during a divorce. Whether you are a trust beneficiary or married to one, taking early advice from experienced trust, tax and family-law advisers can help you understand the nature and practical value of the trust interest, identify the risks it may present on divorce, and take appropriate steps to protect your position before a dispute arises.
Authored BY:
Rachel Mayston | Thomson Snell & Passmore
The expert team at Thomson Snell & Passmore have helped generations of families protect and pass on their wealth. If you have any questions about protecting assets from future divorce, trusts and estate planning then please get in touch.