Divorce and Trusts

Upon Divorce between Parties, it becomes necessary to divide the joint estate between the Parties should they be married in community of property. If the Parties be married out of community of property it becomes necessary to calculate the accrual payment from one to the other, should the accrual system be applicable to their marriage.

In both cases it is necessary to consider the estate of both Parties, which includes their assets and liabilities. These assets which are being considered includes movable, immovable or even incorporeal assets which belongs to each applicable person. Such person would have an absolute real right over such assets by virtue of it being purchased by him, under his control or even registered in his name.

In summary, whenever a person is considered as the owner of an asset, such asset may be considered for purposes of dividing the joint estate or calculating the accrual. This means that your estranged partner may, in some way or the other, “share” in your assets after your divorce.

Identifying assets for purposes of dividing the joint estate or calculating the accrual can however be more complicated than it seems, especially when there are Trusts involved. 

A Trust is a legal arrangement whereby control over property is transferred to a person or organisation (the Trustees) for the benefit of someone else (the beneficiary). You can register two types of Trusts, namely an inter-vivos Trust and a testamentary Trust.

The Trustees will be deemed to hold or have vested in them, property of which they are not the owner in their own right. A Trust is separate legal entity and as such, may own property in its own name. The Trustees will have the fiduciary obligation to hold, use, deal or dispose of the property but only for the benefit of the beneficiary.

The above tells us that assets registered in a Trust cannot be considered as an asset belonging to a person and as such, such asset cannot form part of the joint estate or the accrual. Neither spouse may therefore benefit from an asset, registered in a Trust.

In some cases, assets may have been moved to a Trust for the purposes of avoiding sharing it with your soon-to-be Ex after a divorce, or, in some cases assets were moved to a Trust to ensure that the beneficiaries will benefit from them in the future. Beneficiaries in cases of divorce are usually the Children born between the Parties.

The first mentioned Trust may face some issues should a divorcing spouse contend that its assets should be considered in the divorce, or should he/she challenge its validity in Court. There are strict rules when it comes to the creation of Trusts, how it should be administrated and their purpose. Trust may be declared invalid, especially if they were created for the wrong reasons and in other cases, the Court may consider its assets when dividing the joint estate or calculating the accrual.

The Court shall consider the Trust’s assets in the Divorce if it is just for it to do so.  This was the case in the matter of Jordaan v Jordaan 2001 (3) SA 288 (C). In this matter the Court held that although the Husband’s powers were subject to the provisions of the various Trust deeds and the law, sight could not be lost of the fact that the Husband had in the past used the Trust for financial gain in his personal capacity and would undoubtedly do so again in the future.  The Court also considered the operations of the Trust in the past and whether it was administrated properly. The Husband’s own evidence showed that the Trust was actually his alter ego and were regarded by him as such.

In Badenhorst v Badenhorts 2006 (2) SA 255 the South African Court of Appeal held that the mere fact that the Trust assets vested in the Trustees and did thus not form part of the Trustees estate did not per se exclude such assets from consideration when determining what had to be taken into account when making a redistribution order.  In this case the Court stated that in order to succeed with a claim to include the Trust assets, it was necessary to show that the Party in question controlled the Trust and that but for the Trust he or she would have acquired and owned the assets in his or her own name. The Court held that the Trust assets should have been added to the value of the Respondent’s estate and made an order in accordance.

Bear the following in mind when considering whether to pursue a claim that the Trust’s assets should be considered in the divorce:

  • Did the fraudulent party have de facto control over the assets in the Trust?

  • How were the affairs of the Trust conducted during the marriage? Was a proper decision-making route followed?

  • What does the Trust deed say?

  • Was the fellow Trustee’s consent sought on affairs?

  • Was there a difference between Trust assets and personal assets? (did the fraudulent party deal with such assets in the same manner?)

  • Could or did the fraudulent party alter the terms of the Trust deed?

  • Could or did the fraudulent party discharge and appoint co-Trustees?

  • When was the Trust created? If it was close to or during separation, is it likely to have been created for the purposes of defrauding a spouse in a divorce matter?

In WT and Others v KT 2015 (3) SA 574 (SCA), the Wife contended that their matrimonial home should form part of the joint estate, despite it being registered in a Trust. The Wife argued that the Husband deceived her by making her believe that they would both share in the house and that it was only registered in a Trust to protect it from his business’s creditors. The Husband opposed such and agued that the property belonged to a Trust and can therefore not form part of their joint estate. The High Court agreed with the Wife’s argument that the Trust was her Husband’s alter ego. The Court of Appeal however sided with the Husband and overturned the High Court’s ruling. It held that the Wife did not present any evidence to support that the Trust was mismanaged by her husband which is an essential element when arguing that a Trust was used as an alter ego.

On other hand, seeking an order to declare the Trust invalid would mean to ask the Court to establish whether the Trust was a sham Trust.

In van Zyl and Another NNO v Kaye No and Others 2014 (4) SA 452 (WCC) the Court was asked to “go behind” the Trust and to disregard its “veneer” (a.k.a: its legal protection) in order to determine that the Trust was K’s alter ego. The applicant’s contended that the assets of the Trust ought to be regarded as those of K.

In this case the Court distinguished between piercing the corporate veil and, establishing whether a Trust was a sham. A Trust was a sham Trust and did not exist where the requirements to establish it had not been met, or where it appeared that they had been met but that it was a dissimulation.

The following are essential requirements for a valid Trust:

  • The founder must have a serious intention to create a Trust and transfer control;

  • The Trust must be set up in writing in the Trust instrument;

  • Trust property must be clearly identified;

  • Trust object must be clearly stated and lawful;

  • Trustees must be authorised and have capacity;

  • There must be at least one beneficiary;

  • Trust beneficiaries must be clearly identified;

If the above requirements were not met upon the creation of the Trust, then perhaps the Trust could be a sham Trust. The assets belonging to such Trust would then fall back to the person who donated or sold it to the Trust, and then same could be considered upon divorce.

In the first two cases as discussed above, the Court accepted that the Trust existed (as all the essential requirements may have been met) but disregard the consequences of its existence (which is that the Trust’s assets cannot be considered in a divorce). Therefore, going behind the veil did not mean that the Trust was a sham.

Michelle Soutter

Practicing Attorney

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