Written by Roger Peters, Philip Rutter
Trusts may be established for a variety of reasons: typically as a means of asset protection from profligacy or claims by creditors; to dictate a future family inheritance; or for charitable purposes. For those looking to preserve wealth for future generations, a trust may be useful to try to shelter a child’s inheritance against the consequences of divorce.
The difficulty confronting trust lawyers framing the basis of such a trust is the extensive powers wielded by the Family Courts on divorce to invade a trust regarded as an ante- or post-nuptial settlement. These powers are well established: as long ago as 1902 in Bone v Bone the courts were stressing the need for the widest possible interpretation of what could be considered a ’nuptial settlement’, well beyond the conventional and straightforward formal settlement or will trust in favour of one or other party to the marriage. As a result, any form of trust or similar agreement under which a party to the marriage has actually benefited during the marriage, or has an established potential to benefit, is likely to be treated as a nuptial settlement susceptible to a claim for financial provision on divorce, whatever its terms.
In the recent case of Quan v Bray, Li Quan sought to argue that a trust to support a charity, established by her and her husband Stuart Bray during their marriage, was a post-nuptial settlement.
The two of them shared a passion for saving the Chinese tiger, a highly endangered species. Over the course of the marriage, Stuart Bray contributed very large sums of money to the venture so that, by the time of their divorce, the assets invested in a highly complex trust structure amounted to £25 million. The family’s personal wealth was a comparatively modest £1.6 million.
Li Quan’s case was that the trust did not exist only to advance the cause of the Chinese tiger, but also to provide financial benefit for the family personally over the long term. As such, she claimed, it was a nuptial settlement even though the only benefits she and her husband had ever had from the trust were directly related to the charitable purposes of the trust. The hearing of this preliminary issue alone lasted twenty-five days, with the wife launching every feasible argument in support of her assertion that the trust was a post-nuptial settlement capable of variation in her favour.
The Judge did not favour any of her arguments, nor much of her evidence, ruling that, even though it was a fully discretionary trust which could theoretically be varied in future to benefit husband and wife (which could have turned the trust from a non-nuptial settlement into a nuptial one), it had always existed for the sole purpose of supporting the charity for the Chinese tiger.
While the Family Courts have often been willing to regard any trust as a nuptial settlement where a family has actually benefited from it, Quan v Bray demonstrates that there is only so far that judges are willing to go to interpret a trust as a nuptial settlement if, in reality, there has never been any intention that the parties to the marriage should themselves benefit from it.
When parents are looking to pass money to a soon–to-be-married or married child, they will often quite reasonably insist that, before the gift is made, their child and son/daughter-in-law enter into a pre- or post-nuptial agreement to ensure that the gift is ring-fenced in the event of a divorce. Whether or not some of this expensive litigation could have been avoided, or at least foreshortened, is conjecture, but Quan v Bray underlines that in more unusual circumstances it is always worth considering a pre- or post-nuptial contract. Had Stuart Bray insisted on a post-nuptial agreement which excluded Li Quan’s claims on the trust funds when he had first put money into the trust that could have saved a very lengthy hearing at the expense of not only the husband and wife, but of the charity as well.
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I am senior partner at Gordon Dadds, working in both private client law and charity law. I began my career at the long-gone Peacock & Goddard, as an articled clerk and then assistant solicitor, before joining Gordon Dadds in 1973. My speciality lies in estate planning and it is the challenge of getting this right both tax-wise and for the family dynamics that I find absorbing. Outside work, I enjoy spending time with my family, travelling and visiting restaurants. When I have time, I'm also passionate about reading, particularly about English history.