Discretionary Trusts in Financial Remedy Proceedings

By Amy Harvey

The recently published judgment in the case of Daga v Bangur [2018] EWFC 91 serves as a cautionary tale to those attempting to claim against discretionary trusts in financial remedy proceedings.

The court in these proceedings considered a husband’s claim for a lump sum payment of £1.5 million which he claimed could be met from two substantial discretionary trusts of which the wife was the settlor and beneficiary. The husband’s position was that if the wife were ordered to pay a lump sum to him, the trustees would distribute the funds to her so that she could pay it. Alternatively, he argued that the wife’s assets in India could be liquidated to pay the lump sum.

Up until the parties’ separation, the wife’s father had advanced significant sums of money to his daughter in respect of legal and accountancy fees, payment of tax, rent and other personal expenditure. The father claimed that these sums were loans which he expected to be repaid. He viewed the wife’s assets in India, which could not be sold without the father’s consent, as security for the loans. The husband argued that the assets in India could be realised to pay a lump sum order, despite evidence of an agreement between named family members, including the wife and her father, that they would not transfer, encumber or alienate their respective shareholding in the father’s company without his prior consent. The court did not accept the father’s argument that these assets were realisable by the wife.  

Turning to the discretionary trust funds of which the wife was a settlor and beneficiary, the court considered evidence from the wife’s father who stated that he would not provide for his daughter or give advice to distribute from the trusts even if an order was made against her. Mr Justice Holman noted that ‘the court can, in appropriate cases, make a lump sum or other financial remedy order in reliance upon funds in a trust, and give to the trustees judicious encouragement to provide the funds with which to pay it.  But the court must not put undue pressure on the trustees’.

In Whaley v Whaley [2011] EWCA Civ 617, the court found that the husband had access to the trust fund and that those assets should be taken into account when calculating the matrimonial pot. In Thomas v Thomas [1995] 2 FLR 668, the court held that the court would not put ‘undue pressure’ on trustees to exercise their discretion in a particular way, but could frame an order which affords ‘judicious encouragement’ to the trustees to provide a spouse with the means to comply with an order against them. In Mr Justice Holman’s view, Daga was not a case to which judicious encouragement could apply, and that the trustees were highly unlikely to make funds available to the wife whatever order was made by the court.

The husband further argued that his needs should be viewed with reference to the scale of wealth of both parties. The court did not accept this, and instead determined that the husband’s needs could be met from his own assets and income. During the course of the marriage, the parties had rented modest accommodation, which the husband could continue to afford on his net income of £130,000 per annum. The judge noted that he could even buy his own home in the near future without any capital provision from the wife.

Whilst the court did not believe the trusts or the wife’s father would pay her a lump sum to meet a financial order in the husband’s favour, it did opine that, should the wife need to seek substantive maintenance for her and her son in future, she should turn to her father or the trusts rather than her former husband. The court therefore dismissed the wife’s claim for nominal maintenance and ordered a complete clean break in all respects save for child maintenance, whereby the husband was ordered to pay £1,200 per month for the benefit of the parties’ child.

The issue of whether discretionary trusts will be considered as a spouse’s asset in financial remedy proceedings turns on the facts of each case. Banks Kelly Solicitors recently succeeded in a claim for a lump sum order against a wife where the court considered that the trustees of a discretionary trust would provide her with the means to comply with the order made against her. If you require advice on the assets that will be taken into account when calculating the value of your matrimonial assets, or would like to instruct in relation to financial claims arising out of a divorce or dissolution of a civil partnership, please contact us.