A trust is a legal arrangement in which assets are held by one party (the trustee/s) for the benefit of another (the beneficiary/beneficiaries) on the instructions of the owner (the donor/founder/settlor). Trusts are intended to separate assets from the founder or trustee’s personal estate, but the Matrimonial Property Act (MPA) provides guidelines for calculating accrual, which may involve trust assets.

Alter ego trusts

Financially stronger spouses sometimes use trusts to protect their assets, transferring them on the verge of divorce to make them inaccessible. This practice aims to prevent these assets from being part of the matrimonial property. Courts consider these trusts “alter ego trusts” when they are used for abusive or fraudulent purposes.

Burden of proof lies with the claimant

If you believe your spouse is hiding assets in a trust, the burden of proof lies with you to establish the inclusion of trust assets in the divorce settlement. You must show that your spouse transferred assets to the trust, acted as a trustee and beneficiary, exercised control over trust assets, and had beneficial ownership of trust assets. When spouses attempt to hide assets in trusts, courts may exercise their common law discretion to insist the trust assets be treated as part of the person’s personal wealth in divorce asset division.

When is a trust considered part of a personal estate?

This approach seeks to balance the rights of financially weaker spouses against those of financially stronger ones. Trust assets, despite being legally separate, can be considered part of a spouse’s personal estate if the trust was created to hide assets. In such cases, a court may treat the trust as a sham or alter ego and include the trust assets in the divorce asset calculation. While trust law views trust assets as separate from personal assets, a court may examine the true intention behind the creation of the trust. If it finds the trust was established to defraud or disadvantage the other spouse, it may include the trust assets in the matrimonial property claim.

Seek the guidance of an expert divorce attorney

There is a call for legislative clarity in cases involving trust assets in divorce proceedings. Until then, it is up to the less wealthy spouse to prove that trust assets should be part of the divorce settlement. SD Law has extensive experience helping clients arrive at a fair and equitable divorce agreement. If you are considering divorce and suspect your spouse is being less than honest with you about their finances, call Simon on 086 099 5146 or email sdippenaar@sdlaw.co.za for a confidential discussion.

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