Protecting family assets from divorce claims

It is a fundamental principle of trust law that the beneficiaries of a settlement do not enjoy outright ownership of assets held by the trustees. The only entitlement of a particular beneficiary is that specified in the trust instrument. If the beneficiary is entitled to a simple life interest (effectively a right to receive income during his or her lifetime), or an interest in remainder, or the death of the life tenant, then the beneficiary’s interest may represent a substantial property right capable of being valued or sold for the benefit of creditors or others with claims against the beneficiary. Naturally settlors and their draftsmen have designed mechanisms for ensuring that unfortunate or improvident beneficiaries can be provided for, for example by means of protective or discretionary trusts. For property owners who are anxious to secure continued family ownership of family property, professional advisers can point to many advantages offered by trusts. One of the greatest perceived dangers when family property is passed to a younger generation may be the impact of divorce proceedings, with the risk that what is regarded as family property will have to be transferred to, or disposed of to meet the claims of, someone who has, by definition, ceased to be a member of the family. For trust practitioners, and their clients and potential clients, there is some interest in cases such as Foster v Foster 2003 EWCA Civ 565.