Divorce can be a complicated process, especially when there are significant assets involved. One such asset that often comes into play is a trust. Trusts are commonly used in South Africa to protect assets, minimize tax, and provide for beneficiaries. However, when it comes to divorce, determining whether assets held in a trust can be included in the division of property can be complex. Here’s what you need to know about trusts and divorce in South Africa.
1. What is a Trust?
A trust is a legal arrangement where one party (the trustee) holds assets for the benefit of others (the beneficiaries). Trusts are often used in South Africa to protect family wealth, manage assets, or pass on wealth to future generations without directly transferring ownership. The assets placed in a trust can include property, money, investments, and business shares.
There are two main types of trusts:
- Inter vivos trusts: These are created during the lifetime of the person who established the trust (the settlor).
- Testamentary trusts: These are established as part of a will and come into effect upon the settlor’s death.
2. How Does a Trust Affect Divorce in South Africa?
When a couple divorces, one of the main issues to resolve is the division of marital property. In South Africa, the division of property depends on the marital regime under which the couple is married, such as in community of property, out of community of property with accrual, or out of community of property without accrual.
However, things can become complicated if one or both spouses have assets held in a trust. A trust is often used to shield assets from being included in the estate for divorce purposes. But this doesn’t mean assets in a trust are automatically protected.
3. Can Trust Assets Be Included in Divorce Settlement?
In South Africa, assets held in a trust may or may not be included in the division of property during a divorce. This depends on several factors, including:
- Control and Ownership: If a spouse is the trustee or has significant control over the trust, the court may consider the assets in the trust as part of the marital estate. This is because the court might determine that the trust is essentially a mechanism for hiding assets or protecting wealth from division.
- The Trust’s Purpose: If the trust was created for legitimate purposes, such as estate planning or safeguarding family assets, the court may not consider the trust assets in the divorce. However, if the trust was set up with the intention of avoiding the division of property during divorce proceedings, the court may order that those assets be included.
- Beneficiary Rights: If one spouse is a beneficiary of the trust, the court may consider their right to benefit from the trust when determining spousal maintenance or asset division.
- Postnuptial Agreements and Trusts: If a trust was created during the marriage, and one of the spouses has specific claims on the trust assets, the court may examine whether the trust assets should be treated as part of the marital estate based on agreements made between the couple.
- Fraudulent Transfers: In cases where assets have been transferred into a trust with the intention of defrauding the spouse during divorce proceedings, the court can set aside those transfers. This is especially true if the trust is deemed to have been established in bad faith or with the sole purpose of hiding assets from the divorce settlement.
4. Trusts and Marital Property Regimes
The way in which a trust is treated in divorce proceedings often depends on the marital property regime:
- In Community of Property: In this regime, all assets and liabilities are shared equally between spouses. If a trust is involved, the court may look into whether the trust assets should be included in the division of property based on the principles of fairness and equality.
- Out of Community of Property: If the couple is married out of community of property, with or without accrual, the assets owned before the marriage (and potentially after the marriage) are excluded from the marital estate. In this case, assets in a trust may not be considered part of the estate for division, unless the court determines that the trust was set up with the intention of avoiding the division of assets.
- Accrual System: If the couple is married out of community of property with accrual, only the increase in the net value of each spouse’s estate during the marriage is divided. If a spouse has set up a trust during the marriage, the court may consider the accrual in the spouse’s estate and the assets in the trust when determining how much the other spouse is entitled to.
5. What Happens If a Trust Was Set Up During Marriage?
If a trust was established during the marriage, especially if it was created in the interest of one spouse or both, the court will closely examine its purpose and whether it was set up in a way to disadvantage the other spouse. In such cases, the court may scrutinize the role of the spouse in managing or benefiting from the trust and may decide to include the trust assets in the division of property.
6. Can You Protect Trust Assets in Divorce?
While trusts can offer some protection of assets, there are no guarantees that the court won’t consider them during divorce proceedings. To ensure that assets held in a trust are protected:
- Ensure Transparency: It’s important that the trust is established for legitimate purposes, and that the couple does not hide assets within the trust.
- Seek Legal Advice: If you’re involved in a divorce and have assets in a trust, it’s essential to seek expert legal advice. An experienced family law attorney can guide you on how to structure your trust to minimize the risk of assets being included in divorce proceedings.
- Avoid Fraudulent Transfers: Transferring assets into a trust solely to avoid the division of property in a divorce can be deemed fraudulent, and the court may set aside such transfers.
7. Conclusion
Trusts are complex legal structures that can play a significant role in divorce proceedings in South Africa. Whether or not trust assets are included in the division of property depends on several factors, such as the control a spouse has over the trust, the legitimacy of the trust’s creation, and the marital regime in place.
If you are facing divorce and have assets in a trust, it is crucial to consult with a family law attorney who understands how trusts operate within the context of divorce. At RMB Attorneys, our team of legal professionals can help you navigate the complexities of divorce involving trusts and ensure that your assets are protected to the best of your ability.