The Supreme Court of Appeal (SCA) recently handed down Judgment in a divorce where the accrual calculation was in dispute, ruling that, the trust assets would form part of the couple’s estate for accrual purposes.
Shortly prior to the institution of the divorce proceedings, the husband created a trust with the trustee being his brother and the trust beneficiary his minor child and donated a substantial sum of money to the trust. The husband argued that the trust had been established for the maintenance of his child and that the amount transferred to the trust should be excluded from the accrual calculation.
The wife argued that this was done to hide his assets during the divorce proceedings, which would detrimentally impact the wife’s accrual claim.
In evaluating the allegation that the trust form had been abused by transferring assets to a trust to reduce the value of their estate for accrual purposes, the SCA held that the court was not exempt from investigating such an allegation.
In such an investigation, if confirmed that the trust form had been abused, the court was further empowered to pierce the veneer of the trust and order that the value of its assets be considered in calculating the accrual.
The SCA found the husband’s creation of the trust was intended to frustrate his spouse’s accrual claim, which was sufficient grounds to justify the piercing of the trust veneer.
The SCA’s ruling to include the husband’s trust assets as part of his estate and the accrual calculation resulted from the following considerations:
1. The timing of the creation of the trust and donation. The SCA confirmed the importance of this requirement and found that the creation of the trust so close to the divorce was a strong indication that the trust was set up to frustrate the accrual claim.
2. The location of the trust. The trust was established offshore, making it more difficult and expensive for the wife to seek to recover assets from the trust, effectively trying to put the trust out of the wife’s reach.
3. No consultation beforehand. Given that the parties had a history of consultation on major financial matters and given that the trust was set up for the maintenance of their child, the lack of consultation about the creation of the trust stood at odds with the trust having a legitimate purpose.
4. No immediate need for the trust. The husband had purported to create the trust for the maintenance of his child. This argument was confounded by the fact that he was responsible for the maintenance of his child regardless.
Although a trust is a legitimate and prominent estate planning tool, whether the veneer should be pierced and whether the creation of the trust was abused to devalue the other spouse’s claims, will depend on the circumstances of each case, and will require careful consideration of the relevant factors applicable to the formation and use of the trust.
Contact our professionals at 041 363 6044 or info@kaplans.co.za for sound legal advice.
