Trusts and Divorce:

How does a divorce matter deal with assets held in and owned by a trust?

This problematic issue arises because of a complete misunderstanding and misconception about trusts and proper trust administration. The courts had to decide in a number of divorce cases, if these so-called trust assets, should be included or excluded in the estate of a divorce party.

In the real sense of a trust and with specific reference to the Trust Property Control Act, the assets of the trust are totally separate and segregated from the estate of the individual. These assets are administered by trustees in their fiduciary capacity on behalf of beneficiaries and thus do not form part of either the founder’s, trustees’ or beneficiaries’ personal estate.

In order to prove this separate ownership, the courts will look at a couple of determining factors. In the matter of Jordaan vs. Jordaan 2001(3) SA 288, the court looked at whether the trust was merely the alter ego of one of the parties in the divorce case. If it can be proven that the trust assets are controlled by an individual, in other words the alter ego of that person, these assets will be deemed to be the property of that person.

The factors that will determine if trust assets can be deemed to the “owned” and “controlled” by an individual are inter alia the following:

- Is the trust real or just a “show” or “front”?

- When was the trust created and the assets transferred?

- How were the assets transferred?

                   = Loans or donation?

- What was the intention of the founder or other party transferring ownership of the trust?

- How many independent trustees are authorised to act?

- What is the situation regarding loan accounts? 

- Are the financial statements of the trust reflecting the true situation?

In the light of the many factors impacting on a divorce, it is in utmost importance to consult with an attorney specialising in the trust law.