When couples divorce, one of the most important steps is making a full and honest disclosure of all assets. The family court relies on this to ensure a fair division of property, savings, and investments. However, some people attempt to move money into a trust to make it look as though they no longer control it. These are sometimes described as “sham trusts”.
Recently, the High Court has considered cases involving sham trusts and has made it clear that they will not allow this type of arrangement to disadvantage the other party. In some cases, the court has even made costs orders against the person who tried to use a sham trust to mislead the court.
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What is a Sham Trust?
A sham trust is a trust that looks valid on paper but is not genuine in practice. This might happen where:
• The person setting up the trust never truly hands over control of the assets
• The trust is created mainly to hide assets during divorce proceedings
• Trustees simply follow the instructions of the person who placed the assets into the trust
• The real purpose is different from the one written in the trust deed
If the court finds that a trust is a sham, it can treat the assets as though they still belong to the person who created it.
Why Are Sham Trusts Used in Divorce?
Some people try to use trusts as a way of reducing what they may have to share with their spouse. For example, one spouse might transfer money or property into a trust in the hope that it will no longer be counted as part of their assets.
However, family judges are experienced in spotting when a trust is not genuine. If there is evidence that the spouse still controls the assets or that the trust has no real independent purpose, the court can bring those assets back into the financial settlement.
Recent Court Rulings
In a recent High Court decision, the judge examined a trust that was found to be a sham. The spouse had attempted to shield assets, but the evidence showed that the trust was not genuinely operating as a separate entity. The court:
• Treated the trust assets as part of the spouse’s financial resources
• Ordered the assets to be available for division in the divorce
• Made a costs order against the spouse for misleading the court
This case highlights the risks of trying to hide money in a trust. Not only will the court see through it, but there can also be financial penalties for dishonesty.
What This Means for Divorcing Couples
If you are facing divorce and your spouse claims that significant assets are tied up in a trust, it is important to seek legal advice. The court will look carefully at:
• Who really controls the trust
• Whether the trust serves a genuine purpose
• How the trust has been used in practice
If it is found to be a sham, the assets can still be divided as part of the financial settlement.
For anyone considering placing assets into a trust, it is vital to understand that doing so with the intention of hiding them from your spouse is not only ineffective but also potentially damaging to your case.
FAQs about Sham Trusts in Divorce
Can offshore trusts be considered sham trusts?
Yes. The location of the trust does not prevent the court from examining whether it is genuine or a sham.
Will I have to pay costs if the court finds I used a sham trust?
Possibly. In recent cases, costs orders have been made against the party who attempted to mislead the court.
Are all trusts viewed as suspicious in divorce?
No. Many trusts are valid and have legitimate purposes. The problem arises where a trust is used to disguise the true ownership of assets.
How does the court decide if a trust is a sham?
The court will look at the documents, how the trust operates, and whether the trustees are acting independently or just following instructions.
What if my spouse has moved assets into a trust without telling me?
If disclosure is incomplete, your solicitor can apply to the court to investigate the trust and bring the assets back into consideration.
Is hiding money in a trust a criminal offence?
It is not automatically a criminal offence, but it can be contempt of court if there is a failure to give full and frank disclosure.
What should I do if I suspect a sham trust?
Seek legal advice immediately. A solicitor can apply to the court for disclosure and investigation of the trust arrangements.
How Waely Law Can Help
At Waely Law, we understand how complex and stressful financial disputes can be during divorce. If you suspect your spouse is hiding assets in a trust, or if you are worried about how your own trust arrangements may be viewed by the court, we can guide you through your options.
