How are trusts and foundations valued for divorce?

What Are Trusts and Foundations in Divorce?

Trusts and foundations are legal structures used to manage and protect wealth. In divorce proceedings, they can become central to financial settlements - especially in high-net-worth cases.

• A trust is a legal relationship where a settlor transfers assets to trustees to manage for the benefit of beneficiaries.
• A foundation is a legal entity established for the benefit of its founders. It may serve charitable or philanthropic purposes. Different jurisdictions have their own specific features of a foundation, but in contrast to a trust, they are marked for their distinct legal personality, though they are administered by a council or board.

Despite their complexity, UK courts can and do consider these structures when determining a fair division of assets.

How Are Trusts Valued in Divorce?

The valuation of a trust depends on its type and the nature of the beneficiary’s interest. The court will look beyond the complex structure of a trust to determine the reality of the benefits received from it by the party or parties.

Fixed Trusts

• Generally straightforward to determine the value as the beenficiary’s entitlement will be clearly defined.
• Valuation is straightforward and based on the known share of assets or income.

Discretionary Trusts

• In comparison, the trustees of a discretionary trust determine what the beneficiaries receive, how they receive them, and when. They also have the power to distribute funds to some, or just one of the beneficiaries. As such, determining the value of a party’s beneficial interest is more difficult.
• The court will assess the wider context behind the establishment of the trust:
  • Who set it up, when, and why;
  • Previous payments made to the beneficiary; and
  • The terms of the trust. 

Where a party has a beneficial interest in a trust, it will generally be advisable to instruct a financial forensic to provide an expert valuation. 

how are foundations valued?

Foundations, particularly offshore ones, are treated differently from trusts due to their legal personality.

• They can own assets outright, including property, shares, or investments.
• Courts examine:
  • The founder’s control or benefit
  • The foundation’s purpose and structure
  • Past distributions or benefits received

To provide an accurate valuation, it will be important to obtain expert advice from a forensic accountant with specialist expertise, as the foundation may own various and unique assets which will require individual valuation. 

Legal Considerations in the UK

UK courts focus on substance over form. If a party has access to or control over trust or foundation assets, those assets may be treated as a financial resource or included in the matrimonial pot.

Courts may:

• Order disclosure of trust deeds and financial records
• Consider the trust/foundation’s history and purpose
• Draw adverse inferences if disclosure is incomplete

To read more on how the courts treat trusts and foundations on divorce, click here.

Vardags has years of experience working on cases involving complex assets, including those involving a trust or foundation, such as the famous ‘Chinese tigers’ case, Quan v Bray. If you require a valuation of a trust or foundation for your divorce, contact Vardags today for a free initial consultation with one of our expert divorce solicitors.  

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