TRUSTS & DIVORCE

Anyone who has faced divorce knows what an ugly, self-serving and humiliating battleground it can become. Regardless of the circumstances surrounding the divorce, much of the settlement depends on the marriage contract.

However, clever (and very expensive) legal representation often leads to one partner coming off second best in the legal spat. Young children are generally hardest hit by something they do not understand, and worst of all, they are often exploited as pawns in a terribly cruel and divisive tug-of-war.

Trusts can become vehicles that circumvent much of the emotional toll created by divorce.

OPTION ONE

BEFORE a couple marries, we suggest trusts for each marriage partner in expectation of a fully committed and stable relationship (covered in the previous section).

In the trust, each partner has the opportunity to make provision for the other as well as any children (either existing or future). The provision is intended to assist the surviving partner when the other one dies or is incapacitated.

However, not every marriage works out. When divorce is on the table, the existing separation of property/assets via the trusts ensures protection of those assets and may mitigate some of the settlement problems.

It will boil down to who-gets-what of the assets and property acquired during the marriage that has not been included in either of the existing trusts.

However, what if there are now children? if provision was made for children at the time the trust deed/s were drafted (even if children did not yet exist), it would help mitigate in part, the inevitable battle over money and support expectations for the children should the marriage falter.

Additional provision may well be required for the partner who assumes the lion’s share of caring for the children. Children should be spared and protected from the fallout of divorce and any material consequences, it is not their battle to win or lose.

Discretionary living trust assets are ‘owned’ and controlled by trustees. A positive advantage is their capacity to think and act more objectively, even if the divorcing party is one of the trustees. Reason through balance of opinion is more likely to prevail and provide continuity in trust matters during troubled times.

OPTION TWO

Create a separate discretionary living trust for the children whereby each marriage partner places select assets in the trust to be managed by the trustees for the exclusive benefit of the children. A discretionary living trust can be beneficial for you and your children.

A relatively significant pool of investment funds has more scope to perform well and clever stewardship of the assets by the trustees could see an extension of trust benefits to the children into adulthood, and the generations that follow.