Evaluating courts' discretion to award trust assets in divorce matters

Abstract

In recent years, the establishment of trusts has increased. The reason for trusts is mainly for the protection of trust assets. A founder creates a trust by donating assets toward the trust and the trust in turn offers protection for those assets from third parties and creditors. Due to the protection gained from a trust, it often happens that founders or trustees misuse or abuse trusts by using the assets in the trust for their own personal use and not for the benefit of the trust beneficiaries. In this paper, the overarching question that was asked was to what extent does the Court have the discretion to include trust assets in determining a redistribution order in terms of section 7 of the Divorce Act 70 of 1979. In terms of section 12 of the Trust Property Control Act 57 of 1988 the assets in a trust do not form part of a trustee's personal estate. The aim of this study was to get a better understanding of how trusts work and how they are abused or misused. The requirements of a valid trust were also examined along with the basic principles of trusts. An important part of this discussion is also the relationship between marriage, divorce and trusts. The obligations of trustees as well as the consequences of not adhering to trust principles were also investigated. The cases that form the basis of this investigation are the Jordaan v Jordaan 2001 3 SA 288 (C) and Badenhorst v Badenhorst 2006 2 SA 255 (SCA). In both these cases the Court dealt with the question whether or not trust assets should be included in a redistribution order. Other cases that form an important part of this study is Land and Agricultural Development Bank of SA v Parker 2004 4 SA 621 (SCA) where the Court emphasised the importance of the separation of control, Braun v Blann and Botha 1984 2 SA 850 (A) and Miller v Miller 2014 JOL 32176. In all these cases the question before the Court was whether the assets in an inter vivos trust could be included in the determination of a redistribution order. The problem comes when the founders or the trustees do not relinquish control over the trust assets. If this happens, the trust may be seen as an alter ego, which will leave the assets of the trust exposed to creditors. The purpose of this research was therefore to determine which factual circumstances the Court takes into consideration and to what extent the Court’s discretion extends in determining whether or not trust assets should be included in a redistribution order. Keywords: Trusts, Marriage, Divorce, Marriage dispensation system, Redistribution order, Spouses, Court's discretion.