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  1. Wealth
April 29, 2019

Wodehouse divorce: sometimes trust is not enough – expert opinion

By Spear's

A recent Court of Appeal decision highlights the need for robust and early intervention where trust assets become entangled within proceedings, writes Sean Hilton

There are some interesting lessons to be learnt in the recent case of Wodehouse -v- Wodehouse, namely: 1) the ability of a Judge sitting in the Family Court to consider assets held in Trust as a resource available to either party; 2) the intervention in proceedings by Trustees as well as the evidence they may give and the findings a Judge is entitled to make; 3) the need for careful wording of Court Orders where Trusts are concerned.

It is well established that, where it is proper to do so, the Court may use its discretionary powers to include trust assets as a resource available to a divorcing spouse. Previous cases have confirmed that if the Court is to find that assets that are not held in the name of an individual are nonetheless a resource available to them, it must first hear evidence and be satisfied that this is the case.

With a fixed trust, depending on its wording, the Court may certainly infer that as a beneficiary an individual could request a distribution to house their ex-spouse, for example.

But what is the position where a divorcing spouse is the potential beneficiary of a discretionary trust? In such cases, the Court must hear evidence from the trustees as to whether they would be prepared to exercise their discretion in the beneficiary’s favour and release the necessary funds.

In the Wodehouse case, there were in fact two trusts; one fixed and one discretionary. Mr Wodehouse was the potential beneficiary of the discretionary trust and the trustees were eventually joined to the matrimonial proceedings but the fixed trust was not considered.

The trial judge found that the trust was a resource available to Mr Wodehouse. However it was accepted on appeal that the trial judge had not heard any evidence that could allow him to reach this finding.

Clearly, there were failings by all concerned in not robustly analysing the trust instruments at the outset. Mr Wodehouse could have strengthened his case by seeking an early indication from the trustees as to their reluctance to exercise their discretionary powers.

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More significantly, Mrs Wodehouse should have ensured that the trustees were properly questioned at trial on the distributions made by them previously and their duties towards the beneficiaries.

The final lesson from the Wodehouse case relates to the careful drafting of court orders. Following a finding that Mr Wodehouse should pay a contextually significant lump sum to Mrs Wodehouse the order required that, if the Mr Wodehouse could not, the trust was to pay the money to Mrs Wodehouse directly.

On second appeal, Mr Wodehouse was represented by the writer and Mr Blatchly of Fourteen Chambers and it was submitted on his behalf (and conceded) that the court did not have the power to make an order that required a third party to pay a lump sum to Mrs Wodehouse.

It is understandable why the Court sought to put in place protections and assurances to assist Mrs Wodehouse, but this ultimately led to a successful appeal and the removal of the lump sum provision in its entirety.

This case serves as a stark reminder to those practicing in or engaged with the family courts where trusts are involved.

It not only demonstrates that improperly guided inexperienced judges can be led to unsafe decisions, but shows the potential implications for trustees and beneficiaries of not fully engaging.

The eventual difficulties in the Wodehouse case could have been avoided had Mr Wodehouse and the trustees taken early advice and looked carefully at the trust instruments.

In a forum where alternative methods of dispute resolution are encouraged and effective this is perhaps one example where a robust opening letter would have been advisable.

Sean Hilton is a Managing Associate at Stevens & Bolton

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