Asset protection on divorce: a Q&A for trustees

Is it possible for a settlor to put a business (typically shares) into trust?

Subject to the terms governing the trust, any shareholders’ agreement (which may restrict some share transfers), and tax considerations (noting the recently announced changes to business property relief in the UK), absolutely. 

Will moving assets into a trust protect from a spouse’s claim? 

In a divorce, the family court will consider all the relevant factors of the case as required by section 25 of the Matrimonial Causes Act 1973, including the financial resources of each party. This can include trust interests.

When considering whether a spouse’s trust interests form part of their own financial resources, the family court has a wide discretion and can look beyond a strict interpretation of the trust instruments to what has been happening on the ground. This includes whether there have been distributions out to either spouse during the marriage and what their reasonable expectations of future distributions might be. 

Can a transfer into a trust be prevented or unwound?

In certain circumstances, yes. 

Under Section 37 of the Matrimonial Causes Act 1973, the family court can make injunctive orders to prevent a party from disposing of or transferring assets if it is satisfied that the disposition or transfer would be done with the intention of defeating a spouse’s claims for financial relief. These orders have the effect of injuncting a party from making an intended transfer or setting aside a purported transfer which has already taken place.

If the disposition or transfer took place less than three years before the date of the application and has the effect of defeating the spouse’s claim (for example, by diluting the transferor’s asset base), the court will presume that it was done with the intention of defeating the spouse’s claim. The burden shifts to the transferor to demonstrate that they did not have such intention, for example, by evidencing that the transfer was for valuable consideration and that the transferee acted in good faith and was unaware of any intention to defeat the spouse’s claims.

If the disposition or transfer pre-dates the application by more than three years, there is no presumption that the transferor intended to defeat the spouse’s claims, so the burden of proof lies with the applicant spouse to demonstrate such intention in the specific circumstances.

These powers can extend to the transfer of an asset into a trust wrapper if the court is satisfied that on a balance of probabilities that it was done with the intention of frustrating the spouse’s claim. AC v DC [2012] is one such example where the family court sets aside a transfer of shares by a husband to a corporate trustee based in the Isle of Man.

The family courts can also make use of s423 of the Insolvency Act 1986, which allows a court to unwind a transaction done at an undervalue with the intent of defrauding a creditor. This is a very wide power as it relates to any creditor’s claim, not just those of the spouses against each other on divorce, and the court can review transactions dating back 12 years. Trustees should be aware that legal advice is potentially disclosable within s423 proceedings, so the importance of thorough note-taking and clear legal advice cannot be overstated.

Practical considerations 

Trustees must, of course, always act within the confines of their fiduciary duties to the beneficiaries and the powers afforded to them by the trust instrument.

Before making any new transfers or (in the case of trustees) receiving new assets into the trust or excluding spouses who may be beneficiaries, early specialist advice should be taken to ensure that the action is appropriate in the circumstances and would withstand the family court’s scrutiny.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2025