What happens if a home registered in a trust is part of a divorce settlement?

23 June 2015

Families still often put homes in trusts, sometimes as part of their estate planning for their children and partly because they would like to know that if anything should happen to them in some way or another, the property is kept in safe hands, but what happens in cases where there is a split in that family or when some derision causes family members to claim what they feel is their share?

In a recent case highlighted in a Bisset Boehmke McBlain law update, a couple married in community of property divorced and the wife was claiming a 50% share of their matrimonial home, with the justification that it was part of their joint estate.

The husband said that the house belonged to the family’s discretionary trust, of which he and his brother were the trustees and the children the beneficiaries.

While the High Court agreed that the house fell into the couple’s joint estate, the Supreme Court of Appeals found differently. It held that the wife had no claim on the trust because she was not named as a transacting party nor a beneficiary.

Shan Hulbert, sales manager at Knight Frank Residential SA, says that while putting a property in a trust is often a good idea for estate planning purposes, particularly when there are children involved, the finer details and intricacies of what happens in a case of a split do need to be discussed when forming the trust.

If couples are married in community of property the usual case would be to split everything 50/50, but if the family home is to be put in a trust’s name the wife should insist that she benefits in some way from the trust, to protect herself for future events. The better option would be to marry with an ante-nuptial contract so that either spouse would have a fair share in the assets if there were to be a divorce.

Buying property as a couple should be discussed carefully and both parties should be able to gain out of the transaction later, so this needs to be put in writing as early as possible, to avoid stressful complications later, said Hulbert.