DOES THE TRUST PROPERTY CONTROL ACT PROTECT MY MATRIMONIAL REGIME?

Written by Denisha Padachey 
30 JANUARY 2024

An unfortunate reality in South Africa is that due to a lack of sufficient legislation and a firm reliance on common law principles, one spouse may attempt to conceal assets through the use of a trust prior to and during divorce proceedings. The South African courts have thus faced various issues relating to the status of assets that are held in a trust, especially where only one spouse is a recognised trustee and where a financially stronger spouse has attempted to create a trust or trusts to “protect” their assets and exclude them from the division of the joint estate or the accrual calculation.

WHAT IS A TRUST?

A Trust is defined in the Trust Property Control Act 57 of 1988 (hereinafter “Act”). In a nutshell, a Trust is a separate legal entity which can be created to hold specific assets for the benefit of its nominated and listed beneficiaries. For more information pertaining to Trusts, kindly consult the following articles on our website:

Registration & Types of Trusts in South Africa Explained,

Parties to a Trust and Role Players Responsibilities Explained,

How to Register a Trust in South Africa and

What are the Duties & Responsibilities of a Trustee in South Africa.

WHAT IS THE GENERAL RULE REGARDING PROPERTY IN A TRUST?

It must be noted that, generally, the property contained in a trust does not form part of an individual spouse’s personal estate except in so far as they, as a beneficiary, are entitled to the said property within the trust. Section 12 of the Act must be considered herein as it provides that trust property shall not form part of the trustee’s personal estate except in so far as they, as a beneficiary in the trust, are entitled to it. This, in turn, may have a severe impact on the division of a joint estate as well as in respect of any accrual calculation during divorce proceedings.

WHAT ARE THE DOWNFALLS OF THE ACT?

The Act does not explicitly mention the effects and consequences of creating a trust within Section 1 of the Act. Furthermore, the Act does not cater for instances where spouses attempt to circumvent their matrimonial property regime by creating trusts to avoid the patrimonial consequences attached to their applicable marital regime. Various case law exists in respect of the aforementioned, and avenues exist to prevent the abuse and misuse of a trust during divorce proceedings.

Clearly, the legal framework regulating trusts, specifically regarding the impact on parties’ matrimonial property regimes, should be reconsidered to address challenges and align statutory norms with judicial decisions when dealing with trusts and the division of a joint estate or the calculation of the accrual.

IS THERE RECOURSE TO RELY UPON WHEN A SPOUSE USES A TRUST TO HIDE ASSETS?

Courts have the necessary power and authority to disregard the legal separation of a spouse’s personal estate and trust and allow for piercing the trust veil where necessary. It must be noted that this power is exercised very cautiously, and a court is not likely to order the piercing of the trust veil without sufficient evidence depicting the abuse of the trust by one of the spouses.

Where a trust can be deemed to be a sham trust or alter ego trust, courts have the power to treat the trust as if the trust never existed, meaning that any assets held in the trust would automatically be considered as part of the applicable spouse’s estate and thus considered and included in the division of the joint estate as well as in any accrual calculation.

The burden of proof is thus a vast hurdle that one must overcome when claiming that trust assets should be considered and included within the other spouse’s personal estate when determining the division of the joint estate or the necessary accrual.

WHO BEARS THE ONUS OF PROOF REGARDING THE HIDING OF ASSETS IN A TRUST?

It is essential to consider that the burden of proof lies with the party claiming that the value of the trust assets should be included in the accrual calculation or the division of the joint estate. Where sham trusts or alter ego trusts are concerned, the court must be provided with sufficient evidence of abuse and dishonesty on the part of the applicable spouse and their true intention regarding creating the trust.

This article highlights the importance of understanding your matrimonial property regime and trust’s impact during divorce proceedings. Should you require assistance creating a valid trust, registrations of trusts or assistance in your divorce proceedings when dealing with a sham or alter ego trust, do not hesitate to contact one of our branches to schedule an appointment with one of our experienced family law attorneys.

 

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE