Divorce and Family Money Held in Trust

It is often assumed that divorce and family money in trust is the preserve of the ultra-wealthy but that isn’t always the case as was established by the court proceedings concerning Henry and Ellen Wodehouse. It is reported that the money placed in trust by the late Earl amounted to about £600,000 but the trust fund was a discretionary trust with 15 potential beneficiaries including Mr Wodehouse’s stepmother.

Henry Wodehouse, the third son of the Earl of Kimberley, whose claim to fame was that he was the most married UK peer having tied the knot 6 times before his death , has hit the headlines as a result of his own divorce. Why is that newsworthy? Henry Wodehouse’s divorce has hit the headlines because the financial battle between him and his estranged wife centred on money held in trust, set up under the terms of his late father’s Will.

The case of Henry and Ellen Wodehouse was the subject of media reporting after it was said that Mrs Wodehouse was reduced to living on her brother’s boat after losing a Court of Appeal case that centred on whether she should get a £90,000 payment.

Trusts are also often thought of as ‘’old money’’ but in Mr Wodehouse’s case the money had been placed in trust by his late father, rather than generations earlier.

When a family court considers divorce and trusts the court’s first consideration is whether the trust is a nuptial trust or a non-nuptial trust. If the court finds that the trust is a nuptial trust the court has wide powers and can change who benefits from the money in the trust. If the trust fund is found to be a non-nuptial trust then the family court powers are far more limited. Normally  the court would focus on awarding the spouse who was not a beneficiary of the trust fund all or a greater share of the family assets , on the basis that the spouse who was a discretionary beneficiary of the trust fund would likely receive either capital or income distributions from the trust fund.

Sadly that solution didn’t work for Mrs Wodehouse as, other than her husband’s very modest pension, there were no other assets as all the equity in the family home had been eaten up by secured debt, leaving the trust fund as the only asset of substance until the Court of Appeal ruled that the particular trust was of a type that could not be ordered to pay Mrs Wodehouse a lump sum payment or be ordered to pay the amount to Mr Wodehouse to then hand over to his ex-wife.

Mr and Mrs Wodehouse married in 1992 and separated in 2011. During the marriage   Mr Wodehouse had his share of financial difficulties, being made bankrupt in 1990 and 2010.  Mrs Wodehouse had health problems making working difficult. The couple went to court to sort out how their property and money should be split. It was ascertained that whilst they owned a family home there was no money in it as there was more debt secured against the house than equity in it. Where did that leave Mrs Wodehouse? The first judge said she should get a lump sum payment and a share of her husband’s pension. Mr Wodehouse appealed to the Court of Appeal saying that he had no money to pay the lump sum and that the court could not expect the trust fund to pay the amount of £90,000 to Mrs Wodehouse. His barrister argued that the trust fund was a discretionary fund, Mr Wodehouse had no entitlement to the trust money and the trust had not been a party to the original financial court proceedings.

The Court of Appeal, whilst expressing sympathy for Mrs Wodehouse’s financial predicament quashed the lump sum payment but it did maintain the pension sharing order that provides for Mrs Wodehouse to receive half of her former husband’s police pension. The income from the pension is modest and will not go anywhere towards discharging the reported family debt.

How can Evolve Family Law Manchester Divorce Solicitors Help?

The Wodehouse case is a cautionary tale but it should not deter spouses from making financial claims involving trusts. Equally the case highlights the importance of estate planning. Had the money not been placed in trust by Henry Wodehouse’s late father it is debatable as to whether the money would still have been available for Mr and Mrs Wodehouse to litigate over given the creditor’s claims but, through use of estate planning, money has been preserved.

For legal assistance with trusts and financial claims on divorce or any other aspect of family law please contact us.

Appointments available in Manchester and Cheshire.