A v A

A spouse seeking financial relief cannot treat assets held by trustees as matrimonial assets merely because the arrangements appear artificial. A sham trust requires a common subjective intention of the settlor and trustee to create rights different from those apparently created. A properly constituted genuine trust cannot later become a sham through a trustee’s misconduct. Conversely, an initially sham arrangement may become a genuine trust when an innocent trustee takes office.

Trust assets may be a spouse’s financial resource only where the trustees would probably advance them on request. The court may give judicious encouragement, but cannot compel trustees or exert improper pressure. Liquidity affects the timing, rather than the amount, of an ancillary-relief award.

In ancillary-relief proceedings following a long marriage, the wife alleged that two discretionary trusts holding 54% of the shares in the principal family company were shams, or were resources available to the husband. She also alleged that the husband had diverted cash and business from the company, and disputed the value of the company and the ownership of the wife’s separate company.

The trustees intervened. The central questions were whether the trusts could be treated as the husband’s assets, whether the company’s value required adjustment for alleged misconduct, and what financial provision achieved a fair division of the matrimonial assets.

1. Financial relief was awarded in principle on an equal division of the matrimonial assets. The court valued the principal family company at £3,000,000. It treated the parties’ shareholdings pro rata and held that the wife should receive a sum equal to the gross value of her shares, £689,400, in addition to her share of the former matrimonial home’s proceeds and specified personal assets. The implementation, costs and timing of payment were left for consequential consideration.

2. The sham allegation failed. Applying Snook v London and West Riding Investments Ltd [1967] 2 QB 786, Hitch v Stone [2001] EWCA Civ 63 and Shalson v Russo [2003] EWHC 1637 (Ch), a sham required a common intention between the relevant settlor and trustee. The current professional trustees had acted independently and in good faith. Their lack of the requisite intention was fatal to the claim, regardless of what might have occurred on the trusts’ creation.

3. A genuine, properly constituted trust remains enforceable unless dealt with under its terms. Later conduct inconsistent with the trust is a potential breach of trust, not a means by which the trust becomes a sham. An originally sham arrangement can, however, become genuine when an incoming trustee accepts office innocently and intends to perform the declared trusts.

4. Under Matrimonial Causes Act 1973, the trust assets were not capital available to the husband. Applying Thomas v Thomas [1995] 2 FLR 668 and Charman v Charman [2005] EWCA Civ 1606, the question was whether the trustees would probably advance capital. They were likely to waive dividends to facilitate proper distributions by the company, but were unlikely to make capital distributions for the husband. Encouraging such distributions would cross the line into improper pressure.

5. The allegations of cash skimming and diversion of business to a company owned by the husband’s son and daughter-in-law were not proved. The evidence did not justify increasing the company’s value on either basis. The wife had genuinely transferred her separate company to her daughter, so any future benefit to her was too speculative to quantify. Liquidity affected timing, not the fair amount of the award.

not stated in the judgment.