Daga v Bangur: The discretionary trust that successfully deflected a husband’s claim for a lump sum to meet his needs
An unusual example of the court’s approach to family wealth held in trust.
I am often asked by clients who are contemplating divorce, what financial steps can be taken to preserve or protect their wealth from the potential claims of their spouse. Should I transfer funds or assets out of my name? Should I put them in trust? My answer is always the same – the family court is a very powerful place and its discretion and reach is very broad. Any attempt to hide or dissipate assets is likely to be viewed with suspicion by the other side and with condemnation by the Court. Such transactions undertaken in the last three years are deemed to have been made with the intention of defeating the spouse’s claims, unless the contrary is proven. The court even has the power to reverse these transactions, in certain circumstances.
There is a general misconception that assets held in trust are “safe” from a spouse’s claims, but in reality, the Court has the power, if it chooses to exercise it, to access trust assets, particularly if needs can not be met without recourse to the trust.
It was on this basis that the husband in the case of Daga v Bangur mounted his claim against the discretionary trusts set up by his wife shortly before the end of the marriage.
The parties were married for 9 years and had one child together. Both were in their 30s and had good careers with an independent income. The husband worked in the financial sector earning £130,000 pa net. The wife worked full time in the advertising and media industry, earning £40,000 pa net. They had a good combined income, but no capital (other than the trust assets) and, a decision that would prove pivotal to the wife’s case, they chose to rent throughout the marriage, rather than buy a family home.
Shortly before the parties separated, the wife set up two trusts and her father, a wealthy businessman, paid a total of £17.6 million into the trusts. It was against these trusts that the husband sought a lump payment of £1.5 million to meet his needs. The wife sought a dismissal of the husband’s claim, child maintenance at £1,800 pcm and nominal spousal maintenance until the child was 18 years old.
As we would expect, the husband pleaded his case on needs. Unless he received a lump sum from the trusts, he argued that he would not be able to purchase a property to meet his housing needs. He argued that the amount that he needed should be referable to the scale of the wealth in the trusts. The wife’s response was quite forceful. She argued that the husband did not have a need to purchase a property. He could live comfortably from his own income, as they had done as a family, in rented accommodation. Importantly, she argued that this would be reflected in her own choice of rented accommodation as well.
The case was heard by Mr Justice Holman. His finding was that the trusts had never paid any money to the wife and were controlled by the wife’s father. Her father had given evidence that the trusts would make no distribution during his lifetime. Mr Justice Holman rejected the husband’s argument that he needed to purchase a home. Because the parties had rented throughout the marriage and the husband could afford rented accommodation, owned housing was not consistent with the standard of living during the marriage. He was also persuaded that the wife and child would also remain in rented accommodation and their situation was therefore comparable with that of the husband.
The Judge dismissed both parties’ claims for financial relief, ordered a clean break and directed that the husband pay child maintenance at £1,200 pcm.
This case offers a cautionary tale to those considering the impact of trust assets within financial remedy proceedings. Although the correct advice remains that the court has the power to access trust assets, if needed, there are still significant obstacles to overcome. Needs will be interpreted in the context of the standard of living and choices made by the parties during the marriage. The outcome will always hinge upon the facts of the individual case and the interpretation of those facts can be an art form in itself.
Juliet Mayhew is a partner in the Family team at Trethowans and an all issues family mediator. She regularly advises clients in cases involving inherited wealth, farming and trust assets. Juliet is happy to offer a free initial consultation if you need advice about this. You can get in touch with her on 01962 670677.