Attacking trusts upon divorce and in maintenance matters – Guidelines for the road ahead (1)

Abstract

In this article the different theoretical bases for attacking trusts upon divorce and in maintenance matters are set out. Firstly, the nature of, the requirements for and the consequences of the remedy of declaring a trust to be a sham trust are investigated and secondly, the nature of, the requirements for and the consequences of the remedy of piercing the trust veil are looked at. Next the South African matrimonial property law and maintenance cases in which trusts were attacked are discussed chronologically. The decision in each case is compared with the theoretical foundation of the two relevant remedies so as to indicate where the courts erred and where they made commendable decisions. The cases Jordaan v Jordaan 2001 3 SA 288 (C), Badenhorst v Badenhorst [2006] 2 All SA 363 (SCA), BC v CC 2012 5 SA 562 (ECP), VZ v VZ (2011/5122) [2014] ZAGPJHC 42 (14-02-2014), MM v JM 2014 4 SA 384 (KZP), RP v DP 2014 6 SA 243 (ECP), WT v KT 2015 3 SA 574 (SCA) and YB v SB 2016 1 SA 36 (WCC) are discussed. In the conclusion a possible attack on trusts upon divorce and in maintenance matters from the perspective of gender equality and the best interests of the child is looked at. Reference is also made to alternative methods which might be applicable, but the conclusion is made that the court’s power to either declare a trust a sham or go behind the trust form, if applied correctly, would suffice as appropriate remedies for attacking trusts in maintenance matters and upon divorce. It is stressed that courts should not shy away from their duty to give due consideration to any alter ego allegations and use their power to pierce the trust veil upon divorce and in maintenance matters to curb the abuse of the trust form. Similarly, courts should be vigilant about finding that a trust in question is a sham where it is clear that the founder had no intention of creating a trust but acted solely with the purpose of placing all assets out of the reach of a spouse or maintenance creditor. However, where no abuse of the trust form has been proved and true intention to create a trust is evident, trusts should be free from attack upon divorce and in maintenance matters.