A Guide to Irrevocable Trusts in a Divorce

An irrevocable trust in a divorce settlement can significantly influence how assets are assessed, protected and ultimately divided. For individuals with family wealth, inherited assets or complex business interests, understanding how the court treats irrevocable trusts is essential.

This article sets out the key legal principles, explaining when a trust may safeguard assets, when it may be challenged, and what must be disclosed during financial proceedings.

What an Irrevocable Trust Means in Divorce

What is an irrevocable trust and how can it effect a divorce?

An irrevocable trust is a legal arrangement in which a person (the “grantor”) permanently transfers assets into a trust, giving up ownership and control over those assets. The trust is managed by a trustee according to the terms of the trust document.

It can protect assets in a divorce if it’s set up properly and in good faith. However, if it’s created or funded during the marriage, then it may be challenged.

Are trusts considered marital property?

Courts don’t automatically consider trusts to be marital property. They will look closely at when the trust was created, how it was funded, and how assets from the trust were used during the course of the marriage to decide whether it’s marital or separate property.

What is the difference between an irrevocable trust and a revocable trust?

Any marital assets in a revocable trust will be subject to division just like any other marital property. With a revocable trust, you can change or undo any previous decisions you or your spouse made when creating the trust. In short, a revocable trust does not protect assets in divorce.

With an irrevocable trust, it is harder for the courts to access or divide the assets in the trust because the grantor has no control over those assets. They can be used to shield assets in divorce.

When can a trust be used to protect assets from divorce?

A trust might be used to protect family wealth or inheritance or to safeguard business interests.

Revealing Trusts in Financial Disclosure

Do I need to disclose an irrevocable trust in a divorce during financial disclosure?

Yes, you must disclose an irrevocable trust during your divorce financial disclosure. However, what you are required to disclose will depend on whether you are the grantor of the trust or whether you are a beneficiary.

What details must be included in a financial disclosure statement?

If you are the grantor, you should disclose that you created and funded the irrevocable trust, and what assets you transferred into it. You should include details of when the trust was created to ensure that it was not an attempt to hide or move marital assets.

You must disclose when you have a beneficial interest in an irrevocable trust. For example, if you receive income or distributions from the trust, then these may be taken into consideration as matrimonial property / income that could be relied upon to fund a maintenance claim.

Can a trust be excluded from marital assets in financial disclosure?

An irrevocable trust might be excluded from marital assets, depending on the facts. The court will take into consideration when the trust was created, how it was funded and how the assets within the trust were utilised during the marriage to decide whether it can be excluded from marital assets.

How do courts treat undisclosed trusts in a divorce settlement?

Failing to disclose a trust can constitute material non-disclosure, which could result in any financial settlement which is agreed or determined by the court being set aside or overturned in the future. You could also be held in contempt of court.

How Trusts Can Offer Protection and Where They Fail

Can an irrevocable trust protect assets from being divided in a divorce?

An irrevocable trust can protect assets from being divided in a divorce if it’s set up properly and in good faith. However, if it’s created or funded during the marriage, then it may be challenged.

What are the dangers of using one in divorce planning?

If used improperly or if set up too late, an irrevocable trust may be invalidated or disregarded, may damage your legal position and limit your own access to the assets held within the trust.

How do beneficiaries of a trust affect divorce settlements?

If you are a beneficiary of a trust and for example, you receive income or distributions from the trust, these may be taken into consideration in relation to spousal maintenance and child support.

Can a spouse challenge a trust in court?

Yes, a spouse can challenge an irrevocable trust in court. Common reasons for a challenge include a spouse's claim that the trust was set up to hide assets from divorce proceedings, that the trust was created under undue influence, or that it was not properly established.

Key Legal and Timing Considerations

What evidence is needed to prove a trust’s assets are separate from marital property?

To prove a trust's assets are separate from marital property, the grantor will need show that money and/or assets held in the trust are pre-marital assets and were not funded by marital funds. It is also helpful to prove that the trust is truly irrevocable, and that there are no powers to revoke or reclaim assets.

If you receive income or distributions from the trust, you may need to provide evidence to show that these distributions were not used to fund marital assets or as income utilised during the marriage. It is also important to show that the trust was created before the marriage.

How does the timing of setting up a trust affect its treatment in divorce?

The Court will look at whether the trust was set up before or after the marriage. If the trust was set up before the marriage, usually, the trust and its assets are treated as separate property, save for where trust assets are utilised by the parties during the marriage.

If the trust was set up during the marriage, the court will look at where the assets held under the trust came from.

Do both parties need to agree to the terms of a trust in a divorce settlement?

No, both parties do not need to agree to the terms of an existing trust. They do need to agree on how the trust is handled in the divorce settlement, or the court will decide.

Should I seek specialist legal advice before creating a trust to protect assets from divorce?

Yes, you should always seek specialist legal advice before creating a trust to protect assets from divorce to ensure the trust is legitimate and protected on divorce.

Disputes Over Trusts and How Courts Resolve Them

What happens if a trust is suspected of hiding marital assets?

If a trust is set up just before or during divorce proceedings, and if it appears designed to hide marital assets or defraud a spouse, then courts will likely invalidate or disregard the trust.

How can the court unravel a trust set up to avoid asset division?

If the court invalidates or disregards a trust, the court may order that those assets be brought back into the matrimonial pot.

Can offshore trusts be used in divorce settlements in England & Wales?

If a trust is held offshore, it is important to determine if it will be considered in the matrimonial pot or not. Many foreign jurisdictions, such as Jersey, the Isle of Man and the Cayman Islands insist that trusts set up in their jurisdiction must be determined in accordance with their laws.

This means that if any order made by a UK court is incompatible with that jurisdiction’s law, then it may not be upheld.

What legal remedies are available if a trust is misused during divorce proceedings?

If a trust is misused during divorce proceedings, legal remedies primarily involve challenging the trust's validity and seeking court orders for disclosure or asset preservation.

Contact our family team

Irrevocable trusts can offer meaningful protection, but the court’s approach depends on the trust’s purpose, timing, funding and transparency. With so much at stake, early, specialist advice is vital to ensure your position is properly preserved.

Our family and private wealth teams are recognised for their expertise in handling complex trust structures within high-value divorces. If you need discreet, strategic support tailored to your circumstances, we are here to help.

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