It is common for people in a relationship to hold all their assets in a family trust with the partners as trustees. While family trusts are an effective way of protecting family assets, they can become complicated if the partners separate.  If you and your partner have a family trust and you separate, you might be wondering what happens next and how to manage the trust.

The trust continues, but changes may be needed

A family trust doesn't automatically dissolve when you and your partner separate. It continues to exist, and you and your ex-partner, as trustees, are still responsible for managing the trust’s assets according to the terms of the trust deed. However, it can become difficult to make decisions together depending on the nature of your separation. You may want to think about changing the trustees or adding an independent trustee to help make decisions.

If the separation has been amicable, you and your ex-partner may decide that one or both of you should step down as trustees. The trust deed should explain the process for doing this and whether a new trustee needs to be appointed. You can agree on a neutral third party, like a lawyer or accountant, to step in as an independent trustee.

If you can't agree, you may need to apply to the Court to remove one or both trustees, particularly if one trustee is obstructing decisions or not acting in the best interests of the beneficiaries.

What happens to the assets in the trust?

Generally, when a couple separates, each partner is entitled to 50% of the relationship's assets. If relationship assets are held in a family trust, those assets remain in the trust for the benefit of its beneficiaries. However, the Court can, in some cases, order that one partner be compensated if keeping the assets in the family trust produces an unequal division.

For the family home, it is common for the ex-partners to agree that one ex-partner will keep the home and the other ex-partner will get compensation for their share. If the ex-partners cannot agree, there is a process under the Property (Relationships) Act 1976 to apply to the Family Court for an order to sell the home and divide the proceeds.  

If the family home is held in the trust, dividing it can be complicated. Sometimes, the trust deed may provide for what is to happen with the family home if the couple separates. If it does not, getting a Court sale order can be difficult because the Family Court is not generally able to make orders about trust assets.  However, there are exceptions to this and it would pay to get specialist advice if you are in this situation.

What should you do with the family trust if you separate?

If the trust owns significant assets like your family home, you will need to decide whether to:

• Sell the assets
• Allow one of you to keep living in the family home
• Restructure the trust or its assets

The key is to comply with the terms of the trust deed and to ensure that any decisions are in the best interests of the beneficiaries.

It’s crucial to seek legal advice early on because every situation is different. Our Trusts and Private Clients specialists can guide you through this process.

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