Sadly it is not uncommon for the onset of a disability to lead to relationship strain and occasionally breakdown. In this instance, a disabled spouse will be seeking a financial settlements/claims on divorce (this is the legal term for the financial relief which follows from a divorce petition). However, if you receive a payment from your spouse will this affect your right to access financial support for your care?
The use of a discretionary trust can be an effective method of preserving a beneficiary’s entitlement to social care or financial support. However, putting the proceeds of ancillary relief into a discretionary trust will need the court order finalising the settlement to provide for this.
In deciding whether to do this the court will undertake a balancing exercise as to whether it is an appropriate use of the court’s discretion. As a general rule, the courts are not sympathetic to schemes which increase the burden on public funds, however in the case of a disabled divorcee, there are often some compelling arguments to do so. Such as:
- The court is not being asked to sanction a deprivation of assets as at no time did the beneficiary own the assets which are being transferred
- If the court were not to make such an award the NET effect would benefit the Local Authority and not the beneficiary which arguably does not give effect to the factors in s25 Matrimonial Causes Act 1973.
In response, a Local Authority may try and argue that an order in such terms would amount to a deprivation of resources. They might try to argue that the spouse had a right to their partner’s assets and this has been diverted to a trust in order to avoid paying care fees.
This is arguably wrong as at no time in ancillary relief proceedings does a spouse have a right to their partner’s assets. There is no legal right to those assets at all. A maintenance or a property order is a discretionary equitable remedy of the courts. An approval of such a remedy on the basis of a transfer directly into a trust arguably means that the vulnerable beneficiary never gains any legal right to that asset.
This is an area of law that we do not believe has been tested by local authorities. Indeed in practice, it is rare for arrangements such as this to come to their attention. Many do however argue that such an approach is justified. Although success can not be guaranteed, some feel that the risks of having to pay the money back are justifiable. However, as those holding the money might be held liable to pay monies back, legal advice should be sought prior to entering into such arrangements.