Preamble by Alon Kaplan
A high-net-worth divorce dispute, replete with allegations and extensive documentation, was adjudicated in the Family Court in Tel Aviv. This case was exceptional both in terms of the magnitude of the assets involved—$100 million—and its complexity, as the wife claimed that the entire family fortune, which she argued constituted marital property, was concealed within sophisticated financial structures, including trusts and foreign corporations.
The court ruled in favor of the wife, awarding her $37.5 million and half of a house previously valued at $25 million. The judge described the matter as a “property saga of unusual complexity” and issued strong criticism of the husband. The judgment stated that the wife “demonstrated that the husband wove a web of lies intended to deceive her, involving the concealment of wealth and assets through the use of trusts and corporate entities across the globe.”
As a rule, the wife was expected to prove the scope of marital assets and support her claims with evidence. However, the court made an exceptional finding that reversed the burden of proof, requiring the husband to produce evidence supporting his claims. The verdict was due both to his conduct and concealment of information and the fact that he was found to have control over the assets, including the ability to influence the management of the trusts.
After nine years of litigation, the court ultimately decided to accept the wife’s claims, awarding her $37.5 million and half of the property valued in the past at $25 million.
This case is highly unusual in Israeli case law, particularly because the attorneys handling the case were required to confront the confidentiality barriers of trusts and entities established and operated outside the jurisdiction of Israel.
Key Takeaways
- UK family courts have wide powers to unravel sham or concealed trusts during divorce, especially when they suspect asset concealment or deceit.
- The burden of proof to show a trust is a sham starts with the claimant, but aggressive judicial scrutiny and adverse inferences can assist the wronged spouse.
- Trust assets may enter the “matrimonial pot” if courts find true control and benefit remain with a spouse, or if the trust is an instrument for deception.
- High-value, international divorces are increasingly scrutinized, with courts focusing on offshore trusts and sophisticated asset protection structures.
- Consequences for nondisclosure can include reopened settlements, cost penalties, and contempt of court.
Introduction: Why Trusts Are at the Heart of Complex UK Divorces
High-net-worth divorce proceedings often involve global assets, secretive financial arrangements, and complex trust structures. As financial sophistication grows, so too does the tendency for parties to use trusts—particularly offshore and discretionary trusts—to hide or shield wealth from marital division. This legal area is a battleground for trust law, family law, and questions of fairness, with the courts playing a vital investigative role.
If you’re facing, advising on, or simply interested in the intricacies of divorce litigation where millions (or even billions) hang in the balance, understanding how UK courts address sham trusts and hidden assets is a must.
What Is a Sham Trust?
A sham trust is a trust that may appear legally valid on paper but in reality is a façade, lacking a genuine intention to separate control and benefit from the original owner (settlor). The basic test used by UK courts is to assess the true intention behind the trust’s creation and its operation.
Common Traits of Sham Trusts:
- The settlor retains control over the assets, despite documentation stating otherwise.
- Trustees are mere figureheads or follow the settlor’s instructions blindly.
- The trust is set up secretly or in undue haste, often amid marital breakdown or litigation fears.
- Assets continue to benefit the settlor directly: property use, income, or capital withdrawals.
The courts are not easily fooled by paperwork alone; they look for actual conduct and real-world benefit.
“If the evidence shows that the documents were not intended to have the legal effect which they appear to have, then the trust may be a sham.”
— Minwalla v Minwalla [2004] EWHC 2823 (Fam)
Key Principles: How UK Family Courts Tackle Sham & Concealed Trusts
1. Disclosure and the “Matrimonial Pot”
All parties in a UK divorce must give full and frank disclosure of worldwide assets—including all trust interests and discretionary entitlements. Any sign of hidden assets triggers judicial skepticism and can cast doubt on the honesty of the non-disclosing spouse.
2. Burden and Standard of Proof
While the person alleging a sham trust (often the less wealthy spouse) must initially provide evidence, courts have expressed willingness to shift their scrutiny if the spouse controlling information withholds, obfuscates, or “spins a web of deceit.” Adverse inferences may be drawn, and the court may ultimately move the risk of non-disclosure onto the party in control.
3. Piercing the Trust Structure
UK law does not easily disregard trusts, but family courts have a unique statutory jurisdiction to treat trust assets as marital property in certain cases. This happens when the trust is a sham, when a party has de facto control, or if a trust is considered a “nuptial settlement” (connected with the marriage).
4. Nuptial Settlements and Variations
Special rules apply where a trust is deemed a nuptial settlement—one made due to the marriage or for the benefit of family members. Courts can vary these trusts regardless of where they are held, provided there is some connection to the matrimonial breakdown.
Case Law: Landmark UK Judgments
Minwalla v Minwalla [2004] EWHC 2823 (Fam)
A classic example of the UK courts piercing through offshore structures. A husband attempted to put the family wealth into a Jersey trust to avoid sharing it on divorce. The court found the trust was a sham, intended only to shield assets, and included the assets fully in the divorce settlement.
Prest v Petrodel Resources Ltd [2013] UKSC 34
While focused on companies, this Supreme Court ruling approved the principle that courts can disregard transactional structures when used to defeat legitimate claims (the “piercing the corporate veil” doctrine). It offers judges justification to reach beyond trust structures if the real ownership and benefit remain with a spouse.
A v A (No 2) [2008] 1 FLR 1428
This case reviewed complicated discretionary trusts. The court differentiated between a genuine trust—where assets are managed independently for a class of beneficiaries—and shams, reaffirming the need for clear evidence of shared intent to mislead for a trust to be set aside.
Thomas v Thomas [1995] 2 FLR 668
The court recognized that even where assets are not legal property of a spouse, if they are likely to be made available (e.g., by trustees acting at the spouse’s request), the court can treat these as a “resource” for the purposes of financial remedy.
How Courts Uncover the Truth: Practical Investigations
What Do Judges Look For?
- Trust deeds and letters of wishes: Analysis of the terms, powers reserved to the settlor, and any letters of wishes indicating intent.
- Conduct of trustees: Evidence trustees habitually act under the settlor’s instructions, or never refuse a request.
- Patterns of distribution: Regular or ad hoc payments to the settlor/beneficiaries, especially timed with legal disputes.
- Professional advice and documentation: Whether the trust was established under genuine estate planning advice or as an asset-protection tool amid marital discord.
Why Non-Disclosure Backfires
Failure to provide honest and comprehensive disclosure can prove fatal to a party’s case. Courts are empowered to:
- Draw adverse inferences (presume the worst about hidden assets).
- Reopen previous settlements.
- Penalize the dishonest party with costs or punitive awards.
- In the most extreme cases, initiate contempt of court proceedings.
International & Offshore Trusts: How Far Can UK Courts Go?
International trusts add unique challenges. UK courts can issue orders against offshore trustees, especially in “nuptial settlement” scenarios. The enforceability, however, depends on the offshore jurisdiction’s willingness to cooperate—Jersey, Guernsey, the Cayman Islands, and others have their own rules.
Despite practical hurdles, judges increasingly expect parties with international links to take real, proactive steps—such as requesting distributions or enforcing letters of wishes—to satisfy court orders. If they do not, the court may simply assume assets are available and adjust the division of wealth accordingly.
Who Has the Burden of Proving a Trust Is a Sham or De Facto Controlled?
The spouse alleging a sham or concealed trust must assemble persuasive evidence. However, repeated judicial warnings emphasize that if the party controlling the trust has failed to cooperate or disclose, the court will rarely allow them to rely on the technicality of the opponent’s burden. Judicial patience is thin for those “hiding behind a trust.”
Key Evidence:
- Documentary trails (emails, trustee minutes, payment records)
- Sequencing and timing (trusts set up right before a marital split)
- Trustee independence (or lack thereof)
Penalties and Remedies for Concealment
- Reopened Settlements: Final agreements can be set aside if new evidence emerges of non-disclosure or concealed trust assets.
- Costs and Punitive Awards: The party found hiding assets can be ordered to pay the other’s legal costs or receive a lower share.
- Criminal or Contempt Proceedings: Deliberate non-disclosure or deception can bring the full weight of the court’s sanctions.
Table: UK Judicial Treatment of Trusts in Divorce
| Issue | Approach/Legal Principle | Leading Authority |
| Defining a “sham trust” | Common intention to mislead | Minwalla v Minwalla |
| Including trust assets as marital property | Actual control by spouse or sham | Prest v Petrodel, Minwalla |
| Burden of proof | Initially on claiming spouse, may shift with non-disclosure | A v A (No 2), Thomas v Thomas |
| Treatment of offshore trusts | Orders made, enforcement varies | Multiple |
| Disclosure duty | Absolute, includes trust interests | General legal principle |
| Penalties for concealment | Costs, reopened orders, contempt | Young v Young, Sharland v Sharland |
Real-World Examples
Example 1: The Hidden London Mansion
A husband settled a London property into a discretionary offshore trust before initiating divorce. Court findings showed he continued to live there, pay all bills, and treat the home as personal property. Trustees had rubber-stamped requests. The judge found the trust to be a sham and included the property as marital.
Example 2: Company Shares in an Offshore Settlement
In another high-value case, family company shares were placed in a Jersey trust. Trustees were professionals but always acted on the settlor’s precise instructions via “wish letters.” Though technically separate, the court concluded the trust was in reality a “resource” and factored its value into the settlement.
Frequently Asked Questions
Can trust assets be protected from divorce in the UK?
Not reliably. Genuine, irrevocable, professionally managed trusts with truly independent trustees can sometimes resist inclusion—but the family court will set aside trusts if they believe they are shams or a spouse maintains real control. Trusts are not an impenetrable shield.
What is a sham trust in a divorce context?
A sham trust is a trust where the documentation and legal appearance do not match the true intentions or actions of the parties. The “sham” label is applied when trustees and the settlor work together to disguise ownership or control of assets, mainly to defeat a spouse’s financial claims.
What is “full and frank disclosure” and why does it matter?
This is an absolute requirement in UK divorce—a legal obligation to share every detail of your financial situation, including trusts, worldwide assets, and even contingent entitlements. Courts punish failure to do so harshly with cost penalties, reopened settlements, or contempt findings.
Are offshore trusts safe from UK courts?
Not entirely. While enforcing a UK court order overseas may be complicated, courts can make findings about what assets are “available” for settlement—often leading to domestic penalties for noncompliance.
How do judges distinguish between a genuine and a sham trust?
By evaluating:
- The practical reality of asset control and benefit.
- Whether trustees act independently.
- The timing and circumstances of the trust’s creation.
- Documentary records and evidence of conduct.
What happens if hidden assets or trusts are discovered after divorce judgment?
The court can reopen financial orders if new facts emerge. There are time limits, but deliberate deception and significant undisclosed assets are almost certain to trigger a review.
What is a “nuptial settlement”?
A trust created “in contemplation of marriage” or during a marriage for the benefit of either spouse or their children. The court has the power to vary or override such trusts to achieve fair settlements.
Conclusion
UK family courts are relentless in their commitment to fairness, transparency, and effective division of marital assets. While trusts serve legitimate purposes, they cannot be abused as instruments of deception. If you are a party to, or advising on, a divorce involving complex trusts, early, honest, and thorough disclosure is the best protection. Trying to use sham trusts or concealment strategies is almost certain to end badly—risking heavy financial, personal, and even criminal consequences.
For wealthy families with international ties, specialist legal advice is essential, as cross-border considerations and deadlines can change the landscape dramatically. The clear trend, however, is this: the “veil” of a trust will not save hidden assets from scrutiny when a marriage ends—and may, in fact, lead to greater exposure and cost.
Further Reading
- Judgments: Minwalla v Minwalla, Prest v Petrodel Resources Ltd, A v A (No 2), Thomas v Thomas, Young v Young, Sharland v Sharland.
- Laws: Matrimonial Causes Act 1973, Variation of Settlement Orders, and Family Procedure Rules.
Summary by Alon Kaplan
It may be concluded that the fact that the husband appointed himself as protector of the trusts, and the manner in which the trusts were established and managed, indicated an intent to conceal assets. This led the court to conclude that it was appropriate to “pierce the veil” of the trusts and corporate structures — much like what is permitted under Section 6 of the Israeli Companies Law, which allows for piercing the corporate veil in cases where actions were taken with the intent to defraud or prejudice creditors or others.
The question of whether the assets held in non-genuine trusts—those established and operated merely to conceal property—should be considered marital property in divorce proceedings has also been addressed in English case law, with a series of rulings and precedents recognizing the ability of courts to look beyond the trust structure in appropriate circumstances.
UK family courts are relentless in their commitment to fairness, transparency, and effective division of marital assets. While trusts serve legitimate purposes, they cannot be abused as instruments of deception. If you are a party to, or advising on, a divorce involving complex trusts, early, honest, and thorough disclosure is the best protection. Trying to use sham trusts or concealment strategies is almost certain to end badly risking heavy financial, personal, and even criminal consequences.
For wealthy families with international ties, specialist legal advice is essential, as cross-border considerations and deadlines can change the landscape dramatically. The clear trend, however, is this: the “veil” of a trust will not save hidden assets from scrutiny when a marriage ends—and may, in fact, lead to greater exposure and cost.
This analysis should not be considered legal advice. Professional advice is required for any particular case.
