Sir Jonathan Cohen: determination as to the distribution of trust assets following a final hearing.

In October 2023, the court handed down a substantive judgment in the parties’ financial remedies proceedings. The effect of the final order was H was awarded £25.3m and W c.£18m (60:40), which excluded the M Trust, ‘the trust’.

The parties agreed the assets of the trust (worth c.£2.4m) were matrimonial and both had an equal entitlement to the same; however, there had been difficulties valuing the assets of the trust, and evidence as to the tax liabilities on disposal was complex, exacerbated by a lack of agreement between accountants. At the final hearing, H sought to maintain the trust for the benefit of the children, as had been intended, whilst W sought the same to be wound up.

By the time of this hearing, H’s position had changed, and he too sought for the trust to be wound up and the proceeds placed into an account for the benefit of the children. W sought for the assets to be shared equally between her and H.

The parties’ advisors had proposed three ways of preserving the spirit of the final order whilst minimising tax issues and proposed (i) a bare trust (ii) creation of a settlement, and (iii) distributing to H & W subject to undertakings to pass the same to the children as a gift.

Neither party supported the creation of a bare trust which would entitle the children to access to the funds unencumbered at 18, in circumstances where the children were aged between 13 and 17. The creation of a settlement, bare or otherwise, would attach potentially undesirable tax consequences. The third solution would be to make a pretence, because it would suggest the funds did not emanate from the trust and this would not be an honest representation of the position. The court also considered placing the funds into an account for the children would require continued discussion between the parties which was undesirable.

Held

The trust should be wound up and the funds distributed between the parties to prevent further arguments about tax liabilities which might take many years to resolve. The children were not prejudiced because they had no absolute right to any funds from the trust. The division of assets should not be complicated. Whilst there was a dispute as to the value of L Co, the court rejected the argument as to the application of a minority discount because, in all likelihood, the asset would only be sold as a whole thus negating any discount. In respect of two NFIs held within the trust, these should be allocated to H; W did not wish to remain involved in H’s ventures and H had resisted W’s claim of a larger share of them at trial.

As to tax implications, the court considered funds would need to be reserved to effect equalisation of the net assets in the trust.

The court did not consider implementation of the same required use of the Barrell jurisdiction, instead, the court’s decision was simply to give effect to the spirit of the order and its proper implementation.

As to costs, the court considered it was unlikely to be persuaded by either party a costs order should be made in their favour. However, the court was critical as to the costs position in that the parties had spent £300k to resolve the issues of the trust when the assets amounted to £2.4m.