An issue which commonly arises upon divorce is whether assets which are held in a trust also form part of the joint matrimonial estate. A trustee administers trust assets for the benefit of beneficiaries and does not become the owner of the property.
In the case of Badenhorst v Badenhorst the Supreme Court of Appeal held that if it is proven by a party that the trust is the “alter ego” of a party, the trust assets are to be included in the determination of the means of such party. It also has to be proved that there was de facto control of the trust assets. The court set two elements which are required to be proven by a spouse who alleges that a trust is being used as an “alter ego”1 :
1. That the spouse controlled the trust, irrespective of the terms of the trust deed, and to consider the evidence of how the affairs of the trust were steered during the marriage; and
2. That “without” the trust, such spouse would still have acquired and owned the assets in their name.
The court held that even though it appeared as though the assets were held in trust, Mr Badenhorst was essentially controlling the assets himself. The assets were deemed to be owned by Mr Badenhorst personally and had to therefore be shared with his wife upon their divorce, notwithstanding the existence of the trust.
The Supreme Court of Appeal case of WT and Others v KT2 is considered below:
- Badenhorst v Badenhorst (07/2005) (2005) ZASCA 116; (2006) 2 All SA (SCA) (29 November 2005)
- WT and Others v KT 2015 (3) SA 574 (SCA)
WT was the first appellant who had previously married KT the respondent in community of property on 6 October 2001. WT instituted divorce proceedings in the Gauteng Local Division of the High Court against KT in January 2010. Before their marriage WT created a trust which purchased an immovable property, which property was registered in the name of the trust3.
WT and KT then took occupation of the property and lived together on the property for almost ten years. There was no formal agreement between themselves and the trust pertaining to their occupation of the property.
Upon the divorce proceedings being instituted KT claimed that the property belonging to the trust formed part of the joint estate and as a result thereof she was entitled to a 50% share.
The judgment of the court a quo:
Even though the trust was the registered owner of the property, there was an agreement between WT and KT that they would own the property equally as beneficial owners. The emotional and financial arrangement between the parties rendered KT’s nomination as a beneficiary of the trust in terms of the trust deed irrelevant and on this basis the court held that KT and WT were considered the beneficial owners of the property, even though they were not reflected as beneficiaries of the trust.
WT had structured his affairs through the trust with the view of accumulating wealth for no other person but himself. Despite the fact that the parties were married in community of property it had a discretion as to whether or not assets belonged to a particular party and whether it formed part of the assets of the joint estate. The assets of the trust were WT’s personal assets and on this basis formed part of the joint estate between WT and KT. An appeal against this decision was upheld with costs by the Supreme Court of Appeal.
Mayat AJA (Lewis, Bosielo, Pillay and Mbha JJA concurring) held:
- WT and Others v KT 2015 (3) SA 574 (SCA)
WT and KT never owned the property in equal shares prior to the marriage, nor was it established on the probabilities that they ever concluded any agreement relating to the purchase of the property. It was common cause that WT had procured the establishment of the trust as well as the purchase of the property prior to his marriage to KT, without the participation of KT and without any significant financial contribution from KT.
Conclusion
The distinguishing factor between the case of Badenhorst v Badenhorst and WT and Others v KT, is that the former case concerned the determination of a redistribution of assets in terms of Section 7 (3) of the Divorce Act of 1979 (“The Act”) in relation to a marriage out of community of property. Although both cases related to discretionary family trusts, it is evident from the Badenhorst case that Section 7 (3) of the Act vests a discretion in courts in making a redistribution order in respect of marriages out of community of property.
However as in the case of WT and Others v KT, a court concerned with a marriage in community of property has no comparable discretion as envisaged in Section 7 (3) of the Act to include the assets of a third party in the joint estate. Section 12 of the Trust Property Control Act recognizes that trust assets which is administered by a trustee in trust, does not form part of the personal property of such trustee.