Trusts on Divorce: Are You Stuck with an Ex-Spouse as Trustee?

Trusts on Divorce: Are You Stuck with an Ex-Spouse as Trustee?

“Love is grand. Divorce is a hundred grand.” (Anon)

That’s a great scenario whilst the marriage prospers, but what happens on divorce? A recent High Court decision addressed one such scenario –

Trusts may be formed for a variety of reasons, and the purpose and structure of each trust will inform the choice of trustees. When it comes to families aiming to preserve and protect family assets for future generations, often both spouses are appointed not only as beneficiaries, but also as trustees.

‘Not the Titanic’ – this marriage took six years to sink

In 2014, whilst a marriage was (as the Court put it in a judgment rich in nautical imagery) “still in calm waters”, the spouses formed four trusts. Two were called business trusts, one a property trust, and the fourth a family trust. Naming choices aside, the critical issue is that both spouses had been appointed as trustees.

Regrettably in 2015 the couple “drifted” apart and their marriage “ran aground and settled on the rocky shores of the divorce courts door” with the institution of divorce proceedings. “Unlike the Titanic” observed the Court, the relationship took six years more to be finally laid to rest – the divorce was only granted in 2021.

The ex-spouses apply for each other’s removal as trustee

The ex-husband then applied to the High Court for removal of his ex-wife as trustee of all four trusts on the grounds that she had breached her duties as trustee. Most significantly, he said, she had failed to attend trustee meetings for some five years despite being invited to them.

  • Her main defence was that, in the context of the ongoing divorce proceedings, her ex-husband’s conduct made it impossible for her to attend to her duties as trustee.The Court was unconvinced by her various allegations in this regard, and two aspects in particular bear mention –
    • She complained that being in the minority her decisions were overruled – not an excuse for failing to attend meetings held the Court.
    • Her ex-husband failed to provide a vehicle to enable her to attend meetings – again no excuse, said the Court, there being a provision in the trust deed for virtual meetings.
  • Also counting against her was the fact that she was living in a trust-owned property “but fails to maintain such and pays no rent at all despite receiving the amount of R10 000,00 per month towards property expenses incurred.”
  • Finding that she had not been involved in the trust’s affairs and did nothing to safeguard them, the Court ordered her removal as trustee.

The Court then rejected as being without merit her counterclaim for her ex-husband’s removal as trustee on the grounds of a breach of his duty of trust towards her and a conflict of duty between his private interests and his duties as trustee.

Let’s have a look at the law behind those decisions –

What are a trustee’s duties?

Per the Trust Property Control Act: “A trustee shall in the performance of his/her duties and the exercise of his/her powers, act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another”.

Must a trustee be impartial?

The Court: “It is not required of a trustee to be total[ly] impartial or [to have] no connection with the beneficiaries, but rather that he or she is capable of bringing the necessary independent mind to bear [to] the business of the trust and of deciding what is in the interests of the trust.”

When will a court remove a trustee?

The court has a discretion which it must exercise “with circumspection”.

Per the Court: “The court has to be satisfied that the requested removal will be in the best interest of the trust and the beneficiaries … a mere conflict of interest between trustees and beneficiaries or amongst the trustees [is] insufficient for the removal of a trustee … the overriding question is always whether or not the conduct of the trustee imperils the trust property or its administration”.

There is no requirement to prove bad faith or misconduct, rather “the essential test is whether such disharmony, as in the present matter, imperils the trust estate or its proper administration … It is therefore clear that the court may remove a trustee from office in the event that such removal will be in the interest of the trust and its beneficiaries.” (Emphasis supplied)


In closing…

If you are faced with a divorce scenario, avoid a situation such as the ex-spouses in this matter faced by making sure that all questions around any trusts involved – such as who is to remain as trustee, who is to remain as beneficiary and so on – are resolved as part of the divorce process, and not left for future resolution.

Even better, take professional advice upfront when setting up trusts on how to avoid any future disputes that may arise should your marriage ever sail into stormy waters.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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New Ruling on Divorce Assets: How Does it Affect You?

New Ruling on Divorce Assets: How Does it Affect You?

“…the inequality at hand is caused when, after the conclusion of the marriage, a distortion is caused by the fact that one spouse contributes directly or indirectly to the other’s maintenance or the increase of the other’s estate without any quid pro quo.” (Extract from judgment below)

You may have read of the recent High Court decision declaring a section of the Divorce Act invalid.

To understand the importance of this new ruling for many couples about to divorce (and for all couples about to marry), let’s start at the beginning –

A recap – your 3 choices of “marital regime” on marriage
  1. You can marry in community of property: All of your assets and liabilities are merged into one “joint estate” in which each of you has an undivided half share. On divorce or death the joint estate (including any profit or loss) is split equally between you, regardless of what each of you brought into the marriage or contributed to it thereafter. This by the way is the “default” regime – so you will automatically be married in community of property if you don’t specify otherwise in an ANC executed before you marry.
  2. You can marry out of community of property without the accrual system: Your own assets and liabilities, both what you bring in and what you acquire during the marriage, remain exclusively yours to do with as you wish. Note here that the “accrual system” (see option 3 below) will apply to you unless your ANC (ante-nuptial contract) specifically excludes it.
  3. You can marry out of community of property with the accrual system: As with the previous option, your own assets and liabilities remain solely yours. On divorce or death you share equally in the “accrual” (growth) of your assets (with a few exceptions) during the marriage.

Before we move on to the altogether less happy subject of divorce – if you are about to marry, take full advice on which of these options is best for you before you tie the knot!

Does this new ruling apply to your marriage?

This ruling does not apply to you if your marriage was terminated by death or divorce prior to the judgment (which was handed down on 11 May 2022).

It does apply to you if –

  1. Your marriage is still in existence, and
  2. You chose Option 2 above, in other words if you are married out of community of property without accrual, and
  3. Your marriage was concluded after 1 November 1984. Why that 1984 cut-off date? Well, what this High Court case was really all about was the fact that where a marriage was concluded before 1 November 1984 (that’s when the new “Matrimonial Property Act” took effect), courts had a discretion to make a “redistribution order” transferring assets between the divorcing spouses. But (until now) courts have had no such discretion for marriages concluded after the cut-off date.
The constitutional invalidity

That time bar – the 1 November 1984 cut-off – is set by a section of the Divorce Act. And that, held the Court, is unconstitutional because it discriminates between couples based solely on the date of their marriage.

It deprives couples married after the cut-off date of the opportunity to ask a court for a share of benefits acquired during the marriage, based on their respective contributions (direct and indirect) “to the other’s maintenance and estate growth during the subsistence of the marriage”. In practice (until now), a spouse could be left destitute after spending decades contributing to a marriage and to the other spouse’s wealth.

The Court’s declaration of constitutional invalidity, whilst it must still be confirmed by the Constitutional Court, changes all that.

The practical effect of the ruling
  • Courts now have a very wide discretion to order a “redistribution” of assets between you and your spouse, ordering a transfer of assets and money from one spouse to another, regardless of what your ANC provides.
  • That gives you the right to claim compensation for your contributions to the marriage, in other words to claim a fair share of wealth accrued during the marriage (assets brought into the marriage aren’t affected). You will have to prove your case, show what you contributed, and convince the court that a redistribution in your favour is warranted.
  • The practical effect of such a redistribution order “is that the party who contributed to the other’s gain is compensated for its contribution to the extent that a court finds just and equitable. To this end, the court is cloaked with a wide discretion taking into account an infinite variety of factors.” Factors likely to be considered are each spouse’s respective contributions of time, services, savings of expenses, their current financial positions, what was agreed in the ANC, and the like – each case will be different.
  • Note that this is not the same as accrual (Option 3 above). With accrual, the spouse with less asset growth (accrual) during the marriage has an automatic claim against the other for half the difference. But with a “redistribution order”, there is nothing automatic or 50/50 about it – instead the court exercises its discretion as to what (if anything) to award to who.

The aim here is not to put the spouses into equal financial positions, the aim is to redress an unfair financial imbalance.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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What Can You Do When Someone Close to You Has No Control Over Their Spending?

What Can You Do When Someone Close to You Has No Control Over Their Spending?

“A prodigal is a person who, through some defect of character or will, squanders his or her assets with such abandon that he or she threatens to reduce himself or herself and/or her dependents to destitution” (extract from judgment below)

What can you do when someone you know (often but not always an elderly relative and/or someone with a gambling, drug or drink problem) starts squandering their money and property irresponsibly and recklessly? Note that we are talking here not about a mentally ill person but about someone “of sound mind but unsound habits”.

The good news is that you don’t have to look on helplessly while they spend themselves (and their dependants if they have any) into destitution. Our law provides a remedy in the form of a High Court order declaring the person to be a “prodigal” and appointing a curator bonis to manage their financial affairs.

It is however a drastic remedy, and you will have to make out a clear and strong case to succeed. Let’s look at a practical example –

The “hard drinker” accused of giving his estate to prostitutes
  • After a 30 year “romantic relationship” soured and ended, one partner sued the other for R2m (or 50% of his estate), repayment of R15k, and maintenance of R7,500 p.m. On the receiving end of this claim was a 68-year-old “semi-retired bookkeeper” who defended it on the basis that he and his former co-habitant had never intended to create a joint estate nor to form a partnership.
  • She then applied for him to be declared a prodigal and “incapable of managing his own affairs”. She claimed that he was “being manipulated and needed assistance” and that he was “busy alienating and giving his estate to prostitutes” to her prejudice. Already a “hard drinker”, she said that “his intake of alcohol had tripled on a daily basis since he got involved with prostitutes”.
  • The man’s version was very different. He admitted spending more than his income but said this “was not out of the ordinary”, he denied spending irresponsibly and said he wasn’t as reckless or wasteful as alleged, the only change in his drinking habits had been a move to drinking at home rather than at the pub since the pandemic struck, he “considered his girlfriend and her daughter as special and wanted to contribute financially towards their well-being” and he was continuing to contribute to his ex-partner’s financial needs “as he always did for the last 30 years”.
  • In dismissing the application, the Court commented that to be declared a prodigal “would be one of the most drastic remedies in the law for the protection of a major person which had the potential to impact on his constitutionally protected rights such as dignity, privacy and freedom … A court will not appoint a curator bonis until it is absolutely satisfied that the patient has to be protected against loss which would be caused because the patient is unable to manage his affairs.” (Emphasis supplied)
  • The onus to prove your case is on you as applicant, and it is a heavy one: “The appointment of a curator constitutes an interference with the right of the person concerned to manage his own affairs. The right should not lightly be interfered with, especially not on the basis of what amounts to no more than vague and unsubstantiated allegations … A proper enquiry into the mental condition of the alleged patient should be held before a court could interfere with the right of an adult to control his own affairs.”
  • “It is clear” concluded the Court “that no real factual basis was laid to justify the granting of the relief sought”. Application dismissed, with costs.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Why Life Partners Still Need Cohabitation Agreements and Wills

Why Life Partners Still Need Cohabitation Agreements and Wills

“Census data of 2016 reveals that approximately 3.2 million South Africans cohabit outside of marriage and that this number is increasing steadily.” (Extract from judgment below)

What happens if your life partner dies without leaving you anything in their will (“Last Will and Testament”)? Do you have the same protections as married spouses do?

A lot of the media coverage around the recent Constitutional Court decision dealing with this question may have given the impression that life partners are now as fully protected as if they were in a formal marriage, but that is not so – not yet anyway.

First, some background.

Protections for surviving spouses only, not for unmarried life partners

As a starting point, note that the widely-believed and persistent myth of a “common law marriage” is just that – a myth.

And the hard truth is that if a life partner dies intestate (without making a will), the other cannot inherit on the same basis as can a married spouse. Nor can the surviving life partner claim maintenance from the deceased estate on the same basis as a surviving spouse can.

Spouses enjoy these protections in terms of two Acts –

  1. The “Maintenance of Surviving Spouses Act” provides for a spouse to claim maintenance from the deceased estate.
  2. The “Intestate Succession Act” deals with cases where a deceased spouse left no valid will and provides for a spouse to receive only a “child’s share” of the estate (in other words, to share equally with any children) – far from ideal of course if the intention was to leave them more, but a lot better than nothing.

Until now those Acts have left any unmarried life partner high and dry. Incidentally, note here that we are talking about opposite-sex life partners in that same-sex partners have for years enjoyed intestate succession rights – an anomaly of which much was made in this court case.

The Court’s decision, and why life partners must still protect their positions

An unmarried man, although intending to marry his (female) partner, died before doing so. He left substantial assets but his will was outdated, leaving everything to his (since deceased) mother. The executor of his deceased estate rejected, primarily on the basis of existing law, her claims to inherit from the estate or to be granted maintenance from it.

Confirming High Court declarations of constitutional invalidity, the Constitutional Court held the relevant sections of the Acts to be invalid as they stand, and ordered that they be read so as to include life partners in their protections.

However there are critical limitations to bear in mind –

1) The orders of invalidity aren’t in force yet. 

The Court suspended the orders for 18 months (to June 2023) to give Parliament time to remedy the defects. Perhaps Parliament will move quickly on this and do the necessary before mid-2023, but perhaps it won’t. And in the meantime, your lack of protection remains.

2) You will still have to prove your entitlement. 

You will have to convince the executor and Master of the High Court (possibly in the face of opposition from the deceased’s other family members) that –

  • You were in “a permanent life partnership” (our courts apply a number of tests in assessing this),
  • As partners you “undertook reciprocal duties of support” (in this case the partners were held to have been “involved in a relationship that comprised most, if not all, characteristics of a marriage”),
  • For your maintenance claim, that your claim is for your “reasonable maintenance needs”, and
  • For your intestate succession claim, that you have “not received an equitable share in the deceased partner’s estate”.

Even if you think you will have no problem in proving all those things, it is of course much easier and safer to avoid any possible grey areas or dispute by properly recording your status and your agreed undertakings to each other.

3) “Intestate” Succession is always second prize. 

As we said above, a “child’s share” of an estate is a lot better than nothing, but if you want your partner to inherit everything, dying without a will risks prejudicing them badly. Leaving a valid will is the only way to nominate the executor of your choice, and to choose for yourself what happens to your estate on death. It could well be the most important document you ever sign.

Life partners: Sign wills and a cohabitation agreement – now!

That’s a lot of uncertainty and potential for conflict and delay, and there could well be a lot at stake (in this case, some R10m worth of assets in total) but the good news is that it is all very easily avoided –

  1. Have professional wills drawn up (or have your existing wills checked for necessary changes or updates) and
  2. Enter into a full cohabitation agreement recording exactly what your status is and what undertakings you make to each other. Remember there is no such thing as a “common law” marriage in South Africa – if you aren’t formally married, a cohabitation agreement is the only safe alternative.

A final thought – no one likes to contemplate their own deaths, but Death by its very nature often knocks without warning, and we live in particularly dangerous times.

So don’t delay – get moving on this now!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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Divorce: Claiming Interim Maintenance and a Contribution to Legal Costs

Divorce: Claiming Interim Maintenance and a Contribution to Legal Costs

Even if your marriage is collapsing around you, you might be afraid to sue for divorce because you have no money to survive on, plus you know that a hotly contested divorce might take years to finalise while your breadwinner spouse fights you tooth and nail every step of the way.

How will you support yourself and your children until the case is finalised? How will you pay your lawyer to run the case for you? Must you wait for the end of the case before you see a cent?

The answer luckily is “no” in that you have a relatively quick and simple remedy in the form of asking the court for “interim relief” in respect of –

  • An order that your spouse pay you –
    • Maintenance (for children and/or for yourself) pending finalisation of the divorce,
    • A contribution towards your costs in the divorce proceedings,
  • Interim care of, and contact with, your children (if there is any dispute over this aspect).

You may well hear this form of relief referred to in High Court divorces as a “Rule 43 application” (or, if your divorce is in the Regional Court, as a “Rule 58 application”), whilst the technical term for the maintenance is “maintenance pendente lite” (“maintenance pending the litigation”).

At this stage the Court isn’t interested in recriminations, or blame-finding, or the itemised details of your and your spouses’ financial positions. Those enquiries come later, during the actual divorce litigation. At this stage all it wants to know is how much you need, and how much your spouse can afford to pay.

A recent High Court judgment illustrates…

A “coy about his wealth” spouse ordered to pay up – now
  • The warring spouses here are a senior banking executive and his wife, who qualified as a teacher but gave up that career to become a homemaker and mother to the couple’s two children.
  • She asked the High Court for interim maintenance for herself and the children, and for a contribution to her legal costs.
  • In assessing these requests the Court laid out some of the general principles involved –
    • Unless the care and residence of children is involved the issues are straightforward, relating to “the applicant’s reasonable needs, and the respondent’s ability to meet those needs. The applicant’s entitlement to maintenance must be assessed having regard to the standard of living enjoyed by the parties during the marriage.” This should be “a simple and straightforward calculation of needs and means”. (Emphasis supplied).
    • The aim is “to avoid substantial prejudice to either party pending divorce. It is not to provide a precise account of what is due to or from either party, according to the parties’ or the court’s sense of morality, propriety, the blameworthiness of the parties’ conduct during the marriage, or their habits of living after the separation.” The case should be cast in practical rather than moralistic terms, and the “emotional heat of a separation” should be kept out of it.
How much money could you be awarded?

Of course every case will be different, but where the parties have, as in this case, enjoyed a high standard of living, the figures can be substantial.

Here for example the Court’s awards were sizeable, commenting that the husband “is coy about his wealth, but there is little doubt that he has a substantial income” – just under R7m in the previous year – with “considerable resources” and an estimated net worth of just over R40 million. Moreover the couple had enjoyed “a very comfortable lifestyle” together.

The end result is that the husband must pay substantially what his wife asked for in the form of R1.6m immediately and thereafter R108k p.m. –

  • R88,701-69 p.m. for the wife and children’s interim maintenance, plus school fees, extra mural activity costs, medical aid and medical costs
  • Rental of up to R20,000-00 p.m., plus cost of utilities
  • R34 656.39 for house moving costs
  • R1,572,945-80 as a contribution towards the wife’s interim legal costs.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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A Victim of Sexual Harassment Must Report It “Immediately”

A Victim of Sexual Harassment Must Report It “Immediately”

“…sexual harassment is a heinous and horrendous conduct since it undermines the dignity of women and the values enshrined in our Constitution.” (Extract from judgment below)

Employers have a strong duty to provide a safe workplace for their employees, and to protect them from harm – including sexual harassment. An employer who fails in this faces claims for damages and compensation, but as a recent Labour Court judgment shows, the victim must first follow procedure correctly, and without delay.

Delayed reporting kills a claim

A female employee claimed “a just and equitable compensation” from her employer after she was sexually harassed by two male superiors.

Her claim failed, the Court finding that her delay in reporting the incidents to her employer (two years in one case and three in the other) were……

The correct procedure, and the required timing

The employee’s claim was based on an allegation that her employer had contravened section 60 of the Employment Equity Act (EEA), which deems an employer guilty of a contravention and liable for the offending employee’s conduct unless it takes “the necessary steps to eliminate the alleged conduct and comply with the provisions of this Act” and “is able to prove that it did all that was reasonably practicable to ensure that the employee would not act in contravention of this Act.”

The Court set out the required steps by the victim as –

  1. Allege a contravention at the workplace
  2. Report the contravention immediately
  3. Prove the alleged contravention
  4. Allege and prove failure to take the necessary steps.

A victim who can prove all the above is entitled to a deeming order of liability, and to avoid liability it is then up to the employer to prove that it took the necessary and preventative steps.

The victim in this case had no trouble in proving that the incidents of sexual harassment had taken place, but she failed to convince the Court that she had brought the incidents to her employer’s attention “immediately” as required by the section. The Court referred to a previous decision of the Labour Appeal Court suggesting that the word “immediate” be given a “sensible meaning”. In that case a two-month delay in reporting was found to be acceptable as a “limited delay”. However the Court’s comment that “In my view, a delay is an antithesis of the word as literally defined” is a clear warning to victims – report incidents to your employer without delay!

In any event, held the Court, the victim’s delays in reporting (two and three years respectively) meant she had failed to report “immediately” as required.

The Court was equally unimpressed with her suggestion that she had indeed reported the incidents to her employer in time by discussing them with “colleagues and managers”. That, held the Court, was not enough: “As I see it, to my mind, the reporting must be to an employer through the mechanism in its adopted policy.” She had not done that, so there’s another clear lesson for victims there – make a formal report to the correct person/s in terms of your employer’s policies. 

Finally, said the Court, the employer had as soon as it received the reports, promptly investigated them and complied with its obligations in terms of the EEA.

Claiming from the offenders themselves

On a related note the Court mentioned that the victim would have a claim direct against the two employees who harassed her. Once again however, time is of the essence for victims – quite apart from the risk of the claim prescribing, the earlier formal reports are made the greater the credibility likely to be given to them.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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