Trust Assets and the Dissolution of a Marriage: A Practical Look at Invalid Trusts, Sham Trusts and Piercing the Veneers of Trusts / Going Behind the Trust Form

JurisdictionSouth Africa
Date20 August 2019
Citation(2016) 28 SA Merc JL 508
Published date20 August 2019
AuthorIain Matthys Shipley
Attorney of the High Court of South Africa
The purpose of this article is to address a deceptively simple question:
When a court is determining the patrimonial consequences following
dissolution of a marriage, under what circumstances can property
belonging to a trust (including a family trust) be taken into account
and/or be included in the distribution order? Due to the separation of
the trust estate, the dogmatic answer should be ‘never’. However, as this
article will demonstrate, the answer is more complex.
The relevance of this question can be illustrated with an example.
Hamish and Wynona are married in community of property. After
many years, their marriage breaks down, and Wynona decides to sue for
divorce. Hamish and Wynona are both extremely successful, and have
earned well over the years. They live in an expensive house, have driven
expensive cars, and have even purchased a beach house together.
Wynona expects that because the joint estate will be divided equally, she
will receive half of this jointly accumulated wealth. However, it trans-
pires that the vast majority of the assets used and enjoyed by the couple
are, in fact, owned by a family trust, which is controlled almost
exclusively by Hamish. The trust was set up years before, primarily for
tax reasons. Wynona always trusted Hamish’s judgment in f‌inancial
matters, and relied upon him to make these decisions. As a consequence,
the joint estate comprises of only a fraction of the pool of assets that
* I would like to thank Dr Cheri Young for her kind assistance in proofreading and
commenting on this article while it went through a number of drafts. I would also like to
thank Justice Azhar Cachalia, with whom I had a number of discussions on this area of law, for
being willing to consider the article while it was in draft form. Finally, I would like to thank the
anonymous reviewers for their helpful suggestions. All opinions expressed and errors made
are solely my own.
(2016) 28 SA Merc LJ 508
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Hamish and Wynona had the benef‌icial use and enjoyment of. Accord-
ingly, upon divorce, Hamish will in substance retain almost everything
that he and Wynona accumulated together — unless the trust property
is somehow taken into account by the court in making the distribution.
The question then is, under what circumstances is this possible?
A number of academic articles have been published which generally
consider the ability of a court to ‘go behind’ the veneer of a trust in South
African law.
This article differs from the majority of the existing
literature in that, rather than considering the topic in an abstract and
theoretical manner, it proceeds simply and practically by setting forth a
number of potential arguments (including going behind the veneer)
which may allow a court to take into account trust property in the
context of the dissolution of a marriage. It also differs from the literature
considering this area more specif‌ically,
in that it reaches fundamentally
different conclusions on the effectiveness of the possible arguments.
This article considers three plausible arguments that may allow a
court to take into account trust assets, namely (i) a failed transfer of
property, (ii) invalid and sham trusts, and (iii) ‘going behind’ the trust
form. The most interesting argument, from a legal perspective, relates to
going behind the trust form. This occurs where a court ignores the
separation of the estate of trustee
and trust.
The f‌irst two arguments do
not challenge the basic legal principles relating to trusts (in particular,
the separate existence of the trust estate), and their thrust is that for one
or another reason, the assets which appear to vest in the trust estate in
truth do not, and instead vest in the personal estate of the spouse(s).
will be demonstrated, there is no controversy as to their effectiveness in
See eg Van der Linde & Lombard, ’Nel v Metequity Ltd 2007 3 SA 34 (SCA) — Identity of
interest between trustees and benef‌iciaries in so far as object of trust is concerned: Effect on
validity’ (2007) De Jure 429; Van Der Linde, ‘Debasement of the core idea of a trust and the
need to protect third parties’ (2012) 75 THRHR 371 at 383; De Waal, ‘The abuse of the trust
(or: ‘‘Going behind the trust form’’) — The South African experience with some comparative
perspectives’ (2012) 76(4) The Rabel Journal of Comparative and International Private Law
1078; and Nel, ‘Two sides of a coin: Piercing the veil and unconscionability in trust law’ (2014)
35(3) Obiter 570.
See Du Toit, ‘Trusts and the patrimonial consequences of divorce: Recent developments
in South Africa’ (2015) 8 Journal of Civil Law Studies 655; and Van der Linde, ‘Whether trust
assets form part of the joint estate of parties married in community of property: Comments
on ‘‘piercing the veneer’’ of a trust in divorce proceedings’ (2016) 79 THRHR 165.
For ease of reference, this article generally refers to ‘trustee’ in the singular.
Note that ‘going behind’ the trust form is one of a variety of terms that have been used to
describe this phenomenon. See below at section II(a).
The term ‘trust assets’ will be used loosely to refer to all the assets that apparently belong to
a trust, and not only the assets that truly are owned by the trust. This is necessary because, as
can be seen, a number of the arguments take the form that, for one or another reason, the
trust’s ownership of a particular asset is subject to challenge.
© Juta and Company (Pty) Ltd
allowing a court to attach (apparent) trust assets. The third argument
does challenge the basic legal principles relating to trusts. It acknowl-
edges that the assets may have vested in a validly constituted trust, but
nevertheless proposes that the ordinary consequences of this should be
disregarded, and the assets should be taken into account for purposes of
the division of the estate(s). There is some controversy as to the scope
and effectiveness of this third argument, particularly after the recent
Supreme Court of Appeal (SCA) judgment in WTvKT.
recent articles which consider this judgment conclude that this judg-
ment effectively excludes the ability of the courts to rely upon this third
argument in most instances of dissolutions of marriages.
This article
argues in favour of the opposite conclusion.
The structure of this article is brief‌ly as follows. First, there will be a
short summary of the background legal principles that must be borne in
mind to appreciate the arguments canvassed in this article. Following
this, each of the three arguments outlined above will be discussed in
This section aims to provide a brief summary of the basic legal principles
that form the background to the arguments presented in this article. The
section is divided into discussions on the relevant principles of (a) trust
law, (b) matrimonial property law, (c) simulations, and (d) estoppel and
breach of a trustee’s f‌iduciary duties.
(a) Trust law
Before outlining the relevant legal principles governing trust law, a
cautionary note regarding terminology must be issued. Historically, the
terminology used to describe the sorts of situations discussed in this
article has been inconsistent, and there are a range of different terms,
which have been used interchangeably. For clarity, the terminology used
in this article is set out below.
The main distinction that must be drawn is between ‘sham trusts’ and
‘going behind’ the trust form or veneer. This important distinction has
WT & others v KT 2015 (3) SA 574 (SCA).
See Du Toit, (2015) 8 Journal of Civil Law Studies 655 at 696–697; and Van der Linde,
(2016) 79 THRHR 165 at 172–173.
For a list, see De Waal, (2012) 76(4) The Rabel Journal of Comparative and International
Private Law 1078 at 1079.
(2016) 28 SA MERC LJ510
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