Claim against family trusts in divorce case backfires

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The decision in Ankul Daga v Aparna Bangur offers a cautionary tale which demonstrates how things can go wrong in highly charged divorce cases.

In 2015, whilst the couple were still married, the wife established two discretionary trust funds with combined assets equivalent to approximately £17.5 million. She was the settlor and the beneficiaries were ‘family members of the settlor, including the settlor’. In the divorce proceedings, the husband made a claim against the trusts on his ‘need’ to buy a home for £2.5 million which were dismissed by the Judge.

The couple married in 2007 and had a child but their relationship eventually ended in 2016. Throughout the marriage, the couple rented accommodation using their joint income. The wife acquired some property and other assets in India, funded by her father. However, it was agreed that there were no marital assets. The two trusts were set up with identical terms and the same trustees – a company incorporated in Saint Vincent and Grenadines. By June 2016, following substantial payments being settled by the wife’s father into the trusts, the total sum settled in the two trusts amounted to around US$23 million.

Initially, the husband argued for a lump sum of £2.5 million but later reduced this to £1-1.5 million. By this time, the parties had incurred more than £1 million in legal costs between them which wiped out their marital savings. Consequently, there were no liquid matrimonial assets and each party had considerable debts. The husband argued for a lump sum order designed to give ‘judicious encouragement’ to the trustees to distribute funds for his former wife to use as payment to him, despite the fact that no distributions had ever been made by the trustees.

However, the judge did not accept the need claimed by the husband, finding that he did not have any objective, reasonable or justifiable need for a lump sum from the wife. His need to clear debts was entirely due to the costs he had incurred. For the Court to make a lump sum order, it would be akin to making a costs order in his favour and this was without justification. The judge found that ‘it is simply beyond argument that the husband can sustain into the foreseeable future a very good lifestyle, entirely comparable to that enjoyed during the marriage, without the need for any capital provision at all, but based (as it always has been) on renting’.

The judge also ruled that trusts were not a ‘resource’ available to the wife, determining that, whilst the husband fell within the class of discretionary beneficiaries prior to the decree absolute, this did not apply following the decree absolute. The judge also referred to letters of wishes, signed by the wife, indicating that it was her irrevocable wish that the trustees act on the advice of her father relating to all matters concerning the trusts. Accordingly, he found that even if a lump sum order was made, the father recommended that the trustees should not to distribute funds to the wife. Furthermore, the Court must not place undue pressure on the trustees and the judge concluded that the trustees were highly unlikely to make funds available in any event. The rationale behind this judgment was that the trustees were not within the jurisdiction of the Court; they had not made any previous distributions; there were clearly expressed letters of wishes and it was highly likely that the father’s attitude would determine the trustees’ response.

In light of all this, the judge ordered a clean break between the parties to conclude ‘this destructive litigation’.