by Nicolene Schoeman - Louw

Introduction 

Trusts are valuable tools to safeguard assets, but in many instances, especially in divorce, that is not always the case. Yet, that is precisely what happened in PAF v SCF[2022] ZASCA 101 (22 June 2022). This Supreme Court of Appeal case is reportable. Therefore precedent-setting - binding in law.

Facts 

The parties were married to each other on 5 September 2001 out of the community of property, subject to the accrual system. On 24 June 2013, the applicant issued a summons against the respondent in the KwaZulu-Natal Division of the High Court, Durban (the high court) for divorce and ancillary relief decree. It was common cause that the value of the applicant's estate had shown a greater accrual than the respondent's estate. Accordingly, in her counterclaim, the respondent claimed an amount equal to one-half of the difference between the accruals in the parties' respective estates.

On 30 January 2015, a day after the Trust was established, the applicant concluded a written deed of donation with the Trust. Behind the trust form, or 'pierce the trust veneer', and order that the value of the donation be taken into account when the Accrual is determined.

Accrual Calculation

The amount of the accrual claim is determined on a factual and mathematical basis. A reciprocal obligation is also placed on both spouses "to furnish full particulars of the value" of their estates within a reasonable time of being requested to do so.

The Test

The test whether trust assets should be taken into account was enunciated by this Court in Badenhorst v Badenhorst [2005] ZASCA 116; 2006 (2) SA 255 (SCA), as follows:

“... To succeed in a claim that trust assets be included in the estate of one of the parties to marriage there needs to be evidence that such party controlled the Trust and but for the Trust would have acquired and owned the assets in his own name. Control must be de facto and not necessarily de iure. A nominee of a sole shareholder may have de iure control of the affairs of the company but the de facto control rests with the shareholder. De iure control of a trust is in the hands of the trustees but very often the founder in business or family trusts appoints close relatives or friends who are either supine or do the bidding of their appointer. De facto the founder controls the Trust. To determine whether a party has such control it is necessary to first have regard to the terms of the trust deed, and secondly to consider the evidence of how the affairs of the Trust were conducted during the marriage.”

The question is whether this test is limited to marriages subject to section 7(3) of the Divorce Act 70 of 1979 as amended (the “Act”)? Both the redistribution order in terms of section 7(3) of the Act and the accrual system in terms of section 3 of the Matrimonial Property Act 88 of 1984 (“MPA”), have as their objective, equitable and fair patrimonial consequences of a marriage. 

On the unique facts of the present case, the Badenhorst 'control test' does not find application. In other words, the absence of 'control' does not necessarily exclude the possibility of trust from abuse. As explained in Van Zyl NO v Kaye NO, piercing the trust veneer is: '. . . [A]n equitable remedy . . . one that lends itself to a flexible approach to fairly and justly address the consequences of an unconscionable abuse of the trust form in given circumstances. It is a remedy that will generally be given when the trust form is used in a dishonest or unconscionable manner to evade liability, or avoid an obligation.' 

What is more, even in the absence of 'control', the piercing of the trust veneer is still a remedy based on the proviso in the Badenhorst ‘control test’ :‘. . . It may be that in terms of the trust deed some or all the assets are beyond the control of the founder, for instance where a vesting has taken place by a beneficiary, such as a charitable institution accepting the benefit. In such a case, provided the party had not made the bequest with the intention of frustrating the wife’s or husband’s claim . . . the asset or assets concerned cannot be taken into account.’   

It is, therefore, all about the intention in which the transfer took place. Thus the SCA found that the court a quo was correct to conclude that it was entitled to go behind the trust form and order that the value of the donation to the Trust be taken into account as part of the applicant's assets in calculating the Accrual. 

Nicolene Schoeman-Louw | SchoemanLaw Inc

Commercial and Alternative Dispute Resolution Specialist

www.schoemanlaw.co.za