Supreme Court releases decision in Clayton v Clayton - but is it the last word on relationship property and trusts?

Thursday, March 24, 2016

The Supreme Court has released its eagerly awaited decision in Clayton v Clayton, a case involving disputes about relationship property matters and the validity of trusts, following the dissolution of a marriage.

The principal issue for the Supreme Court to consider was whether the powers that Mr Clayton held under the trusts were property within the definition of the Property (Relationships) Act 1976. They decided that the power to appoint and remove beneficiaries on its own would not be property. However, the combination of powers that Mr Clayton had (to allocate all of the capital to any one beneficiary, to bring forward the vesting date, to appoint and remove beneficiaries, and a broad resettlement power), coupled with other clauses in the trust deed which meant that his actions were not constrained by any fiduciary duty, amounted to a power that fit the meaning of property. 

These powers are therefore considered to be property, and as the trust was established during the relationship, the property is relationship property, to be divided between Mr and Mrs Clayton. The Supreme Court also decided that the value of the power was equivalent to the value of the trust.

The Supreme Court also determined that this trust was not a sham, but did not make a determination on whether there is such a concept as an illusory trust.

In relation to a separate trust, the Supreme Court also considered whether the trust was a nuptial settlement which fell within section 182 of the Family Proceedings Act 1980. The lower courts held that the trust was created for business purposes, and therefore was not a nuptial trust. The Supreme Court overruled this, saying that all that is required is a connection between the marriage and the settlement of the trust. The nature of the assets is not determinative; a nuptial settlement can contain business assets.

This decision will no doubt be the subject of vigorous debate and commentary. We will provide a full analysis with a discussion of the implications of this decision in the coming weeks.

Disclaimer: the content of these articles is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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