South Africa
Law Over Borders Comparative Guide: Family Asset Protection Law Guide: Divorce, Finance and the Media
Family Asset Protection Law Guide: Divorce, Finance and the Media
Chapters in this guide
12
As a general rule, if a trust has been properly formed (it is a valid trust and not a “sham”), then it is likely that none of the trust assets will form part of any divorce settlement or court order, and the assets will continue to be uninterruptedly held in trust (Walter D. Geach, Trust Law in South Africa (2017), p.440).
Broadly, in the instance of a trust being a “sham” (i.e., a valid trust never came into being), or of a court piercing the veneer of a trust (based on company law principles related to piercing the corporate veil), distinct remedies are available. On the basis of the so-called Badenhorst principle, a court may make an order against a party based on the value of assets held in trust by a party with control over the trust. The Actio Pauliana, where assets are fraudulently alienated, may also be available.
Trusts are recognised and regulated by the Trust Property Control Act (TPCA), 57 of 1988, and based on English and Roman Dutch rules, as developed by the courts. A legal relationship is created by agreement between the founder and the trustees. Ownership of trust assets vests in the trustees, who exercise fiduciary duties for the benefit of beneficiaries. Assets exist separately from the founder, trustees and beneficiaries.
If a trust is valid, it is unlikely that the trust assets will form part of any divorce settlement where a divorce is filed in South Africa.
Trust property does not automatically form part of a party’s estate in divorce proceedings. The courts regard a trust as a legitimate estate planning tool and have been reluctant to include such assets as part of a party’s estate upon divorce. Whether the trust’s veneer should be pierced and whether the trust was created to devalue the other party’s claims, will depend on each case’s circumstances, the trust’s formation and its use.
In P A F v. S C F (788)/2020) [2022] ZASCA 101, the judge noted:
- There is a distinct difference between a trust being the “alter ego” of a trustee and a trust being a “sham”.
- If a trust is the so-called “alter ego” of a trustee, it does not follow that the assets of such trust vest in the estate of the trustee.
- It must be found that the trust was a “sham” and created and administered fraudulently.
The Supreme Court of Appeal (SCA) held that: “Spouses with accrual claims acquire a protectable contingent right against each other, which the law will protect in circumstances of irregularity and a lack of bona fides.”
If there has been unconscionable abuse of the trust form to avoid an obligation, the court may pierce the veneer of the trust and deem certain trust assets to be a part of the spouse’s personal estate.
Van Zyl and Another NNO v. Kaye NO & Others 2014 (4) SA452 (WCC) (endorsed by the SCA) held that “maladministration of an asset validly vested in a properly founded trust does not afford a legally cognisable basis that the trust does not exist, or that the asset no longer vests in the duly appointed trustees. […] Going behind the trust form … essentially represents the provision by a court of an equitable remedy … 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 a liability, or avoid an obligation.”
This is derived from common law and not from any general discretion a court may have. In the context of the accrual determination on divorce, it “is not based on the authority of the Matrimonial Property Act 88 of 1984 (MPA) or in the exercise of a statutory discretion”, but “on a factual inquiry that has revealed trust form abuse, upon which the piercing of the trust veneer follows.”
In a sham trust the transaction will have no legal effect, the ostensible founder will remain the owner of the trust assets, and neither the trustee(s) nor the beneficiaries will acquire any rights with regard to these assets. The “trust assets” will be taken into account as assets in the spouse’s personal estate.
The concept of “alter ego trust”, where a person exercises de facto control over trust property, only describes the nature of the control exercised, and does not equate (as a sham does) to a juridical basis for taking trust assets into account for the purposes of patrimonial claims (REM v. VM 2017).
The use of the trust form to evade an obligation, whether relating to accrual or maintenance, will generally be sufficient for the court to pierce the veneer of the trust to prevent unconscionable abuse of the form of the trust.
The Actio Pauliana is a remedy available to a spouse where a transfer of assets is made into trust by the other spouse with the intention of defrauding a marriage partner or their potential matrimonial claims in an impending divorce action, gratuitously or without proper consideration, in fraud of the spouse.
In marriages concluded before 1984 (when the accrual system came into effect), in a trust over which the relevant spouse has de facto control of trust assets (such that may enable him/her to utilise the trust as an alter ego), the court is empowered to take such assets into account when calculating an equitable distribution on divorce, but not to actually distribute trust assets.
MJ K v. II K NO 360/2021 [2022] ZASCA 116 the SCA considered whether the fact that the appellant had established the trust and the closed corporation over which he assumed sole de facto control had the effect that the value of the trust assets would have to be taken into account in determining the wife’s accrual claim.
In this case, the wife claimed an alter ego argument and that the husband had managed the trusts to the prejudice of her accrual claim with the fraudulent and dishonest purpose of avoiding his obligation in regard to the accrual.
The husband submitted that the trust was set up as part of the estate and tax planning to ensure the family was sufficiently taken care of. The wife had played a role in engaging and consulting with the independent expert who assisted in the formation of the trust.
The SCA stated that “going behind the trust form will be given when it is used in a dishonest or unconscionable manner to avoid an obligation” and that the evidence did not support the wife’s contention.
In KHNO v. H Trust and Others (035385/2022) [2023] ZAGPJHC 1156 (6 October 2023), the wife (and co-trustee) instituted divorce proceedings against her husband (and co-trustee).
The question before the court was whether the terms of the trust deed could be varied in terms of section 13 of the TPCA, which provides that, “If a trust instrument contains any provision which brings about consequences which in the opinion of the court the founder of a trust did not contemplate or foresee and which: (a) hampers the achievement of the objects of the founder; or (b) prejudices the interest of beneficiaries; or (c) is in conflict with the public interest, the court may on application of the trustee or any person who in the opinion of the court has a sufficient interest in the trust property, delete or vary any such provision or make in respect thereof any order which such court deems just, including an order whereby particular trust property is substituted for particular other property, or an order terminating the trust.”
The court held to vary, it must find terms which brought about consequences that the founder did not contemplate or that led to unforeseen consequences, for example, in the case of a divorce. However in this instance a third trustee should be appointed, as was provided for in terms of the deed, and if the parties could not agree, section 7(2) gave the Master the authority to appoint a co-trustee, if considered desirable, as the court does not have a general discretion to appoint trustees.
In Snyman v. De Kooker NO and Others [2024] ZASC 119; [2024] 4 SA 47 (SCA), the SCA held that the variation of the trust deed in terms of section 13 of the TPCA should not be conflated with the removal of trustees under section 20(1). As aforesaid section 13 provides for the variation of a deed on application to court where it is found that the founder of a trust did not contemplate or foresee the consequences and which hampers the achievement of the objects of the founder, or prejudices the interest of beneficiaries, or is in conflict with the public interest. Section 20, on the other hand, provides for the removal of a trustee on application to the Master if the removal is in the best interests of the trust assets and beneficiaries, based on the conduct of the trustee.
In this instance, where the trust that in material respects did not comply with the court order founding the trust led to unforeseen circumstances, this required a variation of the deed and not a removal in terms of section 20.
Jooste NNO and Another v. Pretorius and Others (Case No. 295/2023) [2024] ZASCA 130 (1 October 2024), queried whether it was a requirement to comply with section 20 and/or the common law to remove a trustee, or whether the parties could rely on the deed to effect the removal.
In terms of the trust deed in the above case, the trustees had been empowered to unanimously call for the resignation of the trustee and had signed a resolution to this effect. The SCA noted that such a decision could of course not be invoked arbitrarily, that it had to be well informed, and must have been made in the best interests of the trust and in fulfilment of the trust objectives.
Section 9 of the TPCA requires a trustee to act with reasonable care, diligence and skill. The SCA held that, where “the object of the trust is subverted and/or threatened by the conduct of the trustee in her exercise of powers which is contrary to the beneficiaries and not in accordance with the trust objectives”, the parties could apply for her removal in terms of section 20 and/or the common law and the court’s jurisdiction is not ousted.
The SCA found that, where the deed provides for the removal of a trustee and the decision has not been taken arbitrarily, the deed can be utilised as an expeditious method for the removal in the interest of the trust and its beneficiaries, obviating “the lengthy delays, exorbitant costs and uncertainties associated with litigation”.
In Haitas v. Froneman and Others [2021] ZACSA 1 (6 January 2021), the SCA noted that “irrespective of whether the common law or section 20 is utilised … that when a deceased person had deliberately selected certain persons to carry out their wishes, because they believe[d] they [were] best placed to do so, a court should be loathe to interfere”.
The primary issue for determination was whether the conduct of the trustees justified their removal in terms of section 20 or the common law.
The SCA found that there was nothing to suggest any impropriety in the conduct of the trustees, nor was there evidence of any personal gain — the only criticism being that they had been overzealous in carrying out what they believed to be the deceased’s wishes.
In Shepstone and Wylie Attorneys v. Abraham Johannes de Witt NO and Others (1270/2021) [2023] ZASCA 74, the SCA found that:
- even when a deed makes provision for a decision by the majority of the trustees to bind the trust, the resolution will not be binding if it is not signed by all of the trustees; and
- where a decision is required to be taken jointly, the decision will only prevail if there has in fact been participation in the decision by all of the trustees.
Effective from April 2023, in accordance with the General Laws Anti-Money Laundering and Combating Terrorism Financing Amendment Act, 22 of 2022, read with section 11A(1) of the TPCA, all trustees are required to establish, maintain and lodge a beneficial ownership register of each trust on the Integrated Case Management System Web Portal maintained by the Master.
Section 1 of the TPCA defines a “beneficial owner” of a trust as the founder, trustees, a natural person who directly or indirectly ultimately owns the relevant trust property or who exercises effective control of the trust, and each beneficiary referred to by name in the trust instrument.
There is a general duty of spouses in litigation to give full and frank disclosure of their estates (ST v. CT 2018 (5) SA 479 (SCA) at 35-6). In terms of Rule 35 of the Uniform Rules of Court, in the case of a divorce filed in South Africa, a party has to make discovery on oath of any and all documents in the action, which are, or have at any time been, in the possession or control of such party and relevant to the action, and to disclose the whereabouts of such documents, if not in his/her possession. Further and better discovery may be requested. A formal request for further particulars with detailed questions for information (and not documents) may be submitted.
Relevance is decided by the court, having regard to the issues and the pleadings in which disputes are delineated (Swissborough Diamond Mines (Pty) Ltd v. Government of the Republic of South Africa 1999 (2) SA 297 (T) at 311A).
Disclosure is relevant to the type of marriage in South African law, as follows:
- Marriage in community of property. An undivided joint estate is formed and the parties’ ability to contract independently is limited.
- Marriage out of community of property prior to the commencement of the MPA, 88 of 1984. A redistribution order (in terms of section 7(3) of the Divorce Act (DA), 70 of 1978), as the court deems just and equitable, may be granted.
- Marriages out of community of property with prenuptial/postnuptial agreements (PNAs) after 24 November 1984:
- The accrual regime. A party claims 50% of the difference between the accrual of the parties’ respective estates (except for exclusions). It sometimes states that a party may not establish a trust without the other party’s consent and may exclude loan accounts in and distributions from a trust.
- In terms of disclosure, section 7 of the MPA, a spouse married out of community of property, with the application of the accrual system has a duty on request by the other to furnish full particulars of their estate in order to determine the accrual of their estate.
- In D.M v. D.M [2025] 2 All SA 398 (GJ), at 27, the court noted that the “accrual regime presents unique challenges … because the estates are separate, one spouse will often be in the dark as to the financial position of the other. This heightens the duty of disclosure, because full disclosure is essential to prevent the hiding of assets.”
- Marriages out of community of property excluding the accrual regime. Since October 2023, a discretionary redistribution order (section 7(3) of the DA) is now claimable, if deemed just and equitable, in spite of the exclusion of a sharing regime.
Personal maintenance claims. Section 7(2) of the DA provides inter alia that a court must consider inter alia the parties’ existing means, in exercising their discretion as to the existence and content of a personal maintenance claim. “Means” include a party’s access to funds, from a trust.
Disclosure, relating to a trust entails, inter alia:
- Distributions, loan accounts, journal entries, relevant resolutions.
- If a trust has been joined to proceedings and faces a claim to pierce the veil or that dispositions to a trust be set aside, then the historical trust resolutions, disposition of assets to the trust, financial and management statements, bank statements, journal entries, notes, tax returns, dividend policies, the trust deed, valuations of assets, and so on may be relevant.
- Documents regarding the trust’s subsidiaries (which is debatable as to relevance). A new judgment has put relevance in issue in these instances.
- Documents required by expert accountants.
Where divorce proceedings are filed in South Africa, if a trustee is a party to proceedings and the trust is governed by South African law, the financial documents relevant to the disputes between the parties, on the pleadings, shall be discovered.
Subpoenas may be issued against trustees and the trust’s subsidiaries and the relevance thereof may be challenged.
The South African court has no jurisdiction to order disclosure by trustees of an offshore trust unless the trustees are parties to the proceedings. Proceedings are launched in the jurisdiction where the trustees are situated, in terms of the laws of that jurisdiction. A South African law court may, on application, request a foreign court to interrogate the trustees in terms of a questionnaire.
In a case involving a South African trust and South African divorce proceedings, a maintenance order only lies against a spouse personally. However, the spouse’s means and income, assets and liabilities and access to funds will be taken into account, such as historical access to funds from the trusts. A court will not make an order against the trustees for personal maintenance obligations or make a distribution to the other spouse, even if that spouse is a beneficiary. The trustees will exercise a fiduciary discretion, taking into account the other beneficiaries, which may be tested in court.
A spouse beneficiary, who has been ordered to pay either income or capital to their spouse by a court cannot be required to do so from an uncertain contingent future right to trust assets. The discretion to distribute trust benefits rests with the trustees and is not vested in the beneficiaries.
The spouse’s credit loan account in the trust may be attached by warrant of execution.
Where divorce proceedings have been filed in a foreign jurisdiction and an order has been validly granted, that order will be implemented in South Africa.
In terms of section 13 of the DA, the validity of a divorce order granted in a court of a foreign country or territory shall be recognised by a court in South Africa, if, on the date on which the order was granted, either party to the marriage was domiciled in the country or territory concerned, whether according to South African law or according to the law of that country or territory, or was ordinarily resident in that country or territory or was a national of that country or territory and provided there were legitimate proceedings and/or a legitimate order had been issued.
Where court orders made in divorce proceedings filed in South Africa require payment of income and/or capital against trustees of trusts governed by the law of South Africa, if the trustees are party to the proceedings, the trustees are bound to the order. This is, however, highly unusual.
Beneficiaries do not have vested rights in a discretionary trust.
A spouse beneficiary does not have a vested right to trust benefits. The discretion to vest assets rests with the trustees. The trustees cannot be forced to make a distribution. The benefit has to be accepted by the beneficiary to accrue. A beneficiary can call up a loan account, depending on the terms thereof.
Where the trust assets are situated both inside and outside of South Africa, the South African court will only have jurisdiction over assets in its area and will apply South African law.
In a case involving a South African trust and foreign divorce proceedings, if there is no order against the trustees, the trustees have no obligations, except their fiduciary obligations in terms of the trust deed.
Where the court has determined that it is likely that the spouse beneficiaries will be able to obtain distributions from the trusts for the purposes of paying all or part of the divorce award, the trustees would have no obligations to make distributions to the spouse beneficiary. Distributions would be at the discretion of the trustees exercising their fiduciary duties and applying the provisions of the trust deed.
A South African court would not have jurisdiction in regard to trust assets outside its area, but has jurisdiction over assets within South Africa. Should a valid order against trustees be registered in South Africa, the South African court will implement the order.
Should a party be in contempt of a court order, the court can order a term of imprisonment or a fine to be paid and make a costs order. The applicant has the onus to prove that the court order was granted, was served, or the respondent had knowledge of the court order, and that the court order was not complied with. A presumption arises that the non-compliance is wilful and mala fide. The respondent has an evidentiary burden to show reasonable doubt and, failing which, contempt will be established. This form of civil contempt is a crime and can be prosecuted. A committal could be ordered in both civil and criminal proceedings.
If financial disclosure is not complied with, provided a court is of the view such disclosure is relevant, and the trust is a party, the trustee may be compelled to reply, failing which the trustee may be in contempt.
PNAs are recognised and enforceable in South African law. Section 6 of the MPA deals with the requirements relating to PNAs and section 21 regulates the amendment of matrimonial property regimes postnuptially.
Section 87(2) of the Deeds Registries Act, 47 of 1937 governs the formality requirements of PNAs executed outside of South Africa. It is attested by a notary, or otherwise entered into in accordance with the law of its place of execution. It shall be registered in a deeds registry within six months after the date of execution. The PNA has to be notarially executed before the marriage.
If the PNA is a foreign agreement, provided that the PNA has been validly concluded in terms of the foreign jurisdiction, effect will be given to it.
The South African court shall have the same power as a competent court of the foreign state would have had in regard to the PNA.
A notary executes a PNA.
The contract must be concluded before marriage and registered in the Deeds Office before or after marriage, if signed in South Africa within three months and outside of South Africa within six months of signature.
Postnuptially, application may be made to the High Court for an order to amend the regime in terms of section 21 of the MPA, after which a PNA is concluded and registered.
A PNA executed in accordance with the forms required by the law of the place of execution, should be recognised as being formally valid and binding everywhere (Ex Parte Spinazze and Another NNO 1985 (3) SA650(A)).
There are no legislative or judicial guidelines prescribing time for consultation, reflection, independent legal advice and/or financial disclosure. This is currently under discussion by the South African Law Reform Commission (SALRC).
As a general rule, South African courts uphold the provisions of PNAs and do not have an overarching discretion to divide matrimonial assets on an equitable basis in conflict with the provisions of a PNA after 1 November 1984.
There has been a radical change in law, giving the courts a discretionary right in regard to sharing. The Constitutional Court held in EB (born S) v. ER (born B) and Others; KG v. Minister of Home Affairs and Others [2023] ZACC32 (10 October 2023) (“KG”) that, in terms of section 7(3) of the DA, the courts have an overriding equity discretion to order a distribution of assets between spouses on death or divorce in the cases of all marriages where the parties have excluded any form of accrual sharing in terms of their antenuptial contract.
The court may now distribute assets from one spouse to another, on divorce, on an equitable basis having regard to the factors set out in subsections 7(4) and (5) of the DA where the accrual regime has been excluded in the PNA.
A court may take certain factors into account when it is considering the redistribution order:
- that a spouse contributed directly or indirectly to the maintenance or increase of the estate of the other spouse, either by the rendering of service or the saving of expenses which would otherwise have been incurred;
- or in any other manner;
- the existing means, obligations and needs of the parties;
- any donations to each other; or
- any other factor.
In practice, the courts prefer to make money orders.
Waiver of personal maintenance is contrary to public policy (ST v. VCT 2018(5) SA479 SCA). PNAs are usually limited to the election of a matrimonial regime. Parties may agree in the PNA to exclude distributions they receive from a trust or loan accounts a party may have in existing trusts, from a sharing regime, and agree that assets will not be disposed of to a trust and/or a new trust formed without the parties as beneficiaries, or without their consent.
Trustees cannot be bound by the PNA and are not parties to the PNA.
The High Court is the upper guardian of children. Any financial claims relating to children cannot be fixed or capped in the PNA, would not be enforceable and would be contrary to public policy.
Subject to the authorisation granted by a court in exceptional circumstances, the publication of the identity of, and any information that may reveal the identity of, any party or child in any divorce proceedings before any court is prohibited. Failure to comply with the order will amount to contempt of court.
The special privacy of children and the principle of open justice, as well as freedom of expression, which enables public scrutiny of the courts, will have to be balanced.
Section 28(2) of the Constitution precludes the media from publishing the names and further particulars of a minor child.
In practice, the media reports on family law matters unlawfully from time to time if these are considered to be in the public interest. A member of the media cannot record the proceedings without making an application to court first.
Court documents are publicly available from the court registrar. The media physically attends court hearings (which are public), but may not record the proceedings, unless an application to court for a permit is made.
A party may apply to have the court file sealed in limited circumstances, for example, in the event of competing rights and the right to privacy or harm to a minor child. Proceedings relating to a minor are usually held in camera. Anonymous publication may have limited value for parties involved in a high-profile case and may create further curiosity in the public arena. High-profile cases may be classified as exceptional circumstances, but the factors for exceptional circumstances are undefined. A court would look at whether publication is in the interests of justice. The public may have an interest in the information, particularly the parties’ identities.
The identities of the parties have in some instances been published internationally, on the BBC and CNN, which renders the prohibition ineffective.