A trust, including a family trust, is set up by a settlor using a trust document in which he sets out the assets that he is transferring to the trust whether movable property (such as cash, shares, bonds, etc) or immovable property (such as land or houses). Trust assets are held in a trust by the trustee for the benefit of beneficiaries.

Once the settlor transfers the assets to the trust, the legal owner is the trustee or the trust (in an incorporated trust) while the beneficial interest in the assets of the settled assets is for the benefit of the beneficiaries. Beneficial interest that the beneficiaries are entitled to can include benefits such as the right to receive a share (or the entirety) of the property; its income; have their expenses (such as medical, legal or educational expenses paid for) or even receive gifts upon the exercise by the trustee of his powers of appointment under the trust deed

Family trusts are an asset protection tool in Kenya and the Trustees (Perpetual Succession) Act, (CAP 164) even facilitates the incorporation of these trusts thus affording the parties in a trust even greater legal protection. Assets held by an incorporated trust are held in the trust’s own name and the incorporated trust is a legal entity/body corporate that can sue and be sued in its own name with powers to transfer assign, charge and demise any movable or immovable property or any interest therein now or hereafter belonging to, or held for the benefit of, the trust.

However, an emerging issue at the intersection of matrimonial property law and trust law in Kenya and is whether assets held by a family trust really can form part of matrimonial property available for distribution upon divorce.

The Matrimonial Property Act of Kenya (No 49 of 2013) provides under Section 6 (1) that “trust property … does not form part of matrimonial property.” The key in a claim regarding trust assets and matrimonial property is to firstly

1. determine whether the trust is valid and therefore,
2. if the trust is valid, the cited provision of the Matrimonial Property Act is a guideline on how courts will deal with trust property if a claim is raised on trust assets in a matrimonial property suit.

The validity or invalidity of a trust is subject to determination under specified conditions set out in the Trustees (Perpetual Succession) Act and case law. Thus where a spouse wishes to bring property held under a trust under the ambit of matrimonial property and therefore make it subject to division, they may need to prove that what is cited as trust property is actually not validly part of the trust and should therefore be considered within the division of matrimonial property claim as being part of the personal estate of their spouse and therefore should be subject to division as matrimonial property. One of the ways to do this is to establish that the trust is a sham and therefore invalid. The court may declare a trust partially or wholly invalid and therefore the court will subsequently declare what property is to be held subject to the trust and what property is not. The spouse seeking an extension of the ambit of matrimonial property law can then attempt to seek a share of the Property that is subsequently declared by the court to be attributable to the direct ownership of the settlor spouse as opposed to the trust – whether on the basis that the asset is matrimonial property or they have acquired a proprietary interest in the asset through contribution to the improvement of the said asset or commingling.

Thus the spouse seeking a share of erstwhile “trust assets” can look to the concept of invalid and sham trusts as an avenue to get a bigger share of a pie. The threshold is high to prove that a trust is a sham or invalid and involves an interplay of legal and factual complexities and therefore an understanding of trust law, family law and matrimonial property law will boost the persuasiveness of one’s case before a matrimonial court.

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