WT & others v KT

WT and KT married in community of property in October 2001. Prior to the marriage, in 1999, WT established a discretionary family trust on the advice of his father, with WT and his brother as trustees. The trust purchased an immovable property in Bryanston, financed mainly by a bank loan to the trust and a loan from WT. WT and KT lived in the property rent-free both before and after their marriage. KT was never a beneficiary of the trust. During divorce proceedings instituted by WT, KT counterclaimed that the assets of the trust, particularly the property, formed part of the joint estate, alleging that WT had misrepresented the purpose of the trust and that the trust was his alter ego. The High Court held that the trust assets formed part of the joint estate. WT and the trustees appealed to the Supreme Court of Appeal.

The appeal was upheld with costs (excluding record preparation costs). The order of the High Court was set aside and replaced with an order declaring that the assets of the WT Trust (IT11246/1999) do not form part of the joint estate. The divorce action was postponed sine die to determine the value of the joint estate, and KT was ordered to pay WT’s and the trust’s costs.

The case clarifies the treatment of discretionary family trusts in marriages in community of property and confirms that trust assets do not automatically form part of the joint estate merely because a spouse controls the trust. It limits the circumstances in which courts may look behind the trust veneer and distinguishes redistribution principles applicable to marriages out of community of property under s 7(3) of the Divorce Act.