Can a court pierce the veil of a trust when calculating the accrual after a divorce?

 

In the case of MJK v IIK [2022] ZASCA 116, the wife sued for divorce. She sought an order declaring that the assets of three trusts and a CC be considered in determining the value of the accrual in terms of ss 3 and 4 of the Matrimonial Property Act 88 of 1984 (the Act). She contended that the trusts and the CC were her husband's alter ego and that during the marriage, he established the trusts and the CC over which he assumed sole de facto control.

The Act provides that during the marriage, each spouse retains control of their property, builds up their estate, and is responsible for their debts.

On dissolution of the marriage by death or divorce, the parties share equally the assets obtained during the marriage (the accrual). They determine the accrual by calculating the difference in the net starting value and the net final value of the estate of each spouse with the exclusion of inheritances, legacies, and donations. On dissolution of the marriage, the parties divide equally the value of the difference in the accrual of the two estates, taking inflation into account.

The Court disagreed with the wife's suggestion that it should regard the assets of trusts of which the husband was a trustee and the close corporation of which he was a sole member as belonging to the husband to determine the accrual of his estate. It rejected her suggestion that he transferred the assets with the dishonest and fraudulent purpose of frustrating her claim to the accrual of the estate. The High Court disagreed that it should pierce the veneer of all three trusts to determine the accrual of the husband's estate as he used the trusts as his alter ego.

The Court agreed with the husband that estate planners have for years used trusts as a convenient tool for estate planning. His principal objective in creating the trusts was to protect their assets to care for his wife and children, mainly their mentally challenged daughter.

It dismissed the wife's claim for an order that the assets of the trusts and the CC were to be used to calculate the accrual of the husband's estate.