The Durban businessman fails to “hide” 5.5 million rand…

A wealthy Durban businessman has failed in his attempt to ‘hide’ more than 5.5 million rand from his wife. He had hastily set up a trust and repaid his father an old debt.

The Supreme Court of Appeals (SCA) ruled that the timing was questionable and, in a unanimous judgment, confirmed that in divorce proceedings courts have the right under common law to “break through the veneer of trusts” in certain circumstances.

The couple married in 2001 in community of property, subject to the system of exercise.

The divorce trial began in the Durban High Court in February 2015.

Just 20 days earlier, the man had set up a trust in the British Virgin Islands through his brother, a lawyer who practiced there. The brother was appointed sole trustee and the beneficiary was the couple’s minor daughter. He then donated the equivalent of R2.2 million to the trust in March.

That same month, he transferred the equivalent of R3.3 million to his father, allegedly in repayment of a loan advanced some 25 years earlier.

His ex-wife became aware of these transactions and, in the ongoing divorce proceedings, declared that they should be taken into account in the calculation of what was due to him in terms of regularization.

Acting Judge Yoga Moodley ruled in her favour, saying both transactions were made with the “fraudulent intent” to deprive her of her rightful claim. He ordered that the value of the transactions be deemed part of the man’s estate.

It was this decision that the man sought to appeal to the SCA.

Judge Tati Makgoka, who wrote the SCA judgment, explained that the default position in the adjustment calculations was that trust assets were excluded. But a court might disregard this, if the trust was a “sham” or if there had been an abuse.

Read the SCA judgement.

The ex-wife, the judge said, had alleged abuse and requested that the trial court “break through the veneer of trust”.

The businessman‘s lawyers argued that this was illegal, as neither the Divorce Act nor the Marital Property Act (MPA) provided for it.

They cited case law that an adjustment claim was determined on a “factual and mathematical basis” and was not a matter of discretion.

But Judge Makgoka said there was a legal obligation for both spouses to provide full details of the value of their property.

“As a result, where there is an allegation that an attempt has been made to avoid such liability…by transferring assets to a trust in order to reduce the value of their estate, a court is not barred from investigate this matter,” he said, noting that this power came from the common law, which existed independently of the Divorce Act and the MPA.

Turning to the merits of the case, Judge Makgoka said the trial judge was correct in his findings.

“The trust was created and the deed of gift concluded only a few days before the start of the trial. He offered no credible explanation of why he was genuinely motivated to create a trust for their daughter before the start of the trial, where the issue of child support was to be decided.

Judge Makgoka also referred to an affidavit submitted by a lawyer who had provided a second legal opinion on the creation of the trust. The lawyer said the man “was very concerned about the amount he was likely to have to pay”.

“It’s an important consideration. It sets the tone for the creation of the trust, as well as the payment to his father,” Judge Makgoka said.

The judge said that although the man dropped his appeal over the repayment of the loan, it remained a relevant consideration in “the overall assessment of his cause”.

While the parties had been very transparent about finances during their marriage, he had never mentioned this loan.

There was also no explanation as to why he hadn’t been paid since 1990, although it seemed like common cause that he could have done so financially.

The timing of the two strongly suggested they were meant to thwart his estranged wife’s buildup request.

The court dismissed the appeal and ordered the man to pay the costs. DM

First published by GroundUp.

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