Trusts, and specifically discretionary family trusts, are commonly utilised as means of holding income generating assets and distributing that income to beneficiaries, who are often family members. When a relationship breaks down, and one or both of the parties hold assets in a trust, questions often arise as to how the trust, and the property of the trust, will be dealt with in the family law settlement. Trusts can be a complex area in settlements, as sometimes they are used by one party to protect or exclude assets, or to prevent the other party from accessing their share of the property.
There is a misconception that if assets are held in a trust, they are to be excluded from the property settlement. This may or may not be the case depending on the structure, composition and set up of the Trust.
There are two ways trusts are likely to be dealt with by the Court- it can be treated as an asset to be included in the matrimonial asset pool or as a financial resource. Trusts are more likely to be considered an asset for distribution if the Court is satisfied that the Trusts’ assets form part of the property of the parties to the marriage or de facto relationship. Under section 4 of the Family Law Act 1975 (Cth) “property” holds a very broad meaning, and the Court has demonstrated its willingness to include trust assets in a property division where certain factors relating to “control of the trust” exist. Where one party has effective control of the trust (i.e. if one party is the trustee, or an appointor) it is more likely to be included as property to be distributed in a family law settlement (see Kennon v Spry [2008] HCA 56 (3 December 2008)).
The Court has also demonstrated that where trust assets do not fall within the definition of property, the Court can still consider whether the parties have received benefits or distributions from the Trust and whether they are likely to in the future, notwithstanding a lack of control over the trust. In this scenario, the Court is likely to consider Trust property as a financial resource of that party under section 75(2) of the Act when determining the overall settlement.
Trusts are a complex area of family law and can require the input and advice of financial advisors, accountants, and solicitors. Whether a trust asset will form part of the matrimonial asset pool available for distribution and whether it is outside of the reach of a property settlement in the context of family law will depend on the specific circumstances of your matter.
For specialist family law advice, including the effects of trusts in a family law property settlement, contact Robinson + McGuinness to arrange an appointment on (02) 6225 7040, by email at info@rmfamilylaw.com.au or get started now online with one of our experienced lawyers to obtain advice.
Author: Lauran Clifton