Generally, only the property which are a party’s assets such as a home, motor vehicles, shares and other assets will be considered as a part of family property alteration orders under s 79 of the Family Law Act 1975 (see https://hansonslawyers.com.au/property-settlement-division/). Financial resources are broader than assets and as such are generally not included in the property pool for property division. Financial resources include those assets and funds which are not legally owned by the parties such as those held on trust. Family trusts are often used for taxation and asset protection purposes. Under a trust structure, as a party technically does not own any assets under the control of the trust, but merely has an equitable entitlement to the proper administration of the trust, the assets of the trust are generally not considered to be a party’s assets. Therefore, as a general proposition these assets won’t be included in property orders.
Kennon v Spry– when the court will treat trust assets as property?
Whilst generally trust funds and assets are not included in property alteration orders, if certain circumstances exists then the court may decide to include these assets into a property division. The Family Court is willing to include trust assets in a property division and treat these assets as the property of one party, where certain factors relating to “control” exists. These factors are:
(1) If one party has effective or de facto control of the trust: The court will look at whether one party to the marriage has practical control of the distribution of the trust funds. For example, if a party is both the appointor and trustee of the trust then the control they have over distribution in a discretionary trust is strong and therefore the trust is more likely to be considered property. Conversely, where the party to the marriage has no control over the distribution of funds or the appointment or removal of the trustee, such as where a party is merely a beneficiary of the trust, then it is unlikely the court will treat the trust assets as property.
If the trustee is a company, the court will look at the structure of the company to determine whether a party to the marriage has de facto control of the trust (through the company). For example, if the company’s sole director and shareholder is the party to the marriage, a finding of control is likely to be made out and the trust assets may be treated as that party’s property in family court property proceedings. But where the company’s composition of directors is varied control may not be established.
(2) If the parties of the marriage are beneficiaries of the trust. Where the distribution of the trust funds are likely to go to parties of the marriage, then it is possible that the court will treat the trust as property. Where there are multiple objects of the trust and distribution of income may be shared between those who aren’t parties to the marriage, then the court may not treat the trust assets as property to the marriage.
(3) If the assets of the trust would otherwise be held by the parties to the marriage in some other form if not for the existence of the trust structure.
Each case will be decided according to its unique facts and the trust structure in each case. Therefore, if you need advice as to your interests under a family discretionary trust you should contact our office.
Considerations for structuring family trusts
Given that there is no guarantee that trust assets will not be included in a property alteration, careful thought should go into the process of the structure a family trust if there is fear that a relationship may break down. These considerations include who has effective control of the trust, such as who is the appointor and/or the trustee, who are the beneficiaries of the trust, and the specific assets of the trust. Bearing in mind the potential for relationship breakdowns these considerations are important. In additional to taxation purposes, family discretionary trust can be a useful way to provide benefits to family members in a way that prevents creditors and other persons such as an ex-partner from seeking trust assets for recovery or property settlement. Therefore, the way a family trust is established is important to achieve these aims.
If you would like advice as to your rights and obligations with respect to a family trust in family law property proceedings, please contact our family law team on 42 222 666 or at firstname.lastname@example.org