Trusts and Family Law: A brief explanation

As a family lawyer based in the Clare Valley, I often encounter parties who have separated whereby the vast majority of their assets are held in trust.

The common example is a situation in which a farmer has separated from his spouse and the whole of the farming land is owned by separate and distinct discretionary trusts.

As the trust is a completely separate entity, the farming land itself should not form part of the asset pool available for division as it is not ‘owned’ by either of the parties.

It is a long held misconception that the farming land would therefore be automatically excluded from any property settlement proceedings following separation.

However, there is an increasingly large body of case law which confirms that the assets of a discretionary trust could in fact be considered property of the parties available for division under the Family Law Act, or at the least, be considered a financial resource.

Effective Control

In determining whether the assets of a trust are considered ‘property’ or a ‘financial resource’, the Court’s primary consideration is who has effective control of the trust.

There are a large variety of factors the Court will consider when determining this but often the critical question is whether the particular party has any legal or beneficial interest in respect of the assets of the trust.

This is usually determined by ascertaining whether the party is an appointor or the sole appointor of the trust (i.e. the person who has the power to add or remove trustees).

Effective control may also be established even if the party is not a beneficiary of the trust, so long as the party has a real interest in the property or income of the trust.

Property

If, for example, the farmer is the sole appointor of the discretionary trust deed which owns the farming land, then it is highly likely the Court will consider the farmer has effective control of the trust. The farming land would then be considered property and available for division.

This means the farming land is added to the asset pool of the parties and divided pursuant to the provisions of the Family Law Act.

Financial Resource

If the Court is not satisfied that one of the parties is in effective control of the trust, the Court may still consider the assets of the trust as a financial resource of a party.

In this instance, the Court cannot make any adjustment to the assets of the trust, however it can seek to change the ultimate division of the asset pool to favour the party without access to the trust.

To determine whether or not the assets of the trust would be considered either ‘property’ or a ‘financial resource’, a careful assessment of the trust deed and financial statements of the trust would be need to be undertaken, together with consideration of the circumstances of the relationship, before meaningful advice could be given.

This article was written by Solicitor, Callen Bubner.

Practice Area: Farm Law , Family Law

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