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Trusts in Family Law Matters

Trusts and family law

We often receive instructions from clients around trusts, whether they are, amongst others:

  1. Family Trusts;
  2. Unit Trusts;
  3. Discretionary Trusts established in an estate.

With a growth in wealth and a huge growth in accounting advice, many people and families establish trusts for tax purposes, asset protection and income distribution. They are becoming incredibly common in financial settlements.

They can also be viewed by the Court in a number of different ways.

The first question we ask our clients is, What is your involvement in the Trust?

  • Are you the trustee?
  • A beneficiary?
  • The settlor?
  • Are you the director of the trustee company?
  • Are your children beneficiaries?
  • Have you been receiving an income stream from a family trust for decades?

Often trusts are established to stream income and pay expenses for a couple and their children whilst they are together, normally there is a business involved and there are other parties or family members who hold some position within the Trust.

There are a number of specific questions which must be answered and which normally are answered in the disclosure process. We as your lawyers need to know as much as you, the client know about the following:

  • What are the terms of the trust deed?
  • Who are the trustees?
  • If there is a corporate trustee, who holds the offices and the shares in that entity?
  • Who received benefits/income from the trust prior to separation?
  • What function has the trust historically performed?
  • What assets does the trust hold?
  • Who has the power to determine the income received by any of the parties involved in the trust or in the family/relationship?

If one of the parties has the unilateral control of the trust and has done so during the marriage/relationship, that is – can determine – to whom income or capital is distributed, the Court is likely to view the trust as an asset of the relevant party.

If a party has historically been receiving regular income from a trust, the Court is likely to view the interest that party holds in the trust as a Financial Resource.

There is a difference between an asset and a financial resource.

If the Court forms the view that the assets within the trust form part of the pool of assets to be distributed between the parties, the Court may Order, for example, that a commercial premises be transferred to one party out of the trust, or be sold.

More often, the Court will leave the Trust alone and provide for the party without the trust interest out of the other assets of the relationship.

If the Court forms the view that the interest a party has in the trust is one of a financial resource, there is likely to be an adjustment to the other party on the basis that that other party (the one without the interest) will not have the benefit of the financial resource following resolution of the property dispute.

Parties also need to be aware that third parties involved in trusts are likely to be joined to the proceedings in order for the issue of the assets/financial resources and any party’s entitlement thereto to be satisfied and for Orders to be binding.

What you need to know is that the Court has wide ranging powers to deal with your assets/trusts as it deems fit. You should see an experienced family lawyer in order to seek advice as to how your interest in any asset is likely to be viewed.

We’re here when you need us.

About the author

Zachary WilsonZachary Wilson is an Associate at Tiyce & Lawyers. Contact Zachary at zachary@tiyce.com.au

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