Family Trusts and Property Settlement

However, when parties then separate there is often a dispute about how the assets of the Family Trust are treated.

The reason why there is some confusion and debate about this issue is because a Trust is not a legal entity and in the strict legal sense the property that the Trust owns is not property of the “husband and wife.” In other words, if the husband and wife conduct a business through a Family Trust structure then they do not personally own the business. Essentially, on a strict legal basis, the business that is run through the Trust is not the property of either the husband or the wife.

In a typical Family Trust, there is a Trustee Company which has duties as the Trustee to administer the Trust property pursuant to the terms of the Trust Deed and obligations at law. A typical Family Trust is set up usually for the benefit of what are known as beneficiaries of the Trust. These beneficiaries may include the husband, wife and other relatives including the children of the family. Distributions of income and capital can be made from time to time to the beneficiaries from the Trust property upon resolution (decision) of the Trustee. The Trustee of the Family Trust may be the husband or wife personally or typically a company controlled by either the husband or wife.

There have been many cases over the years where a party has sought to argue that the assets held in a Family Trust should not be included in a matrimonial property settlement. Those arguments have consistently failed and there are many cases decided by the Family Court and also the High Court that explains why assets within the Family Trust are indeed matrimonial property.

In a typical Family Trust, there is someone who has a power to sack the Trustee of the Trust. This position is usually referred to as the “appointor” or “nominator.” That person has a very wide power in that they can themselves sack a Trustee and effectively appoint another Trustee to administer the Trust. Therefore, if you think about it, that person could sack a Trustee and appoint themselves or another company (that they control) as Trustee of the Trust. They could then make decisions as to the distribution of income and capital that may be said to favour themselves or one class of beneficiaries over the other (although legally they should not do that).

Further, the High Court has said that when the property of the Trust has been built up over many years primarily through the direct and indirect efforts of the husband and wife, then effectively the assets of the Trust are matrimonial assets. Therefore, when looking at any Family Trust structure in a matrimonial property settlement, one should pay attention to the following key aspects:-

• Who is the Trustee of the Trust and who controls the Trustee (if it is a company who has the majority shareholding)?;
• Who is the appointor or nominator under the Trust Deed?;
• What are the history of distributions of income and capital to the beneficiaries of the Trust?;
• Who has effectively made decisions in relation to the investment and dealing with Trust property and the distributions and income – is there someone (outside of the Trustee) who effectively controls the Trust because of the history of past decisions that have been made?; and
• How has the property in the Trust been built up and acquired over the years – who has made contribution to that property and in what manner?

There are other indicia and factors that the Court will often look at in determining whether the assets of the Trust are effectively assets of the husband and wife.

If you have a case that involves substantial assets within a Family Trust, then you should seek advice from a Specialist Family Lawyer as to how the law may treat the assets of that Trust in the particular circumstances of your case.