5 Apr 2016

In family law matters involving trusts, there is often a dispute about whether the trust assets are available for division between the parties.

 

Each family law property matter (whether or not it includes a trust) broadly involves a four step process:

1. identify the assets and liabilities of the relationship; 

2. identify the financial and non-financial contributions of the parties;

3. the Court then assesses a range of additional factors (called “future needs” factors) under section 75(2) of the Family Law Act 1975.  These factors take into account the needs of each party, both now and in the future.

4. consider whether the proposed division is fair to both parties in all the circumstances.

 

At step 1, the trust assets must be classified as being either:

a) property of the parties, meaning that they are available for division; or

b) a financial resource, meaning that they are not available for division, but will be taken into account at step 3.

The classification of trust assets will depend on the circumstances of each case.

 

Basic Principles of a Trust

A trust is a tool for structuring property ownership, usually with a view to minimise tax and/or protect assets.

 

Trusts involve the following stakeholders:

a) the settlor – who establishes the trust, and then ceases to have any active role;

b) the trustee – who has legal ownership of the trust assets;

c) the beneficiaries – who have equitable (beneficial) interest in the trust assets; and

d) the appointor and guardian – who is responsible for removing and appointing trustees.

 

The exact terms of the trust will be stated in the Trust Deed and any Deeds of Variation. In general, the trustee will manage and invest the trust assets for the benefit of the beneficiaries. The trustee may make distributions of trust income and capital to the beneficiaries, in accordance with the terms of the Trust Deed.

 

A trustee may also be one of the beneficiaries of a trust.

 

Trusts as Property

Section 4 of the Family Law Act 1975 (Cth) defines “property” as property to which one or both parties to the marriage are entitled, whether;

a) they actually possess that property; or

b) they do not possess that property, but they have the right to do so.

 

For the trust assets to be considered property of the parties, one of the parties must have a controlling position (being trustee, guardian or appointor) in the trust.  The test that the court uses is whether one of the parties has actual or de facto (effective) control of the trust. In other words, if one party has the power to make a distribution of trust assets to one or both of the parties as beneficiaries, then the trust assets are taken as being available for division.

 

Romano & June [2013]

The parties met in 1993, married in 2000 and divorced in September 2009. There were no children of the marriage.  The Husband set up a discretionary family trust in the 1980s. The Husband was one of two directors of the corporate trustee of the discretionary family trust. The Husband was also the primary beneficiary of the discretionary family trust.  At the time of Trial, the trust assets had a net value of $68,774.

 

The Husband’s position was that he did not control the trust. He said he was merely a beneficiary who may potentially benefit from a distribution of trust assets. The Wife’s position was that the Husband had real control of all aspects of the trust.

 

The Court found that:

a) while the Husband did not have legal control of the trust, he had effective control of the trust;

b) the Husband purposely avoided being in a position of legal control of the trust;

c) the Husband always regarded and treated the trust assets as his; and

d) the Husband utilised trust assets for his own benefit and for the benefit of others of his choosing.

 

The Court concluded that the Husband had real control of the trust assets, and therefore they were included in the asset pool available for division.

 

Trusts as a Financial Resource

If trust assets are not considered property available for division, then they will still be taken into account at step 3 of the four step process as a financial resource.

 

A financial resource is an asset that a party cannot access immediately, but will be able to access in the future. For example, if a party is a beneficiary of a trust then that trust is a financial resource from which they may reasonably expect distributions of trust income and capital.

 

Sham Trusts

If a trust is designed for the specific purpose of defeating Family Court orders, then the court is likely to deem that trust a sham. The Family Court has the power to set aside any trust instruments that are found to be shams; s 106B of the Family Law Act 1975 (Cth). The trust assets can then be included in the pool available for division.

 

This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.

100 years of Supporting West Australians

"Always fast and thorough service. Thank you"

Sitka Pil

My circumstances at the time I made contact with HHG were dire following my argument being rejected by two no win no fee firms. Following my initial meeting with HHG's employment law team I was left feeling extremely positive by the response and concern shown by HHG in regards to their support of my argument along with their preparedness to pursue an outcome on my behalf.

I accept the fact that nobody really wins in these cases (mental health/ workplace) however the end result was what would be considered most favourable and far in excess of what would have been achieved had I not sought the advice from HHG.

I have no hesitation in recommending HHG to anyone caught up in the messy circumstances I found myself in at the time.

Great advice and five-star commitment to their client!!"

Nathan Lynch

"Thank you for such great assistance with the transaction of Flying Domestics on behalf of Lorna Good. It has been such a pleasure to work with the HHG Legal Group and I look forward to working with you in the future."

Jim Goodwin

"Simon Creek and his team were at all times empathic, professional and confident.  My matter needed to be addressed within a pressing time frame, and their availability at short notice and contact after hours was much appreciated.  It caused me considerable stress, but having such a thoroughly reliable and competent team to call on helped me to feel in control. Although I hope not to need their services again in future, I would be confident in doing so!"

Dr Lana Bell

"A good outcome is what we can expect.  A great outcome is a sign of a company which does the very best for their clients. A very big thank you to Daniel Morris for showing empathy towards my small and much needed legal action.

To HHG Legal Group, thank you for a great outcome.  I would recommend your company to anyone seeking legal services."

Jan Atkinson

"Your support this morning was amazingly kind, not to mention your totally reassuring competence, knowledge and wisdom that you used on my behalf.  It was extremely reassuring to have your knowledgeable support, and I particularly appreciated your real and obvious kindness to me. It means so much at a very difficult time. I'm so grateful to you."

Family Law Client

"Janene was very professional and we established a good rapport quickly. The subject of death and wills can be quite confronting to deal with, however, Janene's approach was soft and accommodating."

Lynette Livesey

"A big thank you to HHG for their professional service, continued support, and wide range of legal knowledge. Our clients have given us nothing but kind words regarding HHG Legal Group and so we have no hesitation in referring and recommending Simon Creek and HHG Legal Group for their outstanding services and legal expertise."

Nigel Plowman, Director at McKinley Plowman & Associates

"Simon is a friendly and practical legal advisor. I have received great feedback from the clients I have referred to him and his team at HHG Legal Group."

Richard Beal, Director at BDO

"Over the last few years, I have been impressed by Simon’s legal ability, management skills, entrepreneurial spirit, personal integrity and people skills. He appears to be that rare breed of lawyer – both knowledgeable and commercial."

Michael Malone, Founder of iiNet

"Our family has been a client of HHG Legal Group over many years.  Business has included drawing up of wills for three generations and preparing of probate for my father in law. I would have no hesitation in recommending HHG Legal Group to anyone requiring such services."

Bernice Climie

"You should be congratulated for the manner in which your staff address clients and we found our dealings with your company, once again a very pleasant experience and we would like to truly thank you for your efforts."

Steve Harvey and Jane Powell

"HHG Legal were absolutely fantastic. Extremely responsive and brought calm to our chaotic family situation through their knowledge and caring attitude. Extremely professional from our very first contact with them and they expertly guided our family though the required legal process over almost a 12 month period."

Amanda Williamson

"Fantastic team! They really care about their client. Tim Colcutt is a 'go that extra mile' guy who gives his client his all. I can't recommend HHG and Tim enough."

Kerry Samson

"I had a fantastic lawyer in Anne Hurley. She helped me out a great deal with good, sound advice in a friendly, professional manner. First class, thanks Anne"

Graeme Hammond

"Marine Plant Systems has been working with HHG Legal Group for a few years now and they continually provide first-class service. Their professional advice has been invaluable to our company."

Carolin Grimm - Marine Plant Systems

"We were kept up to date at all times. Pricing was always updated over the time period so we remained "in budget". Personal access to someone whenever I had questions. All in all a great experience without too much fuss."

Rosslyn Tasker - COO AltusQ Pty Ltd

"Good service you can count on."

Miles Lee

"HHG Legal Group has provided outstanding support as I have taken the journey of buying a business, their professionalism is beyond reproach. Their assistance throughout the Due Diligence process has been invaluable, I would fully recommend them."

Mark Armitage

"Very friendly and efficient service - what a pleasure working with Anne."

Jacques Taylor

"I highly recommend Daniel from HHG Legal Mandurah. When dealing with a complicated legal property matter recently I was extremely impressed by Daniel's honesty and integrity and the legal advice I received. I am very happy with the service from HHG Legal."

Tony Walker