Countless clients facing a relationship breakdown, especially
those with farms held over the course of several generations,
believe that simply instructing their accountant to create a family
trust will be enough to protect the property from their ex-spouse
by excluding it from the marital asset pool.
In most cases they are wrong.
When married or de facto couples separate, they have usually
acquired several assets and liabilities during the relationship and
both parties have either a legal or an equitable interest in them
by way of direct or indirect financial contributions (known as the
"marital asset pool").
In determining what each party is entitled to receive from the
marital asset pool, the first step is to ascertain what property is
to be included in the pool. This will generally include residential
and investment properties, motor vehicles, shares, bank accounts,
furniture, businesses or companies and anything else that could be
sold by the parties. It can also include parties'
superannuation entitlements, but these are dealt with differently
depending on whether or not the parties were married.
At this stage, all assets are included, whether
owned jointly by the parties, or in their individual capacity. But
it is not just limited to assets that have one or both of the
parties recorded as the registered proprietor.
Many clients are unaware that where an asset is held by a
company or a trust, and one of the separating parties has a
controlling interest in that entity (that is, they are able to deal
with the property as their own) the asset will fall into the
marital asset pool (to the extent of the ownership of the party).
Even where an asset owned by a third party, the fact that one or
both parties have made significant contributions to it may draw it
into the marital asset pool.
Clients often list all of the assets and liabilities, but
exclude the family farm which is owned by the family trust. There
can be significant distress when the client realises that the
family trust has not in fact "protected" the asset.
It should be noted that the fact that a trust exists does not
necessarily mean that assets held by that trust are automatically
The Court will examine the particular facts of the case,
including (to name just a few):
who set up the trust and when
who controls the trust
what assets are held by the trust
who has made contributions to the assets held by the trust
who the beneficiaries of the trust are
whether they have ever received any distributions from the
whether a party has a fixed and irrevocable entitlement to a
share in the trust or a mere expectancy
The take home message is this: if you have tried to protect your
property, whether a farm or any other kind of property, by
transferring its ownership to a trust, you need to know that this
will not of itself operate to exclude it from the marital
asset pool. The Court will have regard to all the facts and
circumstances surrounding the creation of the trust and the
acquisition of the property to determine whether it is fair and
equitable for the property to be included in the asset pool.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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There are several requirements that must be completed by an executor before the distribution of assets to beneficiaries.
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