In family law matters involving trusts, there is often a dispute
about whether the trust assets are available for division between
Each family law property matter (whether or not it includes a
trust) broadly involves a four step process:
identify the assets and liabilities of the relationship;
identify the financial and non-financial contributions of the
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.
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
property of the parties, meaning that they are available for
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:
the settlor – who establishes the trust, and then ceases
to have any active role;
the trustee – who has legal ownership of the trust
the beneficiaries – who have equitable (beneficial)
interest in the trust assets; and
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;
they actually possess that property; or
they do not possess that property, but they have the right to
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 
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 Court found that:
while the Husband did not have legal control of the trust, he
had effective control of the trust;
the Husband purposely avoided being in a position of legal
control of the trust;
the Husband always regarded and treated the trust assets as
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.
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.
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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