In a very recent decision, the High Court has upheld by majority
a Family Court Judge's decision that assets held within a
family trust structure, at first glance supposedly beyond the reach
of the husband and the wife, constituted "property"
available for distribution between the husband and the wife upon
breakdown of their marriage.
The Trust had been established in 1968 by the husband (H). By a
series of steps over a number of years, H, who was the settlor and
sole trustee of the Trust, tried to distance himself from the
assets held within the Trust. He did this by firstly (in 1983),
excluding himself as a beneficiary of the Trust, then in 1998 (when
the marriage was in difficulty), by excluding himself and his wife
as capital beneficiaries of the Trust. Finally, in January 2002, a
few months after the couple separated, H established four Trusts,
one for each of the parties' adult children, and applied to
each Trust one quarter of all the income and capital of the Trust,
and appointed himself sole Trustee of each of the children's
The wife (W) sued H in the Family Court for a property
settlement and applied to set aside these various transactions to
in effect recoup sufficient trust assets (comprising several $m) to
enable a property settlement to occur.
The Family Court (and the Full Court of the Family Court on
appeal) held that the 1998 and 2002 transactions were entered into
to defeat the interests of W and to put assets beyond the reach of
the Family Court. Those transactions were set aside and it was held
that the assets of the Trust constituted property of H on the basis
that he controlled the assets by virtue of his power as
H and the Trustees of the Children's Trusts subsequently
appealed to the High Court on the grounds that the earlier deeds
could not be revoked or cancelled and therefore the Trust assets
could not be treated as H's property.
The High Court rejected the appeal and upheld the Family
Court's conclusions that the earlier transactions entered into
by H should be set aside, with the result that the assets of the
Children's Trusts were to come back into the main Trust,
leaving those assets available for distribution between H and W.
Further, W's right as a beneficiary to the due administration
of the Trust constituted "property" for the purposes of
the Family Law Act, particularly given H's power (as Trustee)
to appoint the whole of the Trust assets to W (her removal as a
beneficiary having effectively been revoked). It was irrelevant
that H was unable to apply the Trust assets for himself (by reason
of his removal as a beneficiary).
The case illustrates the potential limitations in attempting to
use family trusts as a means of defeating the interests of spouses.
As has always been the case, the question of who, in reality,
controls the Trust will be determinative. Therefore the choice of
appointor and trustee assumes critical importance in all estate
planning decisions. The case also underlines the value of other
asset protection devices in relationship breakdowns, particularly
Binding Financial Agreements (also known as "Pre Nuptial
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