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George had been married to Nadia for approximately 16 years. Nadia’s parents had provided significant financial support during their marriage. The support was provided significantly through Trusts that had been set up by Nadia’s parents for them and their children. The Trusts were discretionary and were completely controlled by Nadia’s parents. Nadia had no entitlement to capital and was at best, a discretionary beneficiary.
George was convinced that he was entitled to a very significant share of the asset pool.
Nadia’s parents had provided the home where George, Nadia and the children lived.
George made no financial contribution to the assets such as the house which had been utilised by Nadia and George during their marriage. There were no significant assets other than the house which had been provided by Nadia’s parents, and the assets owned by the Trusts set up by Nadia’s parents of which Nadia’s parents had complete control and discretion.
George had contributed by way of his income for living expenses.
In the circumstances where Nadia’s parents’ assets were held in Trust would those assets be available to be allocated between Nadia and George in their family law dispute?
Watson & Watson investigated the financial position of the Trusts and had ascertained that there had been some inconsistencies in the administration of the Trust. This led to negotiations which produced for George a significantly greater property settlement than would have been available in a fully litigated matter.
FORMATION OF TRUSTS
There are many other circumstances in which the husband or wife have created a Family Trust and have attempted to exclude themselves from the Trust assets upon the demise of the marriage. Are these transactions effective?
There are many forms of Trusts. A Trust can be created by agreement usually by way of a Deed. A Trust can be created by a factual matrix where the apparent owner is not the beneficial owner of the asset.
There are many Family Trusts that have been established by a party to a marriage or de facto relationship and beneficiaries can be either the party to the marriage or their children or others. A Trust can also be established upon the death of a person who leaves their assets to loved ones. A Trust can also be established by contribution of funds for example, one party paying the cost of construction of a home on the land owned by another family member.
The usual Family Trusts created by a Deed sets out the rights and obligations of each of the parties. Usually there is:
Notwithstanding, that the concept of a Trust is simple, the treatment of Trusts and in particular Trust assets in Family Law proceedings may be complicated.
The Family Court in deciding matters concerning property looks at what are the assets of the marriage including the gross assets, liabilities and the net assets available for distribution. Based on these findings the Court makes a ruling as to the allocation of the assets between the parties to the marriage.
Do the assets of a Family Trust or other Trust fall within the pool of assets that the Family Court can take into consideration when dividing up the assets of the marriage or relationship between the parties to the marriage or relationship?
There are many cases dealing with these issues. One such case that is invariably mentioned is the case of Kennon v Spry (2008) 238C.L.R. 366 which was decided by the High Court of Australia in 2008. In that case the husband, Dr Spry sought to maintain effective control over a Trust. Dr Spry was an expert barrister in the area of Trusts. Dr Spry after his marriage executed documents making changes to the potential beneficiaries by excluding firstly, himself as a beneficiary and thereafter excluding himself and Mrs Spry as a beneficiary to the capital of the Trust. These variations to the Trust are legitimate for determining the entitlements of parties to the Trust assets. There could be significant consequences including tax consequences as a result of such action.
Add-backs – Destruction, Waste, Disposal of Assets
The Family Court can make adjustments to the entitlements of the parties having regard to assets that have been disposed of or wasted. An asset can be disposed of by changing an entitlement or reducing the valuation of the asset by changing the nature of the asset. In these cases the Family court can:
The adjustments by the Court such as those referred to in the previous paragraph have the effect of allocating as part of the assets of one party, assets that no longer exist then the allocation to the other party is an asset that remains and exists as part of the matrimonial pool.
Available Pool of Assets
What is required is to ascertain:
which is subject to the division between parties.
There are many examples, however, one example would be entering into a Lease over assets owned by one party at an uncommercial rate to a third party (an undervalue) which has the effect of devaluing the principal asset.
At Watson & Watson we consider all the factual matrix so that we can assist our clients to understand what assets are included in the pool of assets and how the Court will deal with those assets and other nominal assets.
At Watson & Watson as part of the investigations we ascertain whether there are risks to either party associated with the proceeding. We have acted on many cases which there is a consideration of Trust and the matters referred to above.
Please contact Richard Watson if you wish to obtain assistance or advice in relation to property or matters involving Trusts Companies or other structures which effect the allocation of the assets between the parties.
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