Dividing Matrimonial Property - Family Trusts – How are they dealt with?

08/01/2016

On many occasions Watson & Watson who are experienced Family Law Lawyers are approached by parties involved in distribution of property following breakdown of their marriage or de facto relationships.  Questions arise as to how the Family Court will deal with property held by a Trust.  The Court deals with the issue depending on the exact nature and circumstances of the Trust.

WHAT IS A TRUST?

A Trust is an entity which can hold property (real estate, money, shares or other assets) on behalf of or for the benefit of another person or persons.  A Trust will have a Trustee and this can be a person or a company.  A Trust will own property which is called Trust property.  The persons who can benefit from a Trust are called beneficiaries.  There are also persons who settle property on the Trust or appoint the Trustees.  A typical Trust will also have a person known as the Appointor (who sets up the Trust and appoints the first Trustee). There are different types of Trusts (Fixed Trusts, Unit Trusts, Bare Trusts and Discretionary Trusts). There are also resulting trust and Constructive Trusts which can in certain circumstances arise from financial contributions for the purchase or acquisition or improvement of property.  A Discretionary Trust is one where the Trustee has a discretion to pay (or not) named beneficiaries or classes of beneficiaries. 

WHAT HAPPENS TO PROPERTY HELD BY A TRUST?

The significance of the existence of a Trust in property division in Family Law is that the Trust (and not the husband and/or wife and/or partner) may hold the property accumulated during the marriage or de facto relationship.  The property may be beyond the reach of the Court.  This is not always the case; it would depend on the structure of the Trust.

In circumstances where the property is not owned by the party to the proceedings the Court will not make an Order for the property to be divided or transferred unless the Court can find a way to do this or find another way to achieve a fair and equitable outcome, for example, by applying other available assets (which could include superannuation) that are not property within the Trust.

WHAT WILL THE FAMILY COURT DO?

In circumstances where the property of the marriage or the relationship is owned by the husband or the wife or the de facto partners, the Court can easily divide or transfer that property from one party to the other.  Problems arise where the property in which the parties may have an interest is in fact held by a third party or is owned by a Trust. 

There are various alternatives that may be available to the Family Court in dealing with parties who have accumulated or hold property in a Trust including:-

  1. Ascertaining whether the party to the proceedings who has a proprietary interest in a Trust is in fact able to deal with those assets directly.  If this is so the Family Court includes the Trust asset in the “pool” of assets and liabilities available for distribution between the parties.
  2. If the Court (on the evidence) determines that the property although in the name of a third party is beneficially owned by a party to the marriage or de facto relationship may make appropriate orders against the third party holding the property.

3.  Where the Trust property cannot properly be regarded as the property of the parties the Family Court may in the appropriate case consider this as a financial resource of one party or another and take it into account under Section 75(2)(O) of the Family Law Act in deciding and awarding the division of the net pool of assets available for distribution between the parties.

There are many cases in which the Family Court applies different concepts to deal with this issue including:-

  1. Where the alleged rights, powers and privileges of the third party are really only a sham or a fraud brought into existence to make it appear that the party to the proceedings does not own the property then the Court can set aside that arrangement; and make appropriate orders against the third party holding the property.
  2. In circumstances where the Trust is completely controlled by one party to the marriage or de facto relationship so that the true situation is one or other or both of the parties to the marriage or de facto relationship could if they wanted, bring the property back into the pool of property and assets available for distribution then the Court can order them to do so. 
  3. If there are sufficient other assets (i.e. assets outside the Trust) then the Court could give those assets to the person who is not a beneficiary to the Trust; in other words, balancing up the end result to achieve equity and fairness.

Watson & Watson are experienced lawyers undertaking Family Law matters on behalf of commercial clients and have for many years had experience in investigating Trust structures as well as other financial structures including companies or partnerships to ascertain the true position that is available which will enable the Court to make an appropriate order to distribute or allocate the pool of assets and liabilities available.

Please contact Richard Watson for an initial conference to discuss your matter and what is the appropriate process, approach or if you have any concerns or to obtain a second opinion as to the process, approach and likely outcome having regard to your current circumstances.

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