What Happens to Family Trusts on Divorce?

Whether your family trust is protected in a divorce comes down to a single question, and it is not what the trust deed says.

You set the trust up to protect the assets. Now the relationship is over, and you need to know whether that protection holds.

Here is the short answer. It depends on control.

If the spouse who runs the trust treats it as their own, a court can treat the trust assets as their property and divide them. If that spouse is one of several beneficiaries with no real say, the trust usually counts as a financial resource instead. That still moves the result. It just does not get split dollar for dollar.

One thing to settle before you read on. Even when a trust is counted as property, it very rarely means selling the business or winding the trust up. I will come back to that.

I am the principal at Justice Family Lawyers. Trusts land on my desk most weeks, in divorce and separation matters alike, and the question is always the same one. Whether you are protecting your own trust or working out what you can reach in your ex’s, it comes down to control.

What a family trust actually is

A family trust is not a person and it is not a company. It is a relationship.

A trustee holds the legal title to the assets and holds them for the benefit of the beneficiaries. A document called the trust deed sets the rules.

Now here is the part that decides everything. The real power usually does not sit with the trustee on paper. It sits with whoever can hire and fire the trustee. That person is called the appointor.

So the question is never just whose name is on the title. It is who controls the assets, and who benefits from them.

That is why a trust can be caught at all. The Family Law Act 1975 (Cth) defines property broadly in section 4, and a court can look past the structure to the substance.

The control test: property, or financial resource?

There are two possible answers, and the difference between them is worth a great deal of money.

Treated as property. One spouse has such control that the trust is essentially their alter ego. They hold the appointor power. They can replace the trustee. They have a track record of directing distributions to themselves. They use trust money like a personal bank account. Where that is the picture, a court can treat the trust assets as property available for division.

Treated as a financial resource. Control is limited. It is a wider discretionary trust with independent controllers, and your spouse is one potential beneficiary among several. The interest is usually treated as a financial resource. It still affects the result, because likely future distributions get weighed, but it does not go into the pool and get halved.

The leading authority is the High Court in Kennon v Spry [2008] HCA 56, which accepted that a controlling party’s discretionary trust assets could be treated as property of the parties. The court then alters those interests using its power under section 79. The test turns on control and benefit, not the label on the deed.

I have seen it decided on conduct alone:

I’ve had cases where a business was technically owned by a discretionary trust. The other side argued the trust assets were not to be included in the pool, but because the other side had day-to-day control of the business and was receiving funds from the business as if they were the business owner, the court decided they had effective control and the trust assets were included in the settlement.

What does the court look at to decide?

Judges do not rely on labels. They trace power. In practice that means working through four things.

The deed. Who is the appointor? Can they remove the trustee at will? Are there default beneficiaries, and what powers exist to add or remove people?

The conduct. Who actually makes the decisions? Who signs the trustee resolutions? Where do the distributions really go?

The funding. Money that rolled in from the controlling spouse, or loans from them, strengthens the alter ego argument. A genuine outside source, such as a parent’s estate with independent controllers, points the other way.

The timing. A trust created long before the relationship and run at arm’s length is a very different thing from one set up shortly before separation. Recent creation and personal use both draw scrutiny.

Powers plus conduct. That is the whole test.

So a trust is more likely to be counted as property when one spouse controls it, has used it personally, funded it themselves and set it up close to separation. It is less likely when control is genuinely shared with independent people, the funding came from outside the relationship, and the trust has been around far longer than the marriage.

Two real outcomes

Here is the difference in practice, from two matters we have run.

When the trust was part of the pool

The husband controlled the trust. He held the appointor power, ran the trustee, and for years used the trust as his own.

For a decade, distributions went to him or his bucket company and the trust paid private school fees and renovations at his home. In this case, we treated the trust as his property, valued the net assets and negotiated that he retained the trust while the wife received more of the real estate outside the trust, plus the secured cash adjustment over 24 months.

Sustained control plus personal use makes a trust very hard to quarantine. But notice what treating it as property did not mean. Nothing was sold. It was settled by offset.

When the trust stayed out

The deliberate contrast.

A wife was a discretionary beneficiary of her parents’ trust. She had no appointor power, her brother and an accountant were controllers, and there were irregular distributions for gifts, but no pattern of control or spending from the trust. We characterised her interest as a financial resource only. The overall split moved a few percentage points against her to reflect her potential benefit, but the trust stayed off the property schedule.

Being a beneficiary is not the same as controlling the trust. Genuine independent control is what keeps a trust off the property schedule.

Not sure which of those two your situation looks like? Working that out is the first thing I do on a discovery call, and it costs you nothing. Book a call or ring 1300 614 732.

Is it too late to do anything about it?

Almost certainly not, and here is why.

The test is about control and conduct, not about the wording of a deed you signed years ago. That cuts both ways. A beautifully drafted deed will not protect a trust that has been run as a personal account. And a trust with an awkward-looking deed can still stay out of the pool if control genuinely sits elsewhere.

Which means the case is won or lost on records: the deed, the trustee resolutions, the financial statements, the distribution history. Those records exist right now. Getting them on the table, and getting advice on what they actually show, is worth far more at this point than anything you can do to the structure.

There is one deadline worth knowing, though, because it catches people out.

You do not have forever to bring a property claim. If you were married, an application for property orders generally has to be filed within 12 months of your divorce order taking effect. If you were in a de facto relationship, it is generally within two years of separation. Miss it and you need the court’s permission to proceed at all, which is granted at the court’s discretion and is not something to rely on.

Trust matters are the ones where that clock does the most damage, because they take the longest to prepare. You need the deed, years of resolutions and financial statements, and often a valuation before you can even put a number on the pool.

What if my ex is hiding assets in a trust?

If you suspect your ex is using a trust to shield value from you, the court looks closely at whether the trust’s debts and transactions are real. Genuine business debts reduce a trust’s value. Artificial ones do not, and they invite scrutiny.

Artificial liabilities taken on during separation, or around the time of separation, to try and diminish the value of a trust, maybe you might see mysterious new related party loans or last-minute consulting invoices, all of that is going to invite scrutiny from the court.

Where a transaction was designed to defeat your claim, the court has the power under section 106B of the Family Law Act to set it aside or restrain it.

And since the June 2025 changes to family law, wasted or disposed-of value is dealt with squarely in the property provisions. The court weighs the effect of that material wastage under section 79(5)(d) when it sets the split, so the person who spent or moved the value carries the consequence of it. The old “add-back” label has gone. The practical effect has not.

Disclosure and joining the trustee

Both sides owe full and frank disclosure. For a trust, that means handing over the deed, the trustee resolutions, the financial statements and the tax returns. You are entitled to see how the trust actually works, not just what the other side says about it.

Where the trustee holds evidence you need, or may need to be bound by orders, the trustee company can be joined to the proceedings. Once joined, it can be compelled to produce records, or restrained from dealing with the trust assets while the matter is resolved.

There is a practical reason not to sit on this. Section 106B is a powerful tool, but it gets harder to use the longer a transaction has been left alone. Money that has been moved gets spent. Assets get sold on to third parties who had nothing to do with your marriage and acquired their interest in good faith, which makes unwinding the transaction messier and sometimes impossible. Bank records and email trails get further out of reach. The remedy does not disappear, but the practical value of it does erode.

Seeing transactions you cannot explain? Tell me what you are looking at and I will tell you which of them a court would question, and which of them are still reachable. Book a call or ring 1300 614 732.

Where the trust fits in the bigger property split

If trust assets are found to be property, they go into the pool and are divided through the same structured process the court works through under section 79. In short: identify and value the pool, weigh each party’s contributions, consider both parties’ current and future circumstances, then check the result is just and equitable.

One thing to get right if you have been reading older articles. Since 10 June 2025, the current-and-future-circumstances factors that used to sit in section 75(2) now sit in the new section 79(5), with family violence added as a factor. The Federal Circuit and Family Court has published the detail. For the full walkthrough, see how property is divided.

Will I have to sell the business or wind up the trust?

Almost never. This is the fear I hear most often, and it is usually the wrong one.

Even when trust assets go into the pool, the goal is normally to keep the business or the trust operating and pay the other spouse out another way. There are three common routes.

Offset the trust value against other assets, so the other spouse takes more of the real estate, the superannuation or the cash. Secured staged payments, funded from future earnings over an agreed period. Or a restructure.

Once you agree to a split, consent orders are how you make it binding.

Quick summary

• Property, or a controlled alter ego trust. One spouse effectively runs it. The assets can go into the pool and be divided.
• Financial resource, or a limited-control trust. The spouse is one beneficiary among others with no real control. The interest shifts the split but stays off the property schedule.
• What decides it. The deed, the conduct, the funding source and the timing. Powers plus conduct, not the label.
• What to do now. Get the deed and the financial records together, and get a read on which side of the line your trust falls before you negotiate anything.
• The deadline. Generally 12 months from your divorce order, or two years from a de facto separation. Trust matters take the longest to prepare, so the clock bites hardest here.

Find out which side of the line your trust sits on

If a family trust is part of your separation, guessing is expensive.

Book a discovery call with me. It is free and there is no obligation to go any further. Bring the trust deed if you can put your hands on it, or just bring what you know. By the end of the call you will have three things: whether your trust is likely to be counted as property or as a financial resource, what the other side will most likely argue, and what you should be doing next.

Do it sooner rather than later. Not because of anything I am selling, but because trust matters are slow to build and the filing deadlines are real. The records take weeks to assemble. Valuations take longer. And every month a questionable transaction sits unchallenged, it gets harder to reach.

Book your call or ring 1300 614 732.