Trust Structures in Family Law
Trust Structures in Family Law: What You Need to Know Before Divorce or Separation
When you’re going through a separation, one of the biggest questions you might have is:
“Are the assets in a trust safe from being divided?”
Trusts are often set up for tax planning, asset protection, or to manage wealth for future generations. But in family law, especially under Australian property settlement rules, trust structures are not automatically shielded from division.
Whether you’re a beneficiary, trustee, or simply connected to someone who controls a trust, understanding how the Family Court treats trust assets is critical. This guide explains what you need to know, how courts approach these matters, and what you can do to protect your position.
Trusts in Family Law Proceedings
Understanding Trust Structures
- A trust is a legal arrangement where one party (the trustee) holds and manages assets for the benefit of others (the beneficiaries). Trusts can be:
- Family (Discretionary) Trusts – Common in family wealth planning; trustees decide how income or capital is distributed.
- Unit Trusts – Beneficiaries hold fixed units with proportional rights.
- Testamentary Trusts – Created under a will upon death.
- Hybrid Trusts – Combine discretionary and fixed features.
- If you’re a party in a family law dispute, the type of trust and your level of control and benefit will be key factors in determining whether those assets are part of the property pool.
Reviews
Why Control Matters More Than Legal Title
- The Family Court looks beyond whose name the assets are in. The main question is:
- Do you control the trust?
- Can you benefit from it, directly or indirectly?
- This was made clear in Kennon v Spry [2008] HCA 56, a landmark High Court case. Dr Spry removed himself and his wife as beneficiaries of a family trust before separation and transferred assets to new trusts for their children. The court found that he still had effective control and could benefit if the changes were set aside. Those assets were treated as property for the purpose of division.
Harris v Dewell [2018]
- Trust assets were in the husband’s family trust, controlled by parents.
- Court found no evidence of control by the husband and excluded the trust assets, but noted they were a financial resource.
- Lesson: Lack of control can keep trust assets out of the property pool, but they may still impact settlement as a resource.
Case Law Examples
Kennon v Spry
- Husband altered the trust deed to remove himself and wife as beneficiaries and redirected assets.
- Court set aside those changes under Section 106B of the Family Law Act and included the assets in the pool.
- Key takeaway: You cannot rely on deed changes made around separation to keep assets out of reach.
Davidson v Davidson [2012]
- Husband was trustee and had made consistent distributions to himself over the years.
- Court saw a pattern of benefit and considered trust assets part of the property.
- Lesson: Even if the trust is formally discretionary, a history of consistent benefit can tip the scales.
How Trust Assets Are Treated in Property Settlements
- When the Family Court examines a trust, it asks:
- Is the trust property? If yes, it’s part of the divisible asset pool.
- Is it a financial resource? If yes, it can still affect percentage adjustments in favour of one party.
- Factors influencing classification include:
- The terms of the trust deed.
- Who the appointor is (the person who can remove or appoint trustees).
- Past distribution patterns.
- Whether the trust was set up during the relationship.
- Any recent changes to the trust structure.
Red Flags the Court Looks For
- If you or your ex-partner has a trust, the court will be alert to:
- Sudden changes to beneficiaries or trustees around separation.
- Transfers of property into a trust shortly before or after relationship breakdown.
- Unusual loan arrangements between the trust and related parties.
- Undervaluation of trust-held assets.
- Cryptocurrency or offshore holdings routed through a trust.
- Any move that appears to reduce the asset pool can be challenged and possibly reversed.
Section 106B – Reversing Transactions
Under Section 106B of the Family Law Act, the court can set aside transactions designed to defeat a claim. This is especially relevant for trust structures.
- For example:
- Transferring the family home from your personal name into the trust after separation.
- Resigning as trustee and appointing a relative to avoid disclosure obligations.
- If the court is satisfied the transaction was intended to reduce the property pool or your former partner’s entitlement, it can reverse it.
Hypothetical Scenarios
Imagine you are the sole trustee and appointor of a family trust that owns two investment properties. Even if you argue the properties belong to the trust, the court can treat them as yours for settlement purposes because you have full control.
If you are a discretionary beneficiary in a trust controlled by your parents and have never received distributions, the court may classify the trust as a financial resource, not property—meaning it could still impact the percentage you receive but won’t be divided as part of the asset pool.
If your ex-partner transferred business shares into a trust six months before separation and it appears to have been done to defeat your claim, the court can set aside the transfer and include the shares in the pool.
Practical Steps if You Have a Trust
Get legal advice early
Don’t assume your trust is safe—find out how the court might view it. A family lawyer experienced in trust matters can analyse your role, the trust deed, and your level of control to predict potential exposure. Acting early also allows you to take preventive measures and prepare documentation before any dispute escalates.
Review the trust deed
Understand who holds the power to appoint or remove trustees and beneficiaries. The appointor’s role is often the most powerful, and having this authority can directly influence whether the trust is considered part of the asset pool. If you discover clauses that could be misinterpreted, your lawyer can help you clarify or restructure them lawfully.
Check your role
If you are trustee, appointor, or have de facto control, the trust is more likely to be included in property. Courts look at both formal titles and the practical reality of how the trust is run, including your decision-making influence. Even informal arrangements—like giving instructions to a nominal trustee—can be seen as effective control.
Keep clear records
Document distributions, trustee decisions, and asset movements in detail. This transparency not only helps during legal proceedings but also strengthens your credibility if you’re questioned about the trust’s operation. Incomplete or inconsistent records can lead to adverse inferences that work against you in court.
Avoid suspicious changes
Don’t restructure the trust around separation without advice, as it may backfire. Sudden changes to beneficiaries, asset transfers, or control roles can trigger Section 106B applications to reverse those actions. Any alteration should be done with clear, legitimate reasons supported by professional advice to avoid the perception of hiding assets.
How the Court Values Trust Assets
Valuing trust assets can be complex. The court may order an independent valuation of trust-held property, assess the market value of shares or units, look at the trust’s net asset position, and consider loans to or from the trust as part of the equation.
Disputes often arise if the trustee claims assets are worth less than market value or if debts to related parties are inflated. A forensic accountant can be essential in clarifying the true value.
Your Rights if Your Ex Controls a Trust
- If your ex-partner has control over a trust, you have rights to:
- Seek disclosure of the trust deed, financial statements, and records.
- Apply for subpoenas to banks, accountants, or corporate registries for trust-related documents.
- Challenge transactions that appear to defeat your claim.
- Seek injunctions to prevent dissipation of trust assets.
Common Myths About Trusts in Divorce
“If it’s in a trust, it’s safe.”
Not always; control and benefit can make trust assets available for division. The Family Court looks beyond the legal structure and examines who has practical control and who is likely to benefit from the trust. Even if the assets are legally separate, they may still be included in the property pool if you can direct how they are used.
“Changing the deed will protect me.”
The court can set aside changes made to avoid property settlement. Under Section 106B of the Family Law Act, any transaction designed to defeat a claim can be reversed, including trust amendments. If the timing of the change suggests an attempt to shield assets during separation, it can significantly damage your credibility.
“It’s my parents’ trust, so it’s irrelevant.”
It can still be considered a financial resource if you’re likely to benefit. Even if you’re not currently receiving distributions, a history of benefit or the likelihood of future entitlements can affect how assets are divided. Courts may adjust the property settlement in your former partner’s favour if they believe the trust will continue to support you financially.
The court looks at substance over form—titles and structures matter less than actual control and benefit. Trusts can be powerful tools for managing wealth, but they are not impenetrable in family law. Early advice, transparent records, and careful planning can help protect your position.