A family trust does not make your assets untouchable, and a prenup does not lock in a split no matter what happens. That is usually the opposite of what the accountant or the relative at the dinner table told you. The two do different jobs.
A trust decides who legally holds an asset, and it only holds up if you are not the one controlling it. A binding financial agreement, what most people call a prenup, decides how things get divided if the relationship ends. Here is how they compare, and why plenty of people use both.
| Family trust | Prenup (binding financial agreement) | |
|---|---|---|
| What it is | A structure that holds assets. A trustee legally owns them and decides which beneficiaries get paid, and how much. | A written agreement between two partners, made under the Family Law Act, setting out how property and finances are divided if the relationship ends. |
| What it protects | Who legally holds the asset and who can be paid from it. | The split itself. It takes the division out of the court’s hands, on the terms you both agreed. |
| Who has to control it for it to work | Someone other than you. The less say you have over the trustee and the appointor, the stronger your position. | Both of you. It is only worth having if both parties sign it properly and freely. |
| When a court can reach it | When you effectively control it, or you are someone who can benefit from it, a court looks past the legal ownership. | When it is set aside. The court then decides the split as though the agreement never existed. |
| What makes it fail | Control sitting with you. Assets moved in once a separation is on the horizon. A distribution history showing the money always comes back to your household. | No independent legal advice for each party. Non-disclosure of assets. Pressure at signing. |
| When it works best | Long-standing, run at arm’s length, and set up well before the relationship. Often strongest as a testamentary trust created by someone else’s will, provided the beneficiary does not control it. | Before a marriage or a move-in, where there are assets already on the table, a business, or children from an earlier relationship. |
When a court will treat your family trust as yours
The line on a lot of law firm websites is that trusts are penetrable and the court will simply reach in. Too blunt to be useful. What the court actually does is look past legal ownership to two questions: who effectively controls the trust, and who can benefit from it. That is the reasoning that came out of Kennon v Spry [2008] HCA 56. If you are the trustee, or you control the company that is the trustee, or you can remove and replace the trustee whenever you like, then calling the assets someone else’s is a label, not a defence.
Here is the part most articles leave out. It cuts both ways. Trusts a spouse genuinely does not control have been held to sit outside the property pool. So it is not that trusts never work. Control decides it, and control is a question of fact about your deed and your behaviour, not about what the structure is called. A trust set up before marriage usually starts from a better position than one set up last year, without being automatically safe.
Timing matters just as much. Since 10 June 2025, the court’s first job in a property case is to identify the existing legal and equitable rights and interests in the parties’ property, under the changes made by the Family Law Amendment Act 2024. Move assets into a trust once a split is on the horizon and you have created exactly the transaction a court can undo, under section 106B of the Family Law Act 1975. The value comes back into the pool and your credibility goes with it.
For how this plays out in an actual settlement, read what happens to family trusts on divorce.
Would a court treat your trust as yours?
Four questions. Answer them about your own deed, today.
- Who is the trustee, or who controls the trustee company? If it is you, or a company whose shares and directorships you hold, that points straight into the pool.
- Who is the appointor, and can they remove the trustee? The appointor is usually the person who can sack and replace the trustee, so that is where real control sits. If that is you, or a parent who would do it on your say-so, control is arguable.
- Who does the deed name as beneficiaries? A wide class that includes you and your spouse is a weaker position than a class you sit outside altogether.
- What does the distribution history look like? Years of regular distributions to you or your household is a pattern the court can take into account.
No single answer settles it. Two or three pointing the same way is what makes a trust look like yours.
What actually makes a prenup binding
In Australia we do not use the word prenup in the legislation. The legal name is a binding financial agreement, and you can make one before, during or after a marriage under Part VIIIA of the Family Law Act. De facto couples use Part VIIIAB, which works the same way.
An agreement is only binding if the paperwork was done properly. Each party must have received independent legal advice from an Australian legal practitioner before signing, and each of those lawyers must give a signed statement confirming it, with a copy going to the other side. The requirements sit in section 90G of the Family Law Act, and the Federal Circuit and Family Court of Australia sets them out in plain terms. Two people signing the same document in front of the same lawyer is not an agreement. It is a piece of paper.
Even a properly signed agreement can be set aside. The two things that do it most often are non-disclosure, where one party did not put all their assets on the table, and pressure, where one party had no real choice about signing. That was the ground in Thorne v Kennedy [2017] HCA 49. For the detail on what survives a challenge, see how valid are prenuptial agreements in Australia.
What about superannuation?
A financial agreement can deal with super, and this is where it does something a trust cannot. Under Part VIIIB of the Family Law Act, super can be split, so a portion of one person’s interest is paid into the other’s fund, or offset, where the super stays put and the other assets are adjusted to balance it out. A family trust has no reach over a superannuation interest at all, so the agreement is the only one of these two tools that can touch it.
Tax: the part that changes the maths
The usual pitch for a family trust is income splitting. Distribute income to the lower earners in the family, pay less tax overall. It works between adults. It barely works at all with children, and this is where a lot of people get caught out.
A living family trust can distribute only $416 of unearned income a year to a child under 18 before penalty tax rates start. From $417 to $1,307 the rate is 66 per cent on everything above $416, and once the distribution passes $1,307 the whole amount is taxed at 45 per cent, per the ATO rates for beneficiaries under 18. So two young children is about $830 a year of tax-free distribution between them, not a strategy.
A prenup has no direct tax effect. It divides what you own; it does not change how the income on it is taxed. On capital gains, get your accountant across the transfer before anything moves, because the CGT treatment turns on the specific asset and the specific structure.
The stronger play for an inheritance: a testamentary trust
There is one exception to the child tax problem, and it is a big one. A testamentary trust is created by a will rather than set up during your lifetime, and income it distributes to a minor is taxed at ordinary adult rates, tax-free threshold included.
None of this is exotic wealth planning, which matters, because the word trust scares people off.
Most estates look like a house, maybe some super and some cash left over. And when they’re doing their estate planning, a lot of them end up putting their funds into a testamentary trust. It’s a very normal thing to do, and it’s something that we advise a lot of our clients to do.
In a blended family the job it does is specific: keeping an inheritance with your children rather than with a future partner of theirs, or a future partner of yours. How well it holds up still turns on control, so the deed matters: a testamentary trust that puts your child in charge as trustee and appointor is in a weaker position than one run by an independent trustee.
So which one do you actually need?
Stop treating it as either/or. A trust decides who holds the assets. An agreement decides what happens to them if a relationship ends. They answer different questions, so for most people with real money on the table the answer is both.
Modest assets, no business, no children from an earlier relationship? An agreement on its own usually does the job. Worried only about passing an inheritance down safely? The will and a testamentary trust do more than a prenup ever will. Own a business, have an inheritance coming, or marrying into a blended family? You want both working together. The trust to hold, the agreement to decide. Drafting these alongside estate structures is routine work for prenup lawyers, and I can usually tell you quickly which side of that line you sit on.
One last thing. The worst version of this is the person who paid for a trust ten years ago, has run it as a personal bank account since, and believes they are covered. They are not, and they find out at the worst possible moment.
Bring us the trust deed and a list of what you own, and our team will tell you where you actually stand and what is worth fixing. That first conversation is a free ten minute discovery call, on 1300 614 732, and you are under no obligation after it.
Frequently Asked Questions
Does a family trust protect assets in a divorce in Australia?
Sometimes. It turns on control. If you are the trustee, control the trustee company, or can remove and replace the trustee, a court can look past the legal ownership. A trust you genuinely do not control is far more likely to sit outside the property pool.
Can the Family Court access a family trust?
The court can look behind the structure. It examines who effectively controls the trust and who can benefit from it, rather than stopping at whose name is on the title. It can also unwind transactions designed to defeat a claim, such as assets moved in once separation is on the horizon.
Is a prenup legally binding in Australia?
Yes, if it is made as a binding financial agreement under the Family Law Act and the formalities are met. Each party must have independent legal advice from an Australian legal practitioner before signing, and each lawyer must give a signed statement confirming that advice.
Can a prenup be overturned?
Yes. A court can set aside a financial agreement, most commonly for non-disclosure of assets or because one party was pressured into signing. If it is set aside, the court decides the split instead. There is more on what survives a challenge in our article on how valid prenuptial agreements are in Australia.
Do I need both a family trust and a prenup?
With a business, an inheritance coming, or children from an earlier relationship, usually yes. The trust decides who holds the assets and the agreement decides what happens to them if the relationship ends. With modest assets and no business, the agreement on its own is generally enough.
How much does a prenup cost in Australia?
It depends on how complex the assets are and how much negotiation runs between the two lawyers. Both parties must have their own independent lawyer, so there are two sets of fees, not one.
Can a prenup cover superannuation?
Yes. A binding financial agreement can deal with superannuation under Part VIIIB of the Family Law Act, either by splitting an interest so part of it is paid into the other person’s fund, or by offsetting it and adjusting the other assets. A family trust cannot touch super.
