By Joelene Seaton – Partner – QLS Accredited Specialist – Family Law at MBA Lawyers
There is a popular belief that holding assets in trusts offer protection from various legal issues, and indeed there are many benefits to holding assets in trusts. Many people also utilise trusts for tax advantages, as they can provide a tax-effective way of distributing income. For example, discretionary family trusts are commonly involved in family law matters when couples separate.
A question that often comes up when couples separate is “does the Trust count?”. There is a common misconception that assets held in trusts cannot be included in a matrimonial balance sheet for family law purposes. However, this is not always the case.
The Federal Circuit and Family Court of Australia (Family Law) Rules 2021 provide that parties must provide full and frank disclosure of their financial circumstances, which includes interests in any trusts. Indeed, this duty of disclosure extends to any trust:
- Of which the party is the appointor or trustee; or
- Of which the party, the party’s child, spouse or de facto spouse is an eligible beneficiary as to capital or income; or
- Of which a corporation is an eligible beneficiary as to capital or income if the party, or the party’s child, spouse or de facto spouse is a shareholder or director of the corporation; or
- Over which the party has any direct or indirect power or control; or
- Of which the party has the direct or indirect power to remove or appoint a trustee; or
- Of which the party has the power (whether subject to the concurrence of another person or not) to amend the terms; or
- Of which the party has the power to disapprove a proposed amendment of the terms or the appointment or removal of a trustee; or
- Over which a corporation has a power referred to in any of subparagraphs (iv) to (vii), if the party, the party’s child, spouse or de facto spouse is a director or shareholder of the corporation.
Upon receipt of disclosure as to a party’s interest in a trust, there can then be an assessment as to whether the trust is the ‘alter ego’ of the party (for example, that party is in control of the trust, and they can distribute the trust assets to themselves at their discretion), or whether the party merely has a speculative, beneficial interest (for example, they are a discretionary beneficiary, but not an appointor or trustee).
The significance of that assessment is to identify whether the trust assets (or, value of the trust) will form part of the property pool available for distribution, or whether the trust interest will be treated as a financial resource or excluded altogether.
A financial resource is not an asset to be included in the property pool for division between the parties but is a factor for consideration by a Court when determining a just and equitable property division between separating parties. For example, if a party regularly receives $100,000 per annum from their parents’ family trust, but they are not in control of that trust, this would be considered a financial resource available to that party that the other party may not be able to match.
Depending on the circumstances of that case, this may justify a percentage adjustment of the property pool in favour of the other party who has fewer, or nil, resources available to them.
Ultimately, the Court has broad powers to “lift the corporate veil” of a company or trust and make its own determination about whether the value of a trust will be treated as an asset, a financial resource or otherwise. Each case turns on its own facts and circumstances.
If you have separated and need help with your property settlement matter involving any trust or corporate interests, give our family law team at MBA Lawyers a call on 07 5651 2000.