How Trusts are Factored into Family Law Settlements

How trusts are factored into family law settlements

When a marriage or de facto relationship ends, the assets of the relationship are divided between the parties. This is known as a property settlement. Trusts can be a complex issue in family law settlements, as they can be used to attempt to hide or exclude assets, or to prevent one party from accessing their share of the property.

The Federal Circuit and Family Court of Australia will consider all of the assets of the relationship, including trusts, when making a property settlement. However, the Court will not automatically include (or exclude) all trusts in the property pool. Instead, the Court will consider the following factors when deciding whether or not to include a trust in the property settlement:

  • The control of the trust: If one party to the relationship has control over the trust, then the Court is more likely to include the trust in the property pool. This is because the party with control over the trust can use it to benefit themselves or to disadvantage the other party.
  • The purpose of the trust: If the trust was created for the benefit of the family, then the Court is more likely to include the trust in the property pool.
  • The history of the trust: The Court will also consider the history of the trust when deciding whether or not to include it in the property pool. If the trust has been used to transfer assets out of the relationship, then the Court is more likely to include the trust in the property pool. If the trust has a history of benefitting the family despite a lack of control, the trust may still be included. If the trust structure changed in the lead up to separation, the Court can make orders reversing any changes.

If you or your spouse have an interest in a trust, whether that be current or in the future, you will be asked to provide financial disclosure in compliance with your duty of disclosure. This is an important first step in all property settlements to ascertain and ensure all parties are aware of what assets and debts the parties have an interest in. This is important not only to what is available to be distributed, but also to ensure that when the property settlement is over, so to is your financial tie to the other party into the future.

If the trust operates a business activity or has complicated investments, the trust will likely need to be valued by a forensic accountant. The income or future entitlement that one party receives from a trust could also be considered by way of a financial resource, even if the trust is not included in the property pool for the purpose of the settlement.

The Court has the power to make orders against a trustee of a trust. This means that the Court could order that the trustee distribute assets to the other party, even if the trust deed does not specifically allow for this. There will likely be tax implications associated with the distribution of assets to a spouse from a trust and it is important that advice is sought from both a suitably qualified family lawyer and an accountant prior to entering into any property settlement agreement.

Here at Gillard Family Lawyers, we have experienced solicitors in the area of family law to help you manage your trust and property settlement matters. We pride ourselves on empathy and compassion, so if you need legal help with a Family Law matter, simply get in touch with our friendly team