When it comes to property settlements in the context of divorce or separation, the treatment of family trusts can be a complex and often contentious issue. Under Australian law, particularly in New South Wales (NSW), family trusts are often considered a significant asset that must be examined closely during a property settlement. Understanding how these trusts are handled and what common pitfalls to avoid can be crucial in ensuring a fair and equitable distribution of property between parties.
Family trusts are typically established to hold assets on behalf of a family, providing various benefits such as asset protection and tax minimisation. In the context of a property settlement, the existence of a family trust can add complexity to the process due to the nature of trust arrangements and the parties involved.
In NSW, the Family Law Act 1975 (Cth) does not automatically consider assets held in a family trust to be property of the parties in a divorce. However, the Family Court has the discretion to determine whether the assets held in the trust should be considered part of the property pool available for division between the parties. This assessment often hinges on the level of control that one or both parties have over the trust, the trust's purpose, and the beneficiaries’ entitlements.
The Family Court of Australia considers several factors when determining how to handle a family trust in a property settlement:
In the landmark case Kennon v Spry [2008] HCA 56, the High Court of Australia provided significant guidance on how family trusts are treated in property settlements. In this case, Dr. Spry, a wealthy doctor, had set up a family trust in 1968. When his marriage broke down in 2001, his wife sought to include the assets of the family trust in the property settlement.
Dr. Spry argued that the assets in the trust were not his property and therefore should not be included in the marital pool. However, the High Court found that Dr. Spry had significant control over the trust and had used the trust's assets for the benefit of himself and his family over many years. The Court ordered that the trust assets be included in the property settlement, illustrating the importance of control and benefit in determining whether trust assets are considered in property division.
The acrimony between the parties was palpable. Throughout the proceedings, it was clear that both parties were driven by a sense of betrayal and desperation. Each side clung to their perception of justice, unwilling to concede even the slightest point. The husband, sensing his financial security slipping away, seemed determined to protect his interests at all costs, often making legal maneuvers that only escalated the tension. His wife, feeling the sting of perceived injustice, refused to relent in her quest for what she believed was her rightful share, leading to a prolonged and bitter dispute.
At times, the proceedings took on a frantic tone. Each new development seemed to drive a wedge deeper between the parties. Financial records were scrutinized, every expense questioned, and the trust’s intricacies became a battleground. The wife’s growing frustration was mirrored by the husband's resolve to shield what he considered his rightful legacy, leading to a drawn-out and emotionally charged battle where neither side was willing to surrender.
The legal process in family trust disputes can be lengthy and complicated. In Kennon v Spry [2008] HCA 56, the court had to meticulously examine the trust documents, the control mechanisms, and the financial transactions spanning several decades. Legal professionals were heavily involved in dissecting the trust deed and analyzing the various amendments made over the years to understand the real intention behind the trust's formation and its management.
The court also reviewed affidavits, expert testimonies, and financial documents to determine the extent of the husband's control over the trust. The husband’s actions to alter the trust deed during the separation period were perceived by the court as an attempt to deprive the wife of a fair share of the property, which played a critical role in the court's final decision.
The financial consequences of the court’s decision were substantial. The trust held several major assets, including investment properties valued at approximately $5 million, a diversified share portfolio worth around $3 million, and other liquid assets totaling over $1 million. The court’s ruling meant that these assets were effectively brought back into the property pool for division.
This decision had a profound impact on both parties. The wife received a more significant share of the marital assets, including a portion of the trust assets, which substantially improved her financial position post-divorce. The husband, on the other hand, faced the reality of having to part with assets he believed were securely protected by the trust arrangement. The costs of the legal battle were also significant, with legal fees reportedly exceeding $1 million, highlighting the financial risks of such disputes.
Women's Legal Service NSW, "Family Law and Trusts" - www.wlsnsw.org.au
Australian Institute of Family Studies, "Family Law System Data Report" - www.aifs.gov.au
Law Council of Australia, "Family Law Settlement Trends" - www.lawcouncil.asn.au
NSW Supreme Court, "Annual Review 2021" - www.supremecourt.justice.nsw.gov.au
Australian Taxation Office, "Compliance in Family Trusts" - www.ato.gov.au