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The Treatment of Trusts in Family Law

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By Marisa Stranges, Lawyer

It is a common, but erroneous, belief that assets held in a trust are, in some way, protected in family law property negotiations.

It is important to understand how trusts may be treated by the Family Law Courts when determining financial matters arising from the breakdown of a marriage or de facto relationship.

When can trust assets form part of the property division?

There are several factors which determine whether the trust assets form part of the property available for division in a family law settlement.  These include, but are not limited to the following:

  1. The extent to which a spouse party has effective control of the trust;
  2. Whether the assets of the trust were created during the period of the relationship;
  3. Whether or not a party has been receiving distributions from the trust;
  4. Whether or not a party is a beneficiary of the trust; and
  5. Whether a party is entitled to receive a share of the assets when the trust comes to an end.

What is “effective control”?

In determining who has control of the trust, the critical question is whether a party can control the distribution of assets and income of the trust.  Consideration must be given to whether either spouse holds a position as Appointor, Trustee (individually or as a corporate entity) or beneficiary, and the powers given under the trust deed to each of these roles.

This requires careful assessment of the trust deed and financial statements of the trust. Your accountant can assist during this process

Property or Financial Resource?

Even if a party does not have effective control of the trust, trust distributions may be regarded as a financial resource available to that party and may be taken into consideration in assessing a just and equitable property settlement.

At MST Lawyers we adopt a wholistic approach and ensure that we work together with accountants and financial advisors to provide meaningful advice in complex property structures.  If you or someone you know is going through a separation, we recommend you seek legal advice from MST Lawyers’ highly experienced Family Law Team.  You can contact our team on (03) 8540-0200 or at familylaw@mst.com.au