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Family Trust and Divorce: What You Need to Know
Divorce can be an emotionally and financially draining experience, especially when it involves complex assets such as family trusts. Understanding how a family trust is handled during a divorce is crucial to ensure your financial interests are safeguarded. At Aylward Game Solicitors, our accredited family lawyers in Brisbane, Gold Coast, and the Sunshine Coast, including […]
Family Trust and Divorce: What You Need to Know
Divorce can be an emotionally and financially draining experience, especially when it involves complex assets such as family trusts. Understanding how a family trust is handled during a divorce is crucial to ensure your financial interests are safeguarded. At Aylward Game Solicitors, our accredited family lawyers in Brisbane, Gold Coast, and the Sunshine Coast, including Ian Field and Emma MacDonald, specialise in navigating the intricacies of divorce property settlement and family trust matters.
In this blog, we’ll break down how family trusts are treated in a divorce, why they might be included in the property pool, and the key legal provisions you need to consider.
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What Is a Family Trust?
A family trust is a legal arrangement where one party (the trustee) holds assets on behalf of the beneficiaries, typically family members. These trusts are commonly used in Australia for wealth protection, tax minimisation, and long-term estate planning. A discretionary family trust offers flexibility in distributing assets, unlike a fixed trust where beneficiaries are entitled to fixed amounts.
Family Trust and Divorce: How Does It Work?
When a marriage or de facto relationship breaks down, the asset pool needs to be divided, including assets held in a family trust. Many people assume that assets in a trust are protected from divorce settlements, but this is not always the case. The Family Court can decide whether assets in a family trust should be considered part of the property pool for division, based on various factors.
Family Trust and Divorce Property Settlement
The key to understanding family trusts in divorce proceedings is to consider whether the assets in the trust are within the control of one or both parties. If either party has control over the trust—such as being the trustee or appointor—the Family Court may consider those assets as part of the property pool for division. If the family trust was set up for asset protection and is effectively under the control of one party, it could potentially be divided in the settlement.
The Family Law Act 1975 (Cth) prescribes a four-step process to assess the division of assets in a divorce:
- Identify all property: This includes real estate, cars, shares, superannuation, debts, and family trusts.
- Assess contributions: The Court considers contributions made by each party during the relationship, including non-financial contributions.
- Account for future needs: The future earning capacity, age, health, and responsibilities of each party are considered.
- Just and equitable division: The Court determines how the property should be divided in a way that is fair to both parties.
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Can Family Trusts Be Protected in Divorce?
The short answer is: it depends. While family trusts can be used to protect assets in many circumstances, there are situations where the Family Court may include the trust’s assets in the property settlement.
If you’re the trustee, appointor, or a beneficiary of a discretionary family trust, the Court may consider the assets held within the trust as part of the asset pool. This could lead to a portion of the trust being divided between you and your spouse. If you’re not in control of the trust, and it was not set up for personal benefit, the Court may exclude it from the property settlement, considering it instead as a financial resource.
What Factors Does the Court Consider?
The Family Court in Queensland will examine several factors to determine whether family trust assets should be included in the property pool:
- Who controls the trust?: If you or your spouse have significant control over the trust, it may be considered property.
- Who benefits from the trust?: If the trust is set up to benefit only one party, the Court may treat it differently from a shared family trust.
- The terms of the trust: The trust deed plays a vital role in determining whether assets are accessible to the parties and can be divided in the settlement.
- Contributions made to the trust: The Court will consider the contributions made by each party to the trust and the assets within it.
- Use of trust assets: If trust assets were used to fund the family’s lifestyle, the Court is more likely to include those assets in the property settlement.
Legal Provisions and Court Precedents
- Kennon v Spry (2008): This High Court case established that family trust assets could be included in the property pool if one party has control over the trust and has benefited from its assets.
- Barrett & Winnie (2022): In this case, the Court excluded trust assets from the asset pool due to the level of control held by third parties and the limited involvement of one party in managing the trust.
- Family Law Act 1975 (Sections 79 & 90SM): These sections provide the legal basis for dividing property and financial resources, including family trusts.
What Happens to Family Trust Income in Divorce?
Trust income is generally treated like any other income when it comes to divorce property settlement. If one spouse regularly receives income from the trust, it can be included in the property pool. The Court will consider how the income has been used—whether it was for joint expenses or for one party’s personal benefit.
If a spouse does not directly control or receive distributions from the family trust, the trust will likely be considered a financial resource rather than an asset. However, the Court may still take the trust into account when determining spousal maintenance or assessing future financial needs.
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Contact Our Accredited Family Law Specialists.
Steps to Protect Your Family Trust in Divorce
If you’re concerned about the impact of family trust assets during your divorce, there are steps you can take to safeguard them:
Consult a Family Lawyer: The complexities of family trust law require expert legal advice. Ian Field and Emma MacDonald at Aylward Game Solicitors are experienced in handling family trusts and divorce matters.
- Disclose the Trust: Full disclosure of the trust, its assets, and income is essential. Failing to disclose the trust or attempting to hide assets can lead to serious consequences.
- Seek a Binding Financial Agreement (BFA): A BFA can help protect family trust assets by clearly outlining how the trust will be treated in the event of a divorce.
- Consider Mediation or Collaborative Practice: Mediation and collaborative practice are effective alternatives to litigation and can help both parties reach an agreement on how family trust assets will be treated.
Consult a Family LawyerFAQ: Family Trust and Divorce
Can a family trust protect assets in divorce?
A family trust can offer some level of protection, but it depends on factors like control and use of the assets. If one party controls the trust, its assets may be included in the property settlement.
Is income from a family trust considered in divorce?
Yes, if one party regularly receives income from the trust, it can be included in the property pool during the divorce settlement.
What factors determine whether a family trust is included in the property settlement?
The Court will consider who controls the trust, who benefits from it, the terms of the trust, and how the trust assets have been used during the marriage.
Can I protect my family trust assets from divorce?
Proper legal advice, full disclosure, and a well-structured Binding Financial Agreement (BFA) can help protect family trust assets in a divorce.
When should I seek legal advice about my family trust in divorce?
It’s crucial to seek legal advice early, especially if you have concerns about how your family trust assets will be treated during a divorce property settlement.
What is the role of the Family Court in a divorce involving a family trust?
The Family Court can examine the trust’s structure, control, and use of assets to determine whether the trust assets should be included in the property pool for settlement.
How does the Family Law Act 1975 apply to family trust and divorce?
The Family Law Act 1975 provides the legal framework for dividing assets and financial resources, including family trust assets, during divorce proceedings.
What is the four-step process in a divorce property settlement?
The process includes identifying property, assessing contributions, considering future needs, and ensuring a just and equitable division of assets.
Protect Your Rights, Preserve Your Peace
Contact Our Accredited Family Law Specialists.
Conclusion
Dealing with family trusts in a divorce is complex, but with the right legal advice, you can navigate these waters with confidence. At Aylward Game Solicitors, Ian Field and Emma MacDonald specialise in divorce property settlements, including the handling of family trusts. If you’re going through a divorce or need guidance on protecting your family trust, contact us today for expert legal assistance.
We understand how emotionally and financially draining divorce can be, and we’re here to ensure that your rights and interests are fully protected.
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