If you are in the process of a separation, it is important to be aware that if either you or your partner are a beneficiary or trustee of a family trust, the assets of the trust may form part of the property division.
It is a requirement that any trust documents be disclosed including financial reports, tax returns and trust deeds in accordance with a party’s duty of full and frank financial disclosure.
It is a common misconception that family trusts are a way to protect assets from a property division in the event of a breakdown of the relationship. This used to be the case until the Family Law Court developed a series of considerations to establish whether the trust forms part of the pool to be divided on a property division. The considerations include:
- The history of trust distributions
If there has been a history of funds being distributed to the parties to a relationship this could give rise to a finding that the assets of the trust are a financial resource available to one or both of the parties.
- The Assets held in the Trust
The Court requires full disclosure of any and all assets owned by the trust.
- The Trust Beneficiaries
These can be standard to include spouses and children but it may include third parties.
- Any relevant change to the Trustees or beneficiaries during the relationship and since separation.
The Court considers the above to determine whether the Trust is an “alter-ego” or a mere puppet of one of the parties. If so, the Trust will be deemed an asset that can be included in any property division.
One of the most striking features a Court considers when determining whether the trust should form part of the assets to be divided, and that is, who is the controller of the trust.
If you are concerned about whether a Trust will form part of the pool of assets to be divided, questions to be asked should be:
- Who is the Appointor of the Trust. If it is one of the parties to the relationship, this means that party has the power to appoint and remove Trustees and Beneficiaries of the Trust.
- Who are the beneficiaries and have they received a history of distributions?
- What are the assets of the Trust? For example, if they included real estate, was the property used for the benefit of the parties during the relationship?
However, it is not just whether the assets of the Family Trust form part of the pool of assets to be a divided in a property division, the Court can also consider that the Trust is a financial resource belonging to one of the parties, to the exclusion of the other. If this is the case, then the Court can make an adjustment based on section 75(2) of the Family Law Act 1975 (Cth) to find that given one party has a significant financial resource available to them, the other party should receive an adjustment of either a percentage of the total pool of assets or a payment of some kind to compensate them for not having access to this financial resource.
If you are unsure about the status of a Trust and whether it will be considered as an asset to be divided in your property settlement or at the very least, a financial resource, contact Lewis Family Lawyers today and we can discuss the different options and the possible outcomes a court might consider in your case.