I married money, I'm divorcing a Trust

At the 2016 National Family Law Conference in Melbourne, the Hon Justice Stephen Thackray (of the Family Court of Western Australia) led a lively and entertaining session which sought to highlight the issues facing family lawyers and Courts when dealing with matrimonial property settlements involving Trusts. The speakers included His Honour Judge Grant Riethmuller of the Federal Circuit Court (Melbourne Registry), Minal Vohra of the Victorian Bar, Sheridan Emerson of Pearson Emerson Myer in Sydney, Paul Doolan of Barkus Doolan Family Lawyers in Sydney and David Hodson OBE of the International Family Law Group, United Kingdom.
 
It is a problem that family lawyers and Courts face increasingly often - parties whilst married may reap the benefits of a certain lifestyle supported by distributions or assets from a discretionary Trust controlled by one of the parties’ families – commonly set up for the purposes of asset protection and tax benefits – yet when the marriage breaks down, questions arise as to who actually owns the assets or income in question, and often there is a dispute about whether the Trust assets will actually form part of the matrimonial asset pool available for division between the parties.
 
Some of the critical points to remember for parties in relation to these matters, are:
 

  • Obtain a copy of the Trust Deed.
  • Obtain copies of the Financial Statements (including Profit and Loss Statements and Balance Sheets).
  • Unlike a company, a Trust is not a separate legal entity. It is an entity treated separately only for accounting purposes.
  • There must be analysis of:
    • The “power” behind the Trust, the underlying objects and purposes of the Trust, and how the Trust assets were acquired;
    • How the Trust assets and income were administered before the matrimonial breakdown;
    • What fiduciary duties the Trust holds to beneficiaries or any other parties other than the spouses going through separation;
    • What power (if any) either of the spouse parties have to cause property to be vested in either or both of them;
    • Identifying which assets (including non-tangible assets and other “rights” such as loan accounts) can be deemed to be a property interest or financial resource of either party.

 
The untangling of such issues can be a complicated task and so it is crucial for parties in such a positon to obtain independent family law advice with a legal practitioner experienced in the area. It is also advisable for other parties involved (e.g. other Trustees or beneficiaries) to obtain their own legal advice as well.

 

Shelley O'Connell

5 December 2016