Recent Family Law Case Involving Control of a Unit Trust

A recent family law which will be of interest to many people who have Family Trusts or Unit Trust is worth noting.

The background to this case can be summarised as follows.  It was a long marriage of twenty-four years and the wife asserted that a number of units in a Unit Trust should be included as property to be divided between the husband and wife.  All of the units in the Unit Trust were owned by the husband’s father and the corporate trustee of the Unit Trust had as its sole director a third party solicitor.  The husband’s father had previously been a sole director but was not at the time of the hearing.  The shares in the trustee company were held one-third/two-thirds by the husband/husband’s father and on that basis the husband’s father controlled the voting rights in the trustee company.

As the sole Unit Holder, the husband’s father had control over the corporate trustee and the ability to add or remove the corporate trustee.

The wife’s position was that the husband’s control of the Trust should have led the Court to conclude that the Trust was a “puppet” of the husband and that the units in the Unit Trust were, in effect, the husband’s property.  Interestingly, the primary Judge found that it was clear the husband had exercised control over the Unit Trust because he had engaged in various dealings on behalf of the Trust and importantly, the husband’s father and the husband conceded that the husband had the level of control which was ultimately asserted by the wife.  Despite these findings and concessions, the primary Judge was not satisfied that the units in the Unit Trust were property as a result of the Trust being the alter ego of the husband.  The Full Court of the Family Court of Australia dismissed the Appeal because in their words “control is not sufficient of itself.  What is required is control over a person or entity who, by reason of the powers contained in the Trust Deed can obtain, or effect the obtaining of, a beneficial interest in the property of the Trust.”

This is a complex yet interesting case which raises various interesting issues when dealing in a family law atmosphere with assets in Family Trusts, Unit Trust and similar structures.

Ben Farmer is a partner of Clelands Lawyers in Adelaide, South Australia, practising in Family Law and Employment Law.