Why “It Is Not in My Name” Is the Wrong Starting Point
A discretionary family trust separates legal ownership from benefit by design. A trustee holds the assets. Beneficiaries may receive distributions at the trustee’s discretion. No beneficiary owns any particular asset, and in strict terms a discretionary beneficiary holds no more than an expectation.
That structure is effective for the purposes it was built for, including tax planning, succession and asset protection from commercial creditors. Family law is a different question.
Australian family law works with a broad concept of property and a court has wide powers to alter interests in it. Where the structure and the reality diverge, courts have consistently been willing to look at the reality. If one party can appoint and remove the trustee, direct distributions, and use trust assets as their own, the fact that a company holds legal title describes the paperwork rather than the position.
The practical test is simpler than the law that sits behind it. If a party can, in substance, get at the assets, the assets are likely to be in play.
Control and Benefit: What Decides a Family Trust Property Settlement
Control. Who can actually direct the trust? This turns on the trust deed, not assumptions. The role that usually matters most is the appointor or principal, because the power to remove and appoint the trustee is the power to determine what the trustee does. Also relevant is who the trustee is, whether a party is a director of a corporate trustee, and how decisions have been made in practice.
Benefit. What has the trust actually done for this family? Distribution history is often the most revealing evidence in the file. A trust that has funded household expenses, school fees, holidays and lifestyle for years is not a remote structure, however it reads on paper.
Where both control and substantial benefit sit with one party, trust assets are frequently treated as property of that party for settlement purposes. Where a party is genuinely one beneficiary among several and control sits with an independent trustee, the more likely treatment is as a financial resource. That is not a neutral finding. A financial resource is taken into account when assessing future needs, and it can shift the division of the assets that are available.
Family Trusts Established Before the Relationship
A trust set up years before the relationship began is in a stronger position, but it is not automatically quarantined.
What tends to determine the outcome is how the trust behaved during the relationship. A trust that stayed genuinely separate, made no distributions to the couple and played no part in their financial life is treated very differently from one that funded the household, held the family home, or absorbed income earned during the relationship.
Inherited assets placed into a trust follow similar logic. Their treatment depends substantially on when they were received, what they were used for, and how the parties’ finances operated around them.
When Other Family Members Are Involved
Trusts that genuinely serve a wider family are treated differently from trusts that serve one couple.
Where parents, siblings or adult children are also beneficiaries, and where control is genuinely shared or held by someone outside the relationship, it becomes considerably harder to characterise the trust assets as belonging to one party. A trust established by a parent, controlled by that parent, and benefiting several adult children is a different proposition from a trust a couple set up and ran for themselves.
This is one of the areas where the paperwork and the practice most often diverge. A trust may name a wide class of beneficiaries while only ever distributing to one couple. Courts look at what has actually happened, which is why distribution history carries so much weight.
Disclosure in a Family Trust Property Settlement
Both parties in a property matter owe a duty of full and frank disclosure, and that duty extends to trust interests.
In practice this means producing trust deeds and any deeds of variation, financial statements, tax returns, records of distributions, and details of unpaid present entitlements and loan accounts. Where a party is a director of a corporate trustee or holds the appointor role, that must be disclosed.
Loan accounts deserve particular attention because they are frequently overlooked. Where a trust owes money to a party, or a party owes money to a trust, that balance is an asset or a liability and belongs in the pool.
Failing to disclose a trust interest is a serious step with real consequences, including adverse inferences, costs orders, and agreements being set aside. Our article on how property is divided after separation sets out the wider framework this sits within.
Moving Assets Before a Property Settlement
This is worth addressing plainly, because it is a question people think about and rarely ask.
Courts have powers to deal with transactions that are made to defeat a claim. That can include setting aside a transfer of assets into or out of a trust, unwinding a change to a trust deed, or restraining a dealing before it happens. The power extends to transactions that would have the effect of defeating a claim, not only those where that was the stated intention.
The practical consequence is often broader than the transaction itself. A step taken to move assets out of reach tends to affect how a party’s evidence is regarded across the whole matter, which is a costly thing to lose at the point where the numbers are being decided.
If you are considering restructuring for a genuine commercial or succession reason while a separation is underway, take advice before you act rather than after.
Getting the Valuation Right
Where a trust holds an operating business, real property or an investment portfolio, the settlement usually turns on valuation rather than on legal principle.
This is specialist work. Forensic accounting evidence is often needed to establish what a business held in trust is genuinely worth, how retained earnings and loan accounts should be treated, and what the tax consequences of restructuring or transferring assets would be. That last point is frequently decisive. An outcome that looks balanced before tax can be substantially unequal after it.
Village Family Lawyers works with The Village Circle, our specialist network of forensic accountants, property valuers and financial planners with direct family law experience. For complex structures, Bryn Stevens and Anna Bulner, both LIV Accredited Family Law Specialists with the Law Institute of Victoria, lead this work.
