A question we are often asked by clients is whether having assets in a company or a trust protects them when their relationship, or one of the beneficiaries’ relationships, sours.
Asset protection is a constant consideration for anyone in business or with significant wealth. Discretionary family trusts are relatively common and can be an important part of asset management and legitimate tax planning arrangements for many families. In many cases however, a trust does not have a similarly protective role in the context of a relationship breakdown.
The Family Court has the ability to look through the corporate veil and see if a spouse is really “controlling” a corporate or trust entity. If the Court is satisfied that is the case, the Court can then claw the property of that entity back into the spouse’s joint property pool for division.
In order to identify whether the property of a discretionary trust forms part of the property of the parties to a marriage to be divided, the Court examines who is the trustee, any appointor/principal, nominator, controller or guardian, as well as the factual circumstances in each case. Relevant circumstances to take into consideration may include:
- The origin of the assets that form the corpus of the trust;
- Who is the “controlling mind” of the trust, i.e. whether a party treats the trust property as his/her own; or
- Whether a party is a beneficiary with only a mere expectancy and no guarantee of any receipt of any benefits.
While there is little that can be done to put the assets of a trust beyond the reach of the Family Court’s powers, if one is determined to effect such an outcome, there are some steps that can be taken; but it is important not to make any structuring changes until you obtain specific legal advice about your circumstances.
It is important not to enter into transactions (close to or after separation) to vary arrangements as, if the transaction has the effect of removing the property from the pool of assets to be distributed pursuant to the Family Law Act 1975, thereby defeating an order, the Court can set aside those transactions. This can have serious costs consequences for the party entering into such transactions.
It is important to seek specific advice regarding your circumstances as this fact sheet provides general information only and does not constitute legal advice.