How Are Family Trusts Treated In Family Law?

A family trust is a structure often used to hold assets or operate a business. The use of a family trust is often recommended for asset protection purposes and effective tax structuring. Whilst a family trust is used for asset protection in relation to the operation of a business it is not necessarily effective in protecting assets from a property settlement arising from the breakdown of a relationship or a marriage.

In certain circumstances the court will treat assets held in a family trust to be assets to be taken into account for division between parties. If the assets of the trust are to be taken into account depends on who makes the decisions in relation to a family trust.

If one of the parties to the relationship can decide what happens with a family trust then it is more likely that the assets of the trust will be taken into account when assets of the relationship are to be divided. What is important is working out who has “control” of the family trust.

Who Has Control Of The Family Trust?

In ascertaining if a party has control of a family trust then consideration needs to be given to a wide range of matters including:

• Who is the trustee of the family trust;
• Who is the appointor of the family trust;
• What are the terms of the trust deed that established the family trust;
• Who is the signatory to any bank accounts in relation to the family trust;
• Is any income from the family trust usually distributed to one of the parties;
• Who signs the written resolutions about what is to happen with the affairs of the family trust.

If the documents relating to the family trust and the conduct of one of the party shows that he/she has control of the family trust then it is likely that the value of the assets of the trust will be taken into account for division between the parties.

When A Party Does Not Have Control Of A Family Trust

If a party to a separation involving a family trust does not have control of the trust then it is still possible that the trust will be taken into account when working out how the assets are to be divided.

Often family trusts may be established by a party’s parents or grandparents to operate a family business. During the period of the relationship the party’s parents or grandparents may have decided to provide some income from the trust to the party. In these circumstances then it may still be possible that the trust is taken into account in deciding how the assets of the parties are to be divided even if the party does not have control of the trust. In these circumstances the matters to take into account include:

• How often were payments made from the family trust to the party;
• What was the amount of the payments made from the trust to the party;
• What are the terms of the trust deed that determine how the family trust is to be managed;
• How much longer will the trust be in existence.

The consequences of the value of the assets of a family trust forming part of the assets available for division or the likelihood that one party will continue to receive income from a trust are significant. Therefore, it is important for parties who have separated and have some interest in a family trust to obtain advice from family law experts. How family trust assets are treated can significantly increase or decrease the value of assets available to be divided between separated parties. Any person who is thinking about establishing a family trust or considering making distributions from the trust should contact Armstrong Lawyers for advice from a specialist family lawyer.