Skip to main content

Family Law Claims and Trust Assets


In spite of complex and expensive advice you may have been given about the asset protection advantages of holding assets in discretionary trusts, no guarantees should be given that the holding of assets in these discretionary trusts will offer you much protection against future family law claims.

This is brought about mainly by the High Court of Australia’s determinations in Kennon v Spry (2008) 83 ALJR 145;  (2008) 251 ALR 257 (the “case”).

Interestingly the husband in this case was actually a barrister who specialises in trusts, notwithstanding that however, the effect of this case is that the Family Court of Australia have the power and the capacity, to see through complex trust structures, in the context of any application before them to make orders in relation to the division of property and financial interests between estranged matrimonial (or de facto) spouses, and include the assets of the trust in their considerations on percentage divisions.  The Court have the power to consider a party’s interest in a discretionary trust to be either a financial resource or an actual asset of that party.

Therefore holding assets and property in a discretionary trust or trust structure may not protect these assets from being:

  • weighted as a financial resource of a party/or the parties to the relationship/marriage;
  • considered an asset of the party, or an asset of the parties of the relationship/marriage; or
  • an asset towards which your spouse is considered to have made a contribution towards, by reason of care of a child of the party, or caring for the household of the party, or other financial or non-financial contribution;

in the context of an application by any spouse of yours before the Family Court of Australia.

In this case, at first instance, the Trial Judge applied many case law authorities which support the proposition that an asset in a trust could be treated as property of one of the parties to the marriage if that party demonstrated in fact control over the trust and the ability to benefit from them (In the marriage of Kelly [No 2] (1981) 7 Fam LR 762; In the Marriage of Ashton (1986) 11 Fam LR 457; [1986] FLC 91-779; In the Marriage of Davidson [No 2] (1990) 101 FLR 373; In the Marriage of Goodwin (1990) 101 FLR 386; In the Marriage of Webster (1998) 24 Fam LR 198; [1998] FLC  92-832; JEL v DDF [No 2] (2001) 28 Fam LR 119; [2001] FLC 93-083; In the Marriage of Milankov (2002) 28 Fam LR 514; [2002] FLC 93-095).    The Full Family Court by majority upheld the Trial Judge’s determination.

In this case the husband was not a named beneficiary of the trusts in question however as the husband ultimately had complete control over the trusts, including the ability to rescind the trust deed, and reinstate himself as beneficiary.  This was a consideration at the trial and at the Full Family Court Level.  The High Court ultimately, although taking a different route in their determinations, arrived at the same conclusion and considered the assets of the discretionary trusts in question to be property of the parties to the marriage.

In Summary, this case demonstrates:

  • where, at the date of commencement of the matrimonial (or de facto) cause, one party to the marriage/relationship has power under the trust instrument to appoint the entirety of the property in favour of the other party as one of the class of discretionary objects, the whole of the assets of the trust fall within the description of “property of the parties to the marriage or either of them” within s79 (family law act) at full value;
  • it is within the power of the court to make an order for the payment of a money sum which assumes that the entirety of the assets of the trust are within the disposition of the first party, even if at the date of resolution of the property settlement proceedings the other party no longer remains within the class of objects;
  • before exercising such a power, the court would consider the interests of the other members in the class of discretionary objects, but where they represent in a large measure the children of the parties to the marriage and where the assets in the trust represent accumulated property over the life of the marriage, the children have no substantial claim against the maker of the order;
  • where persons other than the parties to the marriage and the children fall within the class of discretionary objects, they would have standing to oppose the order but would need to establish a proper ground upon which it would be just and equitable to refuse or modify such power;
  • where such a money order is made, the court has power, by way of further machinery orders under s79 and 80 to order that the first party satisfy the liability to pay the money sum out of the assets of the trust;
  • additionally it follows from the express reasons of Chief Justice French, that in a more straightforward case where one party to the marriage has power under the trust instrument to appoint the entirety of the property in favour of a class of persons including the same party, the whole of the asset of the trust can be regarded as property of that party (s79).

In the circumstances the best measure for protection in the context of future family law claims would be to ensure:

  • you and your spouse are not within the class of objects within the trust;
  • the assets of the trust should not be property accumulated during the marriage/relationship;
  • you should not be in a position where you control the trust, as sole/director shareholder of the trustee company or as appointer;
  • a curbing of the settlor’s expressed power, in the trust deed, to vary the terms of the trust deed.

This may not be possible in the context of a pre-established trust where you are, or have been an appointor, a beneficiary or a sole director and/or shareholder of any trustee company and property is already accumulated.

You should also be aware that any changes to beneficial ownership (ie beneficiaries) under a trust may attract NSW Government Stamp Duty and other taxation consequences.

In the circumstances the best, and perhaps only, method for true protection for you against potential future family law claims are by the entry of a binding financial agreement pursuant to the Family Law Act, which this office can prepare.  However such an agreement would have to be signed by your spouse and your spouse would have to be independently advised to make the agreement binding.  Additionally full financial disclosure of all assets and liabilities would have to be apparent on the face of, and in the lead up to, the entry of this agreement.

Spry’s case: Exploring the Limits of discretionary trusts, Justice Gleeson SC (2010) 84 ALJ 177