Page 2 - FWP Wealth Adviser Newsletter - May 2025

ISSUE 111
MAY 2025

Australian family law is designed to ensure that property settlements following a
relationship breakdown are “just and equitable.” The Family Law Act 1975 grants
courts broad powers to scrutinise financial arrangements, including family trusts.

As one article notes, “Family trusts are a popular struc- • Who are the beneficiaries, and how have trust distribu-
ture for holding family wealth, but their effectiveness in tions been made in practice?
protecting assets during a relationship breakdown is often • Was the trust established before or during the relation-
misunderstood” (Firstlinks, 2024). The legal, financial, and ship?
emotional stakes are high. When couples separate, ques- As Movement Legal notes:
tions about who controls, benefits from, or ultimately owns “The timing of the trust’s creation, its administration,
the assets held in trust can become contentious and con- and the parties’ conduct all play a role in the Court’s deci-
fusing. “When a marriage or de facto relationship ends, the sion” (Movement Legal, 2023).
treatment of family trust assets can be a source of significant If a spouse is both trustee and appointor, or has routinely
confusion and dispute” (Movement Legal, 2023). benefited from trust distributions, the court may find that
This article explores the practical realities and philosoph- the trust assets are, in substance, marital property. Even
ical questions surrounding family trusts in the context of if a trust was established before the relationship, if it has
relationship breakdowns. We will examine how courts treat been used to support the family’s lifestyle, its assets may be
trusts, what asset protection strategies work (and which do included in the property pool.
not), and how advisers and families can build resilience into
their wealth planning-while remaining mindful of ethical Recent Legal Developments
and legal boundaries. Recent cases demonstrate the courts’ willingness to
“look through” trust structures. In Harris & Dewell[2018]
How Australian Courts Treat FamCAFC 94, the court included trust assets in the property
Family Trusts During Divorce pool because the husband exercised effective control over
The Legal Framework the trust and used its assets for family purposes. Conversely,
Australian family law is designed to ensure that property where a trust is genuinely independent and the spouse has
settlements following a relationship breakdown are “just no control or benefit, the assets may be excluded.
and equitable.” The Family Law Act 1975 grants courts The upshot? Legal form matters, but substance matters
broad powers to scrutinise financial arrangements, including more. As Osborn Law succinctly puts it:
family trusts. While trusts are legal entities distinct from “Recent cases have shown that even well-drafted trusts
the individuals who create or benefit from them, the courts can be vulnerable if the Court finds evidence of de facto
are not easily deterred by legal form where the substance control” (Osborn Law, 2023).
suggests otherwise.
As Osborn Law explains: Asset Protection Strategies: What Works, What
“The Court will look beyond the legal structure to the Doesn’t, and Why
reality of control and benefit: if a party can ‘effectively Common Strategies
control’ the trust, its assets may be treated as theirs” (Osborn Families and advisers often employ several strategies to
Law, 2023). protect trust assets in the event of a relationship breakdown.
This principle is reflected in leading cases such as These include:
Kennon v Spry (2008) 238 CLR 366, where the High Court • Careful Trust Deed Drafting: Ensuring the trust deed
found that assets held in a discretionary trust could be limits the powers of beneficiaries and appointors, and
included in the marital property pool if one spouse had appointing independent trustees.
effective control over the trust and its distributions. • Use of Testamentary Trusts: Establishing trusts via a will
to control asset distribution after death.
Control and Beneficiary Interest • Binding Financial Agreements (BFAs): Entering into
A central question in these disputes is: who really con- prenuptial or postnuptial agreements that specify how
trols the trust? The court examines factors such as: assets, including trust interests, will be divided.
• Who is the trustee, and do they act independently? • Regular Trust Administration: Maintaining clear records
• Who has the power to appoint or remove trustees (the and consistent administration to demonstrate the trust’s
“appointor”)? independence.

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