Trust structures in Family Law
Trust Structures in Family Law: Navigating Family Trusts in Divorce and Property Settlements
If you or your former partner control a family trust, understanding how it will be treated in a property settlement is critical. Family trusts can help you pass wealth to the next generation, reduce tax, and shield assets from creditors—but they can also complicate negotiations when a relationship ends. This guide explains the key legal principles, landmark cases, and practical steps you can take to protect your interests.
Divorce & Your Family Trust: Are Trust Assets Included In A Split?
What is a family trust?
A family (or discretionary) trust is a legal relationship in which a trustee holds assets for the benefit of a class of beneficiaries—often your immediate family and related entities. Because the trustee decides who receives income or capital each year, the structure is flexible and popular among business owners and professionals. The Family Court focuses less on the wording of the deed and more on who really holds the strings: appointors, trustees, and corporate-trustee directors.
Why trusts matter in property settlements
When you separate, the court must identify and value all “property” under s 79 of the Family Law Act 1975. If you effectively control a trust, its assets can be treated as your property and added to the pool for division. Even if you are “just” a beneficiary, your interest may be labelled a financial resource that reduces your overall entitlement. Recent amendments (commenced 10 June 2025) reinforce the court’s broad discretion, requiring judges to look at substance over form and to identify any entity you practically control.
Five principles the court applies
Your duty of disclosure extends to overseas property and continues from the start of negotiations to final orders. Expect to provide:
- Control and influence – The more power you have to distribute, vary, or wind-up the trust, the likelier the assets will be classed as property.
- Source of contributions – Assets built from marital income or joint efforts are hard to keep outside the pool.
- Intention of the parties – Deeds, minutes, and conduct reveal whether the trust was meant to benefit the family unit.
- Timing – Amendments made on the eve of separation attract close scrutiny and can be set aside.
- Third-party interests – Genuine stakes held by parents, children, or business partners can limit the court’s reach.
Our Family Lawyers
Our lawyers have vast experience in Family Law. Whether your case involves a 50 million dollar business or a suburban house, a relocation with children to Preston or Paris, or a Divorce Application in Melbourne or Mumbai, rest assured that we know how to deal with it in the best possible way and obtain the best possible result for you.
Landmark and recent cases
| CASE | TAKE-AWAY |
|---|---|
|
Kennon v Spry (2008)
|
Dr Spry tried to exclude his wife from a discretionary trust after separation. The High Court said he still controlled the trust, so its assets formed part of the pool. |
|
Bosanac v Commissioner of Taxation (2022) |
Although primarily a tax matter, Bosanac confirmed that intention and control—not name on title—determine the existence of a trust interest. |
These decisions show judges will look through complex layers when fairness demands it.
Common trust structures and likely treatment
| Structure | Typical features | Family-law approach |
|---|---|---|
|
Discretionary trust |
Trustee decides annual distributions; appointor holds ultimate power |
Assets are usually included if you or your ex are appointor or trustee
|
|
Unit trust |
Beneficiaries hold fixed units (like shares)
|
Units are property; underlying assets rarely added unless you also control the trustee
|
|
Hybrid trust
|
Fixed capital units plus discretionary income
|
Units = property, discretionary element = resource |
|
Corporate trustee
|
The company acts as trustee, often owned by one or both parties |
If you own the shares or control the board, assets remain vulnerable |
These decisions show judges will look through complex layers when fairness demands it.
Case studies: How the rules play out
A. Family business trust
You and your spouse run a café through a discretionary trust. You are sole appointor; both of you direct the corporate trustee. The business assets (≈ $1.2 million) are likely added to the pool because you can replace the trustee and decide distributions.
B. Trust funded by parents
Your parents created a trust, keeping themselves as appointors and trustees. You and your siblings are discretionary beneficiaries. Here, your interest is usually a financial resource, recognising your parents’ true control.
C. Last-minute deed changes
Two months before splitting, your partner removes you from the beneficiary class. Under s 106B, the court can reverse that amendment if it was designed to defeat your claim.
Tracing and valuing trust assets
- Document discovery – Obtain the trust deed, minutes, financials, and bank statements.
- Forensic accounting – Trace cash flow, unpaid present entitlements, and loans.
- Market appraisals – Use accredited valuers for property, shares, and IP.
- Minority discounts – If you hold only units, expect a control discount.
- Courts can compel disclosure, appoint independent experts, and draw adverse inferences if documents are withheld.
Strategies to protect—or claim—trust assets
- When you control the trust:
- Keep personal and trust funds separate.
- Maintain minutes that demonstrate genuine third-party beneficiaries.
- Consider a binding financial agreement while the relationship is healthy.
- Avoid hasty amendments that could be overturned.
- When your ex controls the trust:
- Seek injunctions to freeze assets.
- Request appointment of a receiver if books are hidden.
- Document your financial and non-financial contributions.
Tax and duty implications
Transfers ordered by the Family Court can attract capital gains tax and stamp duty. Relief is available—if the transfer is a direct result of court orders or a binding agreement and eligible assets move between spouses or their entities. Missing time limits or failing to structure the rollover correctly can wipe out thousands in tax savings.
Post-2025 reforms: a sharper lens on control
- Judges must now give written reasons when they exclude trust assets. Expect probing questions about:
- Who can replace the trustee or appointor?
- Does anyone hold a veto power?
- Have distributions funded family living expenses?
- Were beneficiaries suddenly added or removed?
- You’ll need to explain every deed variation, minute, and inter-entity loan.
How the court decides your percentage share
- Beyond pooling assets, judges weigh contributions and future needs. Trusts can distort both:
- Financial contributions – Regular trust drawings or unpaid present entitlements count heavily.
- Non-financial contributions – Managing rentals, bookkeeping, or unpaid labour boosts your share.
- Parenting and homemaking – Time spent raising children while your partner built the business is recognised.
- Future needs – Ongoing trust income can offset spousal-maintenance claims.
- Expert evidence is common; the court may project likely future income based on past patterns.
Working with your professional team
Family lawyer – Frames evidence and strategy.
Forensic accountant – Traces funds and values assets.
Tax adviser – Secures CGT and duty relief.
Forensic accountant – Traces funds and values assets.
Independent trustee or co-appointor – Demonstrates genuine asset-protection motives.
Getting the right experts early often deters litigation.
Further case spotlight – Ashton v Ashton
Although the husband was not a named beneficiary, the court found he controlled every decision and treated the assets as his own. It ordered him to appoint himself trustee and transfer funds to meet the wife’s entitlement—proof that real-world behaviour beats paper titles.
Scenario: The blended-family trust
You set up a discretionary trust before re-marrying, naming children from your first relationship as primary beneficiaries. Ten years later, trust income has consistently serviced the mortgage on the marital home. Even with your children as objects, a court may still include part of the asset base because both spouses relied on those distributions. Early planning—such as a binding financial agreement—can ring-fence the children’s interests.
Alternative settlement pathways
- Loan-account offsets – One spouse keeps the trust, the other takes non-trust assets plus a credit.
- Call-option deeds – Your ex receives an option to buy units at a fixed price within set timeframes.
- Asset swaps – Real property leaves the trust; you keep liquid assets or retained earnings.
- Staged payouts – Trustee pays lump sums over several years, smoothing cash-flow and tax.
- Each pathway needs careful drafting to satisfy both the Family Court and the ATO.
Common pitfalls and how to dodge them
| Pitfall | Why it hurts | Fix |
|---|---|---|
|
Late disclosure |
Invites costs orders and adverse inferences
|
Produce every deed, minute, and statement early
|
|
Treating the trust as a “personal ATM” |
Shows effective ownership |
Separate personal and trust spending |
|
Ignoring tax on rollovers
|
Unexpected CGT or duty bills
|
Get written tax advice before signing orders |
|
DIY valuations
|
Courts reject untested figures |
Use accredited valuers and share reports |
|
Failing to freeze assets
|
Trustee may move property offshore |
Apply for injunctions promptly |
Get in Touch Today
Embarking on a divorce journey doesn’t have to be overwhelming. With Melbourne Family Lawyers by your side, you’ll have the support and expertise you need to move forward with confidence.
Contact us today for a consultation. Let’s discuss how we can help you.
Phone: +613 9670 9677 | Email: [email protected]
Frequently Asked Questions
Can we “split” the trust so each keeps a share?
Yes. Trustees can roll assets into new trusts for each party, provided the deed allows it and CGT-rollover conditions are met.
I’m only a beneficiary—can the court still reach the assets?
If you have no control, your entitlement is usually treated as a financial resource, not property. However, consistent large distributions can reduce your payout elsewhere.
How long will settlement take when a trust is involved?
Complex matters often run 12–24 months due to disclosure and valuation disputes. Early cooperation shortens the timeline.
Your action plan
Book an initial consult – Bring deeds, tax returns, and balance sheets.
Map the control structure – Identify appointors, trustees, and shareholdings.
Commission a valuation – Negotiations work best with reliable numbers.
Negotiate interim distributions – Keep bills paid while proceedings run.
Consider mediation – A mediator familiar with trusts can craft creative, tax-efficient solutions.
Final thoughts
Trust structures add complexity, but they don’t have to derail your settlement. By understanding how Australian family law views control, contributions, and future needs, you can position yourself for a fair outcome while preserving wealth for the next generation.
Ready to clarify your position? Speak to our family-law team today for confidential advice on how your trust might be treated and what steps you can take right now to protect what matters most to you.