Can trusts be used to protect assets in family law matters

People establish wealth within a trust structure for many reasons, the most common being for asset protection.  In family law, trusts do not always protect assets from being included in the property pool.  Whether a trust is considered to be part of the property pool, or a financial resource relevant to the distribution of assets, depends on the facts and circumstances of each individual case.

In the case of Barrett & Winnie, the High Court held that the assets of the trust did not form part of the property pool.

In this case, the husband and wife were in a relationship from 1991 until 2005.  The wife had children from a previous relationship.  The wife along with two of her children from her previous relationship created the Winnie Family Trust by way of a deed in 1998.  The trustee of the trust was a company which the wife and one of her children were directors of, and the wife and one of her children were the only shareholders holding one share each beneficially.  The wife was within the class of beneficiaries of the trust and was the appointor of the trust until 2008 when one of her children replaced her as appointer by way of a deed.

The court held that the wife had always been one of two or more directors of the corporate trustee.  The court also held that the wife had benefited from the trust along with other family members who were beneficiaries, but that the trust had never operated or been treated as the alter ego of the wife.

Further, the court found that the husband had made no contribution of any significance to the property of the trust.  In fact, the contributions to the trust were made by the wife and her children who the court held had devoted their working lives to contributing to the property of the trust.

In this case, the trust was excluded from the property pool.

In reaching the decision the court considered that even if it set aside the 2008 deed that removed the wife as appointor of the trust, she would not have had the power to distribute the assets or have had legal title to those assets and she would further be bound by her fiduciary duties owed to the other beneficiaries.

Although the trust was excluded from the property pool, the trust assets were considered to be a significant financial resource of the wife’s, which resulted in an adjustment to the wife under s 75(2) of the Act, and therefore still had an effect on the division of assets.

Each matter involving family trusts will turn on its own facts.  If you have any questions regarding how trust assets would be considered in your own matter please contact one of our experienced family lawyers today for an appointment.