Family trusts deemed ‘property’ in family law property proceedings

family law involving trust deeds

Historically family trusts have caused difficulties in family law property proceedings because if a party to the proceeding was also a beneficiary of the trust, that party would technically not own any property until a distribution occurred. The Family Court’s jurisdiction encompasses the settlement of property. As such, there were doubts about whether the Court could make orders based on a party’s entitlement under a trust.

The High Court decision in Kennon v Spry (2008) 238 CLR 366 determined that when dealing with family trusts in property settlement proceedings, the Family Court is capable of dividing property which neither the Husband or the Wife are beneficiaries.

The parties in Kennon v Spry had been married 25 years before their marriage came to a conclusion in 2003. The couple had three daughters of the marriage and had amassed considerable wealth during the relationship. The Husband, a retired Victorian barrister, established a family trust of which he, his siblings and daughters were beneficiaries. He was also the trustee. As the marriage began to deteriorate, the Husband made two amendments to the trust structure which saw he and the Wife eventually excluded as capital beneficiaries. Before the conclusion of the marriage, the Husband distributed the income and capital of the trust between four new trusts established for his daughters.

After extensive litigation, the High Court upheld the decisions of the Family Court and Full Court of the Family Court where the Husband was ordered to pay the Wife the sum of $2,182,302. The High Court acknowledged that the objective of the Husband in making the two amendments was to exclude the Wife from receiving a share of the trust’s assets. The Court held that the Wife had a right to have due consideration as a beneficiary and that it would not consider the rights of the Husband and Wife individually, but collectively as a couple. On this basis, the Court found that this right amounted to ‘property’, allowing the Wife to set aside the transfers to the children and receiving a share of the trust’s assets.

If you require advice about your entitlement to a trust in a family law dispute, call Rowan Skinner & Associates – Melbourne Family Lawyers today for a confidential discussion as to how we can assist you.

Sources:

Kennon v Spry (2008) 238 CLR 336

http://www.craddock.com.au/Document/Trusts-3a+Can+you+trust+a+Family+Trust-3f.aspx

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