There have been a number of recent cases that have demonstrated the evolution of the way in which the Family Court views discretionary trusts in relation to property proceedings. Some of the relevant cases are outlined below.
Harris v Harris
The Full Court found that the Husband did not control the Trust because:
- The Trust was originally established by the Husband’s father;
- The Husband was not the appointor of the Trust. The Husband’s mother was the appointor;
- The Husband was not a shareholder or director of the corporate trustee of the Trust. The Husband’s mother, the Husband’s son from a previous marriage, and a long standing friend of the Husband were the directors and shareholders of the corporate trustee;
- Whilst the Husband and wife each personally received distributions of income in prior income years, the distributions made to the Company were invalid.
As such the Full Court ordered that a retrial be held, and that the question of whether the assets of the Trust are the assets of the Husband or only a financial resource available to him shall be determined at the retrial.
Morton v Morton
In the case of Morton v Morton the Court found that the discretionary trust in question was a financial resource available to the Husband and was not the property of the Husband .
AC and Ors & VC Anor
The Family Law Court can affirmed that it require a third party trustee of a discretionary trust to cause the trust to vest, and make trust property available to husband and wife beneficiaries for their property settlement, thus making the assets of a discretionary trust available as assets of the parties.
The trial judge held that there existed sufficient circumstances to give the husband and the wife a sufficient interest in the trust to justify the Court using its third party powers under Part VIIIAA of the Family Law Act to require the trustee to cause the trust to vest.
This decision is seen as significant, as it see further erosion into a party’s ability to quarantine or hide assets by way of a discretionary trust.
When dealing with discretionary trusts in the family law context, it must be determined whether a spouse has legal or de facto control of a discretionary trust. The Family Court usually pays great attention to the provisions of the trust deed.
A word of caution as the test for whether a person controls a discretionary trust for taxation purposes is a different test to the family law test. An order of the Family Court which affects the property of a trust may have taxation consequences.
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