Asset protection question

If a debt free property asset is purchased by a family trust with children as beneficiaries

Can any of the children's wives in the event of a divorce access said assets

Structure is:

Family trust with corporate trustee

Beneficiaries were kids who are now adult children and a corporate beneficiary

All distributions to date have gone to corporate beneficiary and physically paid to the corporate beneficiary bank account to avoid div7a issues.

Corporate beneficiary invests returns in etfs and earns interest

Shareholder of corporate beneficiary is another trust with the children as sole beneficiaries

 

Potentially. It depends on how the trust was managed.

Talk to a family law specialist. The family law court is the most powerful.

 

Who has what roles in the trust?
Who controls those roles
How was it funded
How are distributions made

Basically ifthe spouse controls it the trust will be treated as an asset of the marriage. If not it might be treated as a financial resource.

See kennon v spry children were the sole beneficiaries of that

 

Children's parents are the directors of all companies and trustees are that company. most of the assets were acquired before the children grew up

Although as rent from property is continuously reinvested into etfs I guess some of the assets have been acquired whilst one of kids new spouse joined the family

Was originally funded from savings built up before the children were born

 

Thanks ill do some reading

 

Thanks for that insight wylie.

In this instance where it's the parents blood sweat and tears to put aside assets for their kids it would be disappointing but not surprising if child's spouse could get access through the family courts

 

Have you considered though that if a child's spouse does get access to those assets, then they might have deserved it though?

I mean I can imagine there's blood sweat and tears involved in being in a long term relationship with someone.

Family law is mainly based on contributions too, so if an ex spouse obtains a share of a particular asset, it usually means they contributed towards it (or something else equivalent) in some way.

 

there are several ways to improve protection. The children must have nothing to do with the trust, not receive distributions, not have any roles, not being seen as influencing anyone that has a role.
Trust A could distribute to Trust B who could distribute to children.

 

I agree regarding assets derived directly via the partnership but not via a future inheritance from parents

 

Testamentary trusts. If it is assets built up in an inter vivos trust it is not really from the parents.

 

Hi Terry

Had to Google that lol

Does inter vivos count in this scenario

Because the beneficiary of the distributions to date has been a corporation that has accumulated the distributions could that portion be quarantined

 

Those two are treated differently in family law terms. The inheritance would be a sole/special contribution on behalf of the inheriting spouse.

Get some family law and structuring advice. You might find family law not as unfair as you thought, and the consequences of getting "creative" with structuring to avoid family law issues worse than you thought.

 

Not sure what you mean, but this would not be an inheritance when the parents die and the kids take over.

 

Hi Terry

I think this case I found after looking at the case you suggested is more relevant (beneficiary of a family trust controlled by parents of the child who is getting a divorce). What does "financial asset" mean? Does this mean The husband didn't have to include the assets of his parents family trust in the asset pool?

Harris v Harris [2011] FamCAFC 245 (22 December 2011)
Outcome
The Full Court of the Family Court found that the assets of the Discretionary Trust were a financial resource of the Husband.

Brief Facts

• The Husband’s Father established the Trust prior to the parties’ relationship. The Husband’s Father was the Appointor. During the parties’ relationship the Husband’s Father died and upon his death the Husband’s Mother became the Appointor.
• The Husband’s parents were the shareholders of the original Corporate Trustee. The Husband’s parents were also Directors. During the marriage the Husband, the Wife and the Husband’s sister also became Directors.
• Following the Husband’s Father’s death, the Husband’s Mother arranged a share restructure of the original Trustee and as a result the Husband’s Mother subsequently held 98 shares and the Husband and his sister each held one share.
• The beneficiaries of the Trust were the Husband, the Husband’s Father (now deceased) and the Husband’s sister and other beneficiaries (but not including the Wife).
• During the marriage, the Husband, the Wife and a Company controlled by the Husband (despite the Wife and the Company not being beneficiaries of the Trust) received income distributions from the Trust.
• The Husband operated the business of the Trust for a considerable number of years.
• After separation, the Husband’s Mother, as Appointor, appointed a new Trustee of the Trust. The Directors and the Shareholders of the New Trustee were as follows: The Husband’s Mother who held 2 shares, the Husband’s son from his previous marriage who held 1 share and a long standing friend of the Husband who held the remaining 1 share.
• The Wife argued that the business of the Trust was the “alter ego” of the Husband and that his Mother was “nothing else but a figurehead” and the assets of the Trust should be regarded as being property of the Husband.

Reasons

• In the present case the Husband was a beneficiary. He was neither a Director or a Shareholder of the new Trustee. The Husband’s Mother remained a Director and the majority shareholder of the new Trustee as well as the Appointor.
• The Full Court of the Family Court held that the Wife did not point to any evidence that the Husband as a beneficiary had “indirect control” or that his Mother was his “puppet” and that through her he exercised de facto control of the Trustee.
• On the basis of the available evidence, the Court determined that the Trust was a very significant financial resource for the Husband.

 

Property of the relationship means the courts will basically just tread the trust as if it is not there. Assets owned by a trustee can be ordered to be transferred for example

a financial resource is treated like a source of funds that a party to a relationship can draw on. The assets won't be ordered to be transferred, but the person that controls the trust will be considered to have the trust assets and income as a resource and the other party might be awarded more of non-trust assets for example.

 

Interesting thanks very much for explaining

That is promising as in this case the trusts assets far exceed the assets of the childs relationship I.e. the spouse would get 100% of not much

 

Trusts are complicated. I wouldn't take any comfort in some random opinion on Property Chat. If you have a trust you should seek legal advice, a small price to pay.

 

Yes of course

 

I am not sure that follows from what I have written.