Asset protection question

I took what you meant to be like this;

Let say husband and wife are a young couple and have minimal assets let's say 100k net of debt

But the husband's parents had a trust set up with assets of around $2m set aside for their child (the husband) / his siblings that had not been distributed to the kids and wouldn't be for a number of years

The childs wife in this example based on that legal case would get access to the $100k (probably all of it) but the trusts assets would not likely be treated as "property of the relationship" as you term it

 

it is likely the trust assets would be considered a financial resource if the child had ever received a distribution., but that is much better than them being assets of the marriage.

 

Yes what you are describing is the possible effect of that principle, but its not as simple as that in most cases. Especially because there's ways to get more than 100% of the asset pool in a division of assets - for example, when spousal maintenance is ordered.

 

In Kennon v Spry, If I remember correctly, they didn't make an order against the trustee but the husband was ordered to pay the wife a large sum of money, which he seemed to have had no choice but to get from the trust by having the trustee dispose of assets - which were held in trust for his 4 children. So indirectly it was an attack on the trust assets

 

Very interesting

Although in that spry case it seems the husband had control over the trust

Where in the other case the husband was a non controlling beneficiary

At least that's my dumbed down take on it

 

I don't think Dr Spry controlled the trust at the end, but he was trustee at one point. He was also a top trust specialist barrister.
There are plenty of family law cases with trusts, many with contradictory outcomes. Google will keep you busy for months if you are keen.

 

Thanks Terry appreciate your insights

 

In this case, could you not simply remove the said party as a beneficiary of the trust until after a ruling was made and then add them back? It would cost a couple of thousand dollars but small fry depending on the scale of benefits.

- Andrew

 

hey mate, common scenarios you have described.

1. If children are primary beneficiaries, ensure trust deed wording states specifically assets are for them only, not their spouses. Hence it isn’t considered “marital assets”.

2. Even better is not to name the kids at all.... Most trust deeds have a clause which allows primary beneficiaries to stream to related entities ie. children spouses and companies. You could leave yourself as primary BF and stream to these unnamed children as and when you see fit.

3. Ensure kids are never directors or appointors of the trust so the “discretion” to stream remains essentially outside their control

4. Add a 2nd mortgage onto the properties with another company which you direct. Where did the 20% deposit come from? you can easily argue an company loan was needed to purchase the property. Even if the trust is attacked, it essentially has $0 “equity” after the sale proceeds to pay out 1st and 2nd mortgages.

5. Ask if Bank will be happy with loan guarantees from trustee director only, not the beneficiaries. In event of litigation, simply do a deed of variation to remove the kids entirely as beneficiaries, don’t tell the bank, and you are not in breach of any loan covenants.

6. Minimise/Avoid income distributions to their PAYG... only to the bucket company as you have stated.

You seem to have most ducks in a row but get specialist advice nonetheless

Sorry my cynical Asian parents taught me to trust no one . One struggles in life to earn money, invest money, protect money and spend money wisely.

 

This doesn't really work because
Legal Tip 185: Transactions to Defeat Family Law Claims

 

Perhaps one strategy would be to keep the trust secret from the children, even exclude them as beneficiaries. This way if there is a family law dispute they can honestly not disclose their interest in the trust.

Any benefits to them could be diverted to them via loans from separate entities such as parents. Any loans secured by registered mortgages.

But at some point the parents are likely to die and then control of the trusts passed to someone. Sometimes children die before parents too, so it would be much safer in a family provision claim if the deceased had no control over trusts. Make sure the gold digging widow can't get anything.

 

Some good points but just adding a mortgage won't amount to much unless it is a mortgage to secure something such as a loan actually made.

You would never want beneficiries guaranteeing a bank loan and prob best only one or 2 named. Removing beneficiaries doesn't have much benefit in family law. If diverting income to a bucket company you also have to factor in control of this and its shareholders.

 

They've thought of everything!

 

They virtually have.
Family law act allows orders against anyone really

 

That’s why your trust should always specifically exclude your children’s spouses and your children should get pre nups or not marry

 

What if they want to divert income to a non working spouse to save tax? What if defacto relationship?

 

Yea not worth the risk. To be honest I’ve always said, Aust’s taxes are reasons to leave in and of itself.

If I wanted to pay low taxes but grow a huge property business, I would just not do properties in Aust honestly. I can invest in NZ, HK, SG, tax free.

And I could play Aus shares through an MIT and stream to no cgt jurisdiction if I’m a non tax resident.

Re de facto, avoid that. Sad it is

 

Hi omnidragon

Yes probably could have been structured better

Although probably a good thing the kids never got distributions with all going to the beneficiary company

If any of them had got contributions over the yrs would more likely be an asset of their marriage (my uneducated guess)

 

I think the general thoughts people have about property division in family law separations is wrong. 'She comes with a handbag but leaves with a property' is what someone said to me once. Completely wrong!

 

Yea. One of my friends had this problem. Top 200 families, kid’s wife made a claim. She’s been getting distributions. Court awarded her