Discretionary trusts and divorce

Hi!

Just doing some research online and would like to confirm. If an individual purchases a property in a discretionary trust prior to meeting his future wife and all of the costs of the property in the trust at covered by rental income and nothing is needed to 'top up.' Is the property safe from the courts in the event of divorce? Just a hypothetical for the future.

Thanks!

 

No

 

Not normally but sometimes there can be a element of limited protection if you dont also use matrimonial monies to support the trust assets in the future. Legal advice would explain the requirements, risks and what can also be done to give further protection.

 

Your question is a bit vague.

An individual cannot purchase a property in a trust. The trustee purchases the property.

What is the individuals role in the trust?

If the individual controls the trust it is likely the trust property will be seen as an asset of the individual and/or a financail resource.

If the individual doesn't control the trust then it could be the trust is seen as a financial resource, or it could be that the trust property is not effected at all.

So the answer is 'it depends'.

 

Judge Bereton wrote http://www.austlii.edu.au/au/journals/NSWJSchol/2010/26.pdf Worth reading.

 

If you are really worried about the possibility of a future partner hitting you up for 1/2 then maybe a pre-nup is something to consider?

 

Or a new partner?

 

But first consider death, divorce, disobedience, etc?

 

But how can an individual doesn't control the trust, e.g. does a sharehold of a trustee company qulifiy this?

 

Not sure what you mean?

 

pre-nups or BFA's are an answer.

Protecting your children from future spouses using a trust is an easier task, protecting you from future spouses is not

 

I didn't want to say that.

 

It is a discretionary trust. The trustee is my company (PTY LTD). I am the only beneficiary.

I didn't ask the question as I think I'm going to get divorced, I'm not even engaged as yet. Just looking to the future and trying to make smart decisions.

I find it interesting when people say 'if it's the right person you won't need to do that.' It's funny everyone that is still together says that and everyone that is divorced says protect yourself! At the end of the day the divorce rate is 50%. We take out car insurance/building insurance to protect ourselves but why not with property?

Just on pre nups are these the way to go if you want full protection?

Cheers!

 

How can a person not control a trust?

Control comes in 3 forms
a) shareholder of the trustee
b) director of the trustee
c) appointorship

Morton v morton was a case involving 2 brothers operting a business through a trust. The one divorcing was deemed not to control the trust because he was not in control of the trustee or the appointor position.

 

Who is the director, the shareholders, the appointors?
Where has the trust distributed money to?

It is likely the trust assets would be treated as property and the marriage and the trust as a financial resource of you.

 

And I always find it amusing that people harp on about wanting to 'protect' their assets but aren't willing to do the first basic steps - learn bit about how property divisions work, and go see a family lawyer for specific advice.

Instead, people seem to jump onto some obscure thing they heard 3rd hand that maybe trusts can help them protect their assets. Where the reality is that trusts are usually just one out of myriad of tools and methods that *might* be useful in any given scenario.

Are you going to get legal advice?

 

@Terry_w I am the appointer and beneficiary. As of yet I guess the trust has not distributed any money as it is a single property and generates no income after expenses. The rent goes into the bank account of the company.

@thatbum i actually set the trust up to avoid land tax as I was on the threshold. That is why I am asking the question about financial protection as I didn't set the trust up for this reason but was wondering if it had added benefit! It is done now but yes I will probably obtain legal advice when the time comes.

 

Imho you should get legal advice now because if changes need to be made, it should be made now, not when the time comes.

 

And would it make our jobs easier if people did. We spend so much time trying to dig people out of situations/ minimise the damage etc when it would have been so much cheaper if they got good advice in the first place.

A gold standard binding financial agreement (one that is settled by a barrister who specialises in attacking BFA's) is $6,500 plus GST. That might get you to a first hearing in a family law court - if straight forward. A mediation day can cost you $15k alone.

 

Hear hear. getting good advice is one thing, acting on it is another. They often cite costs as a barrier but a short sighted approach.