Legal Tip 160: Trusts and Family Law Disputes

Trusts and Family Law


People often associate trusts with asset protection, especially discretionary trusts. However this is mainly in the event of a bankruptcy of a beneficiary. Where are family law dispute arises trusts are generally not able to provide much protection.


Under the Family Law Act trusts can be ‘attacked’ in a number of ways.

a) As property of the marriage/relationship

Where the parties to the relationship have built up the assets of the trust then on a breakdown and property settlement the courts can treat the trust assets as if they were the assets of the parties themselves.


b) As a financial resource

Another way the trust can be attacked is indirectly by considering it a resource of one of the parties to the marriage/relationship.


c) Orders against the trustee

The Family Court can make orders against the trustee even though they may be a third party and not part of the proceedings. These orders could be to transfer property from the trust to one of the parties to the marriage/relationship.


The above will generally apply where a party to the marriage is in control of the trust.

 

An asset is only protected after a claim, order or dispute is not successful.

I have never met a lawyer who does not describe asset protection in terms of its probability of failure. Range is between 0-100%. 100% is really rare.