Setting up a Discretionary Trust for protection against Divorce

Has anyone considered how to set up a Discretionary Trust to hold assets and give some protection in the Family Law Court?

I understand that this is a dicey area with mixed results but that since the case of Morton v Morton there is some scope for this type of protection. Anyone have experience in this area?

 

It wont.

Some instances it can be achieved via having 3 parties involved (ie 3 brothers in a business) thus no one has "control". But not as simple as that and it is a bad example.

A trust won't protect you for spousal issues

 

Family court sees through trusts and doesn't afraid of anything

 

I was thinking about this the other day and here's some layman's logic as to why a trust has no protection in a family breakup. Keep in mind this is completely unqualified, it's just my own thoughts...

Discretionary trusts generally list the beneficiaries as family members, either directly or future family members. There's often a clause written in there to include future spouses and unborn children as beneficiaries. Extended family are often mentioned through some sort of relationship clause as well. No wonder that discretionary trusts are often referred to as 'family trusts'.

Then you get married or enter into a defacto relationship with someone they effectively become family and there is a reasonable expectation that they'll benefit from the trust. Even if there's never a distribution directly to your spouse, the trust might pay for their kids school fees, or help put a roof over their head. On some level, they'll benefit from that trust.

Then you have kids. Trusts are all about long term financial planning, the kids will almost certainly enjoy benefits from that trust, even if it only ever gives them a good education. Again there if often a very real benefit even if it's indirect.


Sadly you separate from your partner. This doesn't end the expectation of benefiting from the trust, especially if there were kids involved. If the kids were going to have their school fees paid for by the trust when you were together, it's reasonable that it should still be able to cover the school fees even if you're separated. The kids are still beneficiaries of the trust, they should still receive the indirect benefits from it even if it means paying money to the ex.


So when the family court looks at the assets each party brought to the relationship, what each party walks away with and who benefits from what in the long term, it's reasonable for them to include assets held in trust in this pool. After all, they're held in trust to benefit related people both now and in the future.


Looking at it from the opposite side of the table, people want a trust to protect their assets. Those assets aren't theirs, they are being held by the trust to the benefit of them and others, even if those others no longer want a relationship with you.

 

Hi Greyghost,
So how does having 3 brother work?
In the Morton case there was 2 brothers...with neither being able to make a decision without the other's consent,,but there was more to this case also. It's a good place to start.

 

Good Golly, the above 3 posts are all incorrect.

There are many ways to improve protection in family law matters. Seven mentioned the case Morton v Morton which was about 2012 - and shows this.

Some of the ways to improve protection:
- structure the trustee so you do not control it or solely control it.
- structure the appointor position so that you do not solely control it.
- set it up before the marriage/de facto
- draft the deed so that 'you' are automatically removed as trustee and appointor if a marriage or relationship begins to break down
- draft the company constitution the same.
- don't cause the trustee to distribute solely to yourself, but to other family members as well
- do not divert money or other assets into the trust during the marriage/relationship
- try not to have the trust acquire new assets during the marriage under your efforts or sole efforts.

 

http://www.mccullough.com.au/icms_docs/194188_Structuring_-_14_June_2012.pdf

 

Good article Larry and nice sumary

Wonder what would have happened if the brother was the once going through the divorce as he was the sole director of the bucket company.

 

That would be interesting for sure. The main thing, as you have pointed out earlier, is the issue of control and structure.

 

Also when setting up you have to factor in death and incapacity.

An appointor dying could mean one brother becoming the sole director. But the same could happen on incapacity - the appointor will be legally disabled and lose his powers.

 

Yeah but generally even a well structured trust doesn't "protect" assets from the family court as most laypeople would understand it. The trust and its assets would be counted as financial resources and the other relationship assets could be dealt with and divided appropriately by the court.

You just end up with a much larger legal bill in the family court to sort out the complications, and probably would end up in a similar net situation than if you didn't try to "protect" your assets.

Please don't try and use trusts solely for the purpose of avoiding family law obligations.

 

Even in Morton v Morton the trust was deemed a financial resource of the marriage - but not property of the marriage.

 

It's on a case by case basis. It could be a very large "saving" and you're right, the Family Court treats properties under Trusts or Companies, generally, as if it's the party's assets when that party derive benefits from it e.g. family home bought in company's name. The lawyer's advice is to include that property in the asset pool knowing the Court's attitude. No fun getting shouted at by Registrars and Judges.

 

Good golly?
I disagree Terry.
I don't have the details of the legal advice but it was possible not to expose the assets of the trust to wives of the 3 brothers.

 

Yes I agree with that part - it could be possible similar to Morton case. I was just good gollying at your comment "it can't"

 

Bipolar lol..
Sometimes I'm ranting, other times flippant and prob shouldn't comment at all..

 

Sooo...if you guys have finished back slapping each other....
How should 2 brothers go about protecting their assets from a Family Law attack exactly.

 

Ways to improve asset protection on the eventual divorce are:

Set up a discretionary trust with both taking all roles. Maybe include another older relative who is single, unlikley to get married and unlikely to need social security benefits.

Ideally this will be done before meeting the prospective spouse.

See my post from above:
Some of the ways to improve protection:
- structure the trustee so you do not control it or solely control it.
- structure the appointor position so that you do not solely control it.
- set it up before the marriage/de facto
- draft the deed so that 'you' are automatically removed as trustee and appointor if a marriage or relationship begins to break down
- draft the company constitution the same.
- don't cause the trustee to distribute solely to yourself, but to other family members as well
- do not divert money or other assets into the trust during the marriage/relationship
- try not to have the trust acquire new assets during the marriage under your efforts or sole efforts.

 

So, what about imminent divorce? Too late, so sad?

 

Too late to set up trust if separation already commenced. Properties can be added back though with difficulties. Disposal of properties before and after separation can be scrutinised. Of course, it also depends on the length of marriage or cohabitation.