Divorce proceedings are emotionally and financially challenging at the best of times, and are only further complicated when complex assets like family trusts are involved. In Australia, family trusts are a popular vehicle for asset protection, estate planning and tax efficiency. As such, when a marriage breaks down, the treatment of a trust can make or break a final settlement.
This article looks at the process courts will use to determine how the trust and any income or assets attached to it should be treated moving forward in the context of family law in Melbourne, to guide you through this difficult process. Read on to find out more.
What Is A Family Trust?
A family trust is often set up as a discretionary trust with the trustee holding and managing the assets of the trust for the benefit of family members and other beneficiaries. The trustee has the power to distribute income and capital of the trust among the beneficiaries at his or her discretion, which makes discretionary trusts very useful for estate planning, restructuring and tax purposes.
Complexities In Divorce
The question often asked is what happens to a family trust in the event of relationship breakdown? Whether you are the settlor of the trust, a trustee or beneficiary – how does your relationship breakdown impact on you and your rights or entitlements as far as the trust and its distributions are concerned?
In essence, during divorce proceedings, it is necessary to carefully examine questions of control over trust assets, beneficial interests, contributions, and in some cases tax considerations. Courts must decide the degree to which one or both spouses exercise control or influence over the trust, their beneficial interests and their contributions to the trust’s growth or its maintenance.
Evaluating Trust Assets
When it comes to trust asset transfers, a variety of factors come into play. In evaluating the treatment of family trusts in divorce, among the considerations the Courts will weigh include:
- Control and Influence: The extent to which the parties have control or influence over the trust, particularly if one spouse is the trustee or a beneficiary.
- Beneficial Interests: Whether one or both spouses have beneficial interests in the trust, either directly or indirectly through distributions or loans.
- Contributions: The contributions made by each spouse to the acquisition, maintenance or growth of the trust assets, including financial contributions, and homemaking or child-rearing responsibilities.
- Tax Considerations: Any tax implications associated with the transfer or distribution of trust assets, or the tax consequences associated with claims brought by or against the trustee.
Generally, the Courts will regard trust assets as being property of the marriage if it finds that one or both of the parties has a substantial interest in or control over a trust. This can result in trust assets being subject to division between the parties as part of overall property settlement.
However, it’s important to remember that how family trusts are treated in divorce can vary between cases. The specific terms of the trust deed, the nature of assets held within a trust and intentions of the parties at the time the trust was set up are factors that may influence the Court’s decision.
Is There Room For Negotiation?
Yes. In some cases, parties seek to negotiate a settlement that encompasses dividing and restructuring trust assets outside of court. They may do so by engaging the services of a mediator or arbitrator as part of an alternative dispute resolution, or ADR, process. This provides a great deal of flexibility and control regarding the manner in which trust assets are divided while also avoiding the time and expense associated with litigation.
The Importance Of Consulting With A Family Lawyer
As you can see, there are plenty of considerations that can affect the division of the marital property. For this reason, it is important that individuals with trust assets obtain expert legal advice from a family lawyer when contemplating a divorce. Additionally, getting in touch with accountants familiar with trust structures can also provide valuable insights into the tax implications and financial considerations involved.
TLDR
Although it is not always the case, it is quite common that assets within a family trust may be included in the property pool available for division between both parties. There are a variety of factors which influence whether the assets will be available, such as the interests of the parties and control each party exerts over the trust as well as other circumstances surrounding the creation and purpose of the trust within the family relationship.
Remember that even after a separation or divorce, both parties are still responsible for ensuring that their children have access to the financial support they’ll require as they grow up and gain an education.
In A Nutshell
All in all, as you can see, dealing with family trusts during divorce is anything but straightforward. When it comes to these matters, it’s essential to work with lawyers and financial advisors who understand the legal and financial ins and outs of this area. With their help, individuals can navigate the many complexities of dividing trust assets and work towards a fair and satisfactory conclusion for all involved. It’s all about reaching pragmatic arrangements that shield everyone’s interests and ensure a smooth transition for everyone during this difficult time.
Want more information about how your family can navigate a divorce or separation? Then be sure to read through our blog on how we can be there for our loved ones during difficult periods. With a little community care, finalising the financial aspects of your divorce or separation should feel less isolating and like the team effort that it is.