Trust Assets - Separate or part of the pool?


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Trust Assets - Separate or part of the pool?

Our firm was recently involved in a case where the wife sought to include trust assets in the pool available for division between the parties.

We represented the husband who originally established the trust.

The assets held within the trust were substantial as the Husband had inherited a half share of the Estate of his late Father and 6 months later, the entire estate of his Brother who passed away unexpectedly (incidentally, his Brother had inherited the other half of their late Father’s estate).

The value of his inheritances exceeded $8 million.

When he received the inheritances, he used the majority of them to establish a trust to benefit his bloodline family members – benefits would therefore not reach his wife with whom he cohabited after the inheritances arose and who he later married.

At the time of the hearing, the husband and wife parties held assets separate from those of the trust with a value of approximately $1million.

The wife attached the trust and applied to the Family Court seeking a declaration that the trust assets formed part of the matrimonial property pool available for division between the husband and wife parties.

Key Points

The husband had received a substantial inheritance just after the parties’ relationship began in 1999.

He established the trust in 2000.

As a means of protecting the trust assets from any future claims, the assignment of the trust’s income units, capital units and voting units occurred in a manner that caused the husband to have no entitlement to the trust’s capital and insufficient voting power to gain control of the trust.

The Wife’s Position

The wife argued that the trust was a sham or actually the alter ego of the husband.

Further, that the transactions creating the trust ought to be set aside on the basis that they were designed to defeat an existing or anticipated court order in proceedings or they were likely to defeat any such order.

Court’s Decision

Ultimately, the husband and the corporate trustee were successful in excluding the trust assets from the property pool available for division between the parties.

The Court held there was no evidence of the trust being a sham and that the husband’s intention to create the trust was true and genuine. The Court accepted the husband created the trust to provide for his children and protect the assets within the trust from third party claims.

Further, there was no evidence of the husband treating the trust assets as his own, or that the trustee acted as he directed, rather than as an independent trustee.

On the issue of various trust-related transactions being set aside on the basis that they were designed to defeat existing or anticipated orders, the Court held that the wife was unable to establish that a reasonable person in the husband‘s position at the time that the trust was created could have reasonably foreseen a future property application being brought by the wife with a consequent order being made in relation to the trust assets.

The Court noted that the transactions either occurred shortly after the parties commenced cohabitating or whilst the marriage was intact and there was no evidence suggesting that proceedings would eventually be commenced.

Given that there was no reasonable likelihood of the wife succeeding in relation to her claims against the trust assets, her Application for orders in respect of the trust assets was dismissed and the corporate trustee was removed as a party to the proceedings.

The practical effect of the decision was that the trust assets were no longer capable of being included in the property pool available for division between the parties in the family law proceedings.

The case is available for closer review at the link Anison & Anison and Anor [2015] FamCA 973 (6 November 2015).