Family Trusts & Property Settlements

Trusts will be added to the matrimonial asset pool if one of the parties actually has control of the trust. This can often be a convoluted and difficult question to answer and it will depend on the exact structure and wording of the trust deeds.

Trust assets can be treated as property of the parties where a party holds legal title coupled with a power to appoint the fund, and the spouse has an equitable right to due consideration.

Even if a person gives the control over the trust to someone else, it is possible for the Court to “claw back” or set aside the transaction that led to the loss of control. Section 106B empowers the Court to set aside dispositions designed to defeat a claim.

For example, if a person during a relationship divests themselves of control of a trust, to their children for example, the Court can go back to that transaction, and set it aside if its effect could defeat a persons claim to assets of a relationship that otherwise would have been available for division by the Family Court.

Additionally, mere control of a trust is not enough; the trust assets are “property” only where the party is effectively the puppet master of whoever controls the trust and that control can yield a beneficial interest, and otherwise the assets are a financial resource under section 79(5).

The court generally cannot defeat the legitimate rights of genuine third parties except where the entity is a sham or the alter ego of a party. The party asserting that trust assets are “property” bears the evidentiary burden of proving it in Court.

That being said, it is a perfectly legitimate exercise to set up complex trusts to ensure generational wealth flows down your bloodline, and does not inadvertently benefit other people’s children due to their failed relationships.

Proper set up of entities, trusts and assets ensure minimum damage to a person’s assets in the event of a Family Law property settlement in the family.

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