Almost all family law disputes involving high-net-worth individuals will involve complex trust structures and equitable interests. This can pose significant challenges as the courts strive to strike a delicate balance between safeguarding legitimate asset structures and ensuring a fair distribution of wealth.
While these complex structures are often designed to protect assets, they do have limitations and can be challenged in court.
So, what are the common issues which arise around trust structures and equitable interests during family law disputes and how can they be addressed?
Common trust complexities
A primary hurdle lies in the precise delineation of trust property from individual assets. The frequent amalgamation of personal and trust accounts, coupled with the strategic transfer of assets between these entities, requires rigorous analysis. This becomes particularly complex in the context of discretionary trusts, where trustees are granted broad latitude in asset distribution. Courts must then determine the extent to which potential beneficiary entitlements should be incorporated into the matrimonial asset pool.
The degree of control a party exercises over a trust is a critical determinant. Even in the absence of legal ownership, the exertion of effective control can lead courts to treat trust assets as belonging to that party. This necessitates a thorough assessment of the functional control exercised over trust decisions, extending beyond mere legal titles.
Equitable considerations
The Family Court operates under the overarching principles of justice and equity. These principles mandate a just and equitable distribution of matrimonial assets, even within the framework of complex trust structures. Courts must meticulously consider the financial and non-financial contributions of each party to the acquisition, conservation, and improvement of assets held within trusts. This often involves tracing contributions, assessing their direct and indirect impact on trust value, and evaluating the overall context of the relationship.
Furthermore, claims of undue influence or fraudulent misrepresentation in the creation or management of trusts introduce additional layers of complexity. Courts are required to scrutinise whether one party exerted undue pressure, manipulated trust structures for personal gain, or engaged in deceptive practices that disadvantaged the other party.
Jurisdictional and interpretative complexities
Jurisdictional issues can arise, particularly when trusts involve assets or trustees located across multiple jurisdictions. Determining the applicable jurisdiction requires a sophisticated understanding of international and domestic legal frameworks, as well as the potential for conflicts of law.
The accurate and comprehensive interpretation of trust deeds and other legal documents is paramount. Courts must meticulously comprehend the precise terms of the trust, the rights and obligations of all involved parties, and the intentions of the settlor. This process often involves analysing complex legal language and considering the broader context of the trust's creation and operation. Not all trusts are found to be matrimonial assets.
The identification and treatment of “sham trusts,” created with the express intention of defeating a claim or shielding assets from property division, demands vigilance. Proving that a trust is a sham requires demonstrating a clear lack of genuine intent, often through the presentation of compelling evidence regarding the settlor's actions and motivations.
Courts must also operate within the confines of their jurisdictional boundaries. Accrued jurisdiction, for instance, dictates the court's authority to make orders concerning third parties, such as parents or business partners, who are involved with trusts. This requires a careful consideration of procedural rules and legal precedents.
Key considerations
When determining how trust or business assets may be included in or divided between parties in family law proceedings it is important to turn your mind to some key considerations:
The extent of party control over trusts. This factor significantly influences the court's assessment of asset ownership and control.
The detailed history of trust distributions. Past distribution patterns can provide valuable insights into the trust's true purpose and the beneficiaries' actual entitlements.
The original purpose for trust creation. The original intent behind the trust's establishment can significantly impact its treatment in family law proceedings.
The detailed financial contributions to trust assets: Tracing and evaluating these contributions is essential for ensuring an equitable distribution of assets.
The impact of business restructuring. Restructuring actions taken before, during, or after separation can be considered by the court. The courts are concerned with actions designed to defeat a claim.
The best way to secure a favourable outcome in family law proceedings for a client who holds trust or business assets is to act early. Many issues or disputes can be avoided down the track with the correct approach prior to a separation commencing. It is essential that advice is obtained well before the first signs of any separation. Despite the challenges around trust and business assets, a favourable outcome can be achieved for the client with a meticulous and considered approach when fully informed about the range of possible outcomes, avoiding damage to reputation and profitability.
About Kristy-Lee Burns
Kristy-Lee Burns is a Partner at Owen Hodge Lawyers. Kristy-Lee has headed up the Family Law department since 2018. Kristy-Lee has trial experience in various complex family law matters involving trusts and commercial matters. Kristy-Lee has expanded her knowledge and experience to include Estate Litigation and Testamentary Trust Wills. She has completed a specialist post-graduate program of LLM Applied Masters (with a double major in Family Law and Business Law).
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