Family Trusts and Property Settlement in Victoria

What is a family trust?

A discretionary (family) trust is a legal structure in which a trustee holds assets for the benefit of a class of beneficiaries — typically family members. The trustee (who may be an individual or a company) has discretion over how income and capital are distributed among the beneficiaries in each year. Assets held in a trust are not legally owned by any individual beneficiary — they are held by the trustee on behalf of all potential beneficiaries.

This structure is used for asset protection, tax planning, and succession purposes. However, it also creates significant complexity in family law proceedings.

Does the trust form part of the asset pool?

The short answer is: it depends. Trust assets do not automatically form part of the property pool. However, the court has developed principles for dealing with trusts in family law matters, and the economic reality of the trust is more important than its legal form.

The key question is whether one party has 'effective control' over the trust. If a party controls the trustee (for example, as a director of the trustee company or as the appointor of the trust — the person with power to remove and replace the trustee), the court is likely to treat the trust assets as if they were that party's property, or to make orders that take the trust into account.

Even where a party does not formally control the trust, the court can take into account the 'financial resources' available to them from the trust — including past distributions and likely future distributions — when assessing their overall financial position.

The role of the trust deed

The trust deed is the founding document of the trust. It defines who the trustee is, who the beneficiaries are, who holds the power of appointment, and the rules governing the trust. In property settlement proceedings, the trust deed is a critical document.

The identity of the appointor is particularly important — the appointor has the power to remove and replace the trustee, which is effectively the power to control the trust. Courts have held that where one party is the appointor, they effectively control the trust even if they are not the trustee.

Changing the trust deed, removing a party as appointor, or restructuring the trust after separation has occurred — or is contemplated — can have serious legal consequences and may be set aside by a court.

Strategies the court may use

Where a court finds that a party has effective control over a trust, it has several tools available:

It may treat the trust assets as part of that party's property directly, and adjust the settlement accordingly.

It may make orders that require the trustee to pay amounts to the other party — this is more common where the trust is a genuine family structure with third-party beneficiaries.

It may adjust the settlement in other assets (home, superannuation, cash) to reflect the advantage one party receives from having access to the trust.

The court is generally focused on the economic reality of the situation rather than the legal form.

Third-party beneficiaries and the interests of others

Family trusts often have multiple beneficiaries — including children, parents, and other relatives — whose interests may not be the same as the separating parties. Where a trust has genuine third-party beneficiaries with substantial interests, the court takes a more cautious approach to making orders that affect the trust.

This is one reason why the precise terms of the trust deed — including who the beneficiaries are, how distributions have been made historically, and who controls the trust — matter so much.

What should you do?

If there is a family trust involved in your property settlement — whether you are the controller of the trust, a beneficiary, or a spouse trying to identify what assets are actually available — you need experienced legal advice. The intersection of trust law and family law is genuinely complex, and the wrong approach can result in an outcome that significantly undervalues or overvalues your entitlement.