I am a beneficiary of a trust. How does that affect my family law entitlements?

Kerry Ktenas explores whether a beneficiary’s interest in a discretionary trust could in fact be treated as an “asset” and added into the divisible matrimonial property pool.

When a person is a beneficiary of a discretionary trust (and otherwise has no control over it), the Family Court and Federal Court of Australia (FCFCOA) has ordinarily characterised a beneficiary’s interest as a “financial resource” under section 75(2) of the Family Law Act; a potential resource for the future financial benefit of the beneficiary, not property. 

The recent decision in Woodcock & Woodcock [2021] explored whether a beneficiary’s interest in a discretionary trust could in fact be treated as an “asset” and added into the divisible matrimonial property pool.

In Woodcock, the husband argued that his interest in a group of discretionary family trusts, of which he was a beneficiary, should not be included in the property pool on the basis that the trusts were established and operated by his grandparents, he had no protected right to capital or income and that he had no control over them.  

The wife issued subpoenas seeking the production of financial documentation relating to the trusts, which she believed would assist in understanding the extent of the husband’s interests in them.  She sought the Trusts’ financial statements, the Trust Deeds, and any/all documents relating to distributions for the previous 5 years.

The trustees objected to the subpoenas, arguing that the documents were irrelevant and the wife was simply “fishing” for information.

At first instance, the Court agreed with the trustees.

On appeal, the wife argued that the documents were relevant to determine how the husband’s interest in the trusts should be categorised (either as an “asset” or “financial resource”) and whether it was necessary to obtain a valuation of one or more of the trusts with the group, for the Husband’s interest to be appropriately taken into account.

The Judge ultimately agreed with the wife’s position that the documents were relevant and made an Order to reinstate the subpoenas.

It was argued on behalf of the wife that a beneficiary’s right to due consideration and due administration (referring to Spry’s case, Ingles v Ingles, and others) constituted a special kind of property under section 79 of the Family Law Act.

It was also argued that right to due administration was an equitable chose in action (a right of proceeding in a court to obtain a sum of money or recover damages) which could be valued.

Whether the interest should be classified as an “asset” or a “financial resource” could not be determined by the Judge on that occasion however, the Judge did indicate that the wife’s view was an arguable one.

This matter remains on foot and it may be some time before that issue is finally determined.  In the meantime, this case and the decision in Rigby & Kingston (No. 4) has introduced some uncertainty about how a party’s interest in a discretionary trust should be treated.

If the Court does find that the husband’s discretionary interest in the trusts should be included in the pool as an asset, this would  represent a significant shift in how the Court considers such interests in future cases.  Subject to its value and what else is in the property pool, the inclusion of an interest in a trust as an asset could significantly impact the division of the other (non-trust) assets and may result in the other party receiving a greater share of those other assets.

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