Property Held in Trust: Can It Be Protected from a Family Law Property Settlement?

When relationships break down, navigating a family law property settlement can be complex - especially when assets are held in trust. Many individuals use trust structures for asset protection, wealth management, and estate planning, but does this strategy truly safeguard trust assets from property division in a legal dispute? This article explores how trusts are treated in Australian family law and strategies to protect trust property.

Understanding Trusts in Family Law

A trust is a legal arrangement where a trustee manages assets for designated beneficiaries. Trusts are commonly used for:

• Asset protection - Shielding assets from creditors or financial risks.
• Tax planning - Distributing trust income among beneficiaries in a tax-efficient manner.
• Estate planning - Ensuring inheritance is passed down with minimal dispute.

However, in family law proceedings, courts assess whether trust assets should be included in the property pool for division during a divorce settlement or separation dispute.

Are Trust Assets Exempt from Property Settlement?

The Family Law Act 1975 (Cth) grants courts broad discretion in determining whether trust assets should be included in a property settlement. The key factors considered include:

• Control over the trust - If one party holds significant control (as trustee or appointor), the court may treat trust assets as personal property.
• Financial resources - Even if a party is only a discretionary beneficiary, the court may consider the trust as a financial resource affecting the settlement.
• Intent and history - The court examines whether the trust was created for the benefit of both parties or to exclude one spouse from accessing trust funds.

Strategies to Protect Trust Assets

While trusts can offer asset protection, they are not automatically exempt from divorce settlements. To safeguard assets, individuals should:

• Structure the trust carefully - Ensure clear separation between personal assets and trust property.
• Maintain proper documentation - Keep records proving the trust's purpose and beneficiaries.
• Limit personal control - Avoid being both the trustee and primary beneficiary, as courts may view this as personal ownership.
• Seek legal advice - Consult a family law expert with expertise in trust law and divorce settlements.

While trusts can enhance financial security, they are not automatically protected in family law property settlements. Australian courts assess trust control, financial benefits, and intent when determining whether trust assets should be included in divorce proceedings. Implementing sound trust structures, maintaining legal documentation, and seeking professional legal advice can help individuals safeguard trust property effectively.

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