The Lawyer's Lunchbox

Family Law - Trusts and Company Assets

A common misconception is that assets in the name of a company or trust are isolated and beyond the reach of the Family Court.

Yes, company and trust assets can provide asset protection from judgement creditors. Yes, they can provide flexibility with tax effective distribution of income between family members. Yes you can structure the obtaining of tax deductions on loan repayments relating to an asset.

But it’s a big NO, when it comes to property settlements under the Family Law Act 1975. Assets owned in the name of a company or trust are not safe from any claim under the Family Law Act whether it be in relation to a property settlement or child support.

Parties have a positive obligation under the Act to make full & frank disclosure of any direct or indirect interest they have in a trust or company. This includes an interest as trustee of a trust, an interest as a beneficiary, or as unit holder in a unit trust. It also includes any interest a person has in a company as a director or shareholder. The obligation of disclosure also extends to any "control" a party has over other trustees, directors or shareholders. Failing to disclose can, and has, resulted in serious adverse conclusions being made about a party's financial position and credibility in family law proceedings.

A party may appear, on the face of things, to have limited assets or income. Assets may have been acquired in the name of a trust, often a discretionary family trust. Income may have been paid to a company rather than an individual. For the purposes of property proceedings under the Act, if the Court is satisfied that the party controls the company or trust that owns the assets, the Court can treat those assets as if they were the assets of the party. That enables the Court to make Orders which, in reality, would result in the controlling party having to divide or sell company or trust assets between spouses by way of a property settlement.

Even where the party does not "control" the company or trust, the Court can still take into account the income received or assets owned if satisfied that the company or trust income or asset provides a financial need, or meets a financial deficiency, of a party. An example of this would be a party living in a home owned by a trust, alleviating the need for that person to personally pay rent or make mortgage repayments.

It is essential that parties carefully consider these matters before entering into any negotiations or discussions about property settlements or child support.
Similarly, it is essential these issues be considered and understood before entering into business or partnership arrangements which could later become embroiled in a business partner's family law dispute.

posted by brett hayton @ 12:22 PM