A person who is a discretionary object in a family trust has no property in the assets of that trust. The Family Court can make orders with respect to the property of parties to a marriage.

Section 4(1) of the Family Law Act 1975 (Cth) defines “property” as follows: “property, in relation to the parties to a marriage or either of them — means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”

This definition also applies to de facto couples.

The Family Court and the High Court have interpreted the meaning of "property" in the context of the legislation and the marriage relationship. For example in Kennon v Spry , the majority of the High Court considered the combination of the relationship of the husband as controller of the trust, together with the right of the wife as a beneficiary to the due administration of the trust as property of the parties of the marriage.

See Property of the parties to the marriage.

In Kennon v Spry , even though the court held that the husband’s control of the trust by itself was not property of the parties of the marriage, the mix of the husband’s control and wife’s rights meant the assets could be included in the property settlement payable to the wife. The effect is that trust assets may be the property of a marriage, if a party to the marriage exercises such control that they can do with them as they please, combined with a right of a party to a marriage to compel due administration of a discretionary trust controlled by the other party. Property still does not include a mere expectancy.

The Family Court have made it clear that Pt VIIIAA  of the Family Law Act 1975 (Cth) can be used to require a trustee (including a third party trustee) to bring forward the vesting date of a trust fund for what can be termed, the “ancillary” purposes of valuing an irrevocable entitlement to ultimately share in the trust fund and of distributing that share to the party entitled. These powers can be exercised even at the expense of third party interests.

See AC and Ors & VC and Anor .

Trust assets can be the property of a party to a marriage, if that party exercises such control that they can do with them as they please. A right of a party to a marriage to compel due administration of a discretionary trust controlled by the other party is itself property. Property still does not include a mere expectancy.

The High Court favours an expansive interpretation of the word “property”. Where a party is the director of the trustee and appointor of a trust, the court has held that the trust assets are assets of that party (other factors also play a part).

The following factors may indicate that trust assets are property of a party:

• contributions to the trust by a party to the marriage;

• benefits that have accrued to that party over the life of the trust;

• distributions of capital and income from the trust;

• involvement in the exercise of trust powers and decision making;

• power to influence the appointment of property; and

• ability to borrow trust funds.

In Family Court proceedings there is an obligation to disclose interests in trust assets where a party to a marriage is:

• an appointor or trustee;

• a beneficiary (or spouse or child is a beneficiary);

• able to exercise control (direct or indirect); or

• able to remove or appoint a trustee or amend the terms of the trust.

The court may make the following orders:

• treating the trust assets as part of the family asset pool;

• setting aside transactions including a transaction that removes a spouse as a beneficiary;

• treating a declaration of trust as a sham;

• making orders that may not be directed to trust assets but can only be satisfied by having recourse to trust assets; or

• treating the trust assets as a financial resource of a party.

See Approach of the court to the trust asset.

Trusts can be used to satisfy family law obligations as follows:

• spousal maintenance can be paid through a family trust. A spouse receiving income as a beneficiary will be taxable on it; and

• child maintenance can be paid through a child maintenance trust. If it satisfies ATO requirements normal adult tax free thresholds will apply. These requirements include:

See Use of trusts to satisfy family law obligations.

A transfer of trust assets to a spouse will qualify for CGT rollover relief when the transfer occurs:

• pursuant to Family Court orders;

• pursuant to orders affecting de facto relationships; or

• pursuant to a binding financial agreement.

See Capital gains tax.

Part VIIIAA of the Family Law Act authorises the court to make orders directed to persons who are not parties to the marriage.

The following matters should be noted:

• property is deemed to include a debt owing by a party to the marriage;

• orders can be directed to a creditor altering the liability in connection with that debt;

• a company can be directed to transfer shares from one party to a marriage to another; and

• limitations of reasonableness and other limitations are placed on the exercise of the power.

See Orders binding third parties.

Injunctive orders can also be made against third parties including:

• restraining them from repossessing property of a party to a marriage;

• restraining them from commencing proceedings;

• directing them to do a thing in relation to the property of a party to the marriage; and

• altering rights, liabilities or property interests of a third party in relation to a marriage.

Orders directed to third parties can be directed against trustees and will bind both the trustee against whom the order is made and also any subsequent trustee.

See Order or injunctions.