THE IMPLICATIONS OF TRUSTS IN FAMILY LAW

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THE IMPLICATIONS OF TRUSTS IN FAMILY LAW
AUGUST 2007 Presented by Lisa Lahey and
Shauna Borgheiinck
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Outline

• Different types of Trusts
• Can the property of the trust be considered an
  asset or financial resource of one or both of the
  parties?
• Summary of Case Law
• The functions of a trust and the reading of the
  trust deed
• Problems faced with trusts
• How to remove assets from the trust for the
  purpose of property adjustment proceedings.

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Different types of Trusts

• Fixed Trusts
• Bare Trusts
• Unit Trusts
• Discretionary Trusts
• Constructive Trusts
• Resulting Trust or Implied Trust and
• Trust deeds for Superannuation funds.
• Per Trusts and Property Applications CCH Family
  Law, Practice Commentary, Geoff Wilson.

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The Four Step Approach

• The four step approach for the court when
  determining property adjustment
• Determining the assets, liabilities and financial
  resources of the parties
• The contributions of the parties
• i.e. financial contributions, non financial
  contributions and the contributions to the
  welfare of the family unit
• Future needs of the parties and
• Having regard to the above, is the proposed
  division one that is just and equitable?

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Asset or financial resource?

• A finding that the trust asset is the property of
  one or both of the parties, and therefore is to
  be brought to account
• A finding that the trust is a financial resource
  of one or both of the parties, and again, this
  will be brought to account or
• A finding that the trust is neither the property,
  or financial resource of the parties.
• Per The Anatomy of a Trust - Geoff Wilson

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Case Summaries

• Ascott Investments Pty Ltd v Harper, M.F. and
  Harper, D.G. (1981) FLC 91-000
• In the Marriage of Kelly, J.A and Kelly, C.Q
  (1981) FLC and
• Stephens Stephens and Ors 2007 FamCA 680.

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Ascott Investments Pty Ltd v Harper, M.F. and
Harper, D.G. (1981) FLC 91-000

• Mr Harper was ordered to pay to Mrs Harper lump
  sum maintenance of 75,000.00
• By way of security for payment, Mr Harper was
  ordered to transfer his shareholdings in Ascott
  Investments Pty Ltd to Mrs Harper
• Mr Harper was one of four shareholders in Ascott
  Investments, together with his three adult
  children.
• Question can the court Order the Directors of
  Ascott Investments Pty Ltd to transfer the shares?

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Company Memorandum clause 4(a)

• Clause 4(a) of the Memorandum of Ascott
  Investments Pty Ltd provided that
• The right of the members to Transfer shares in
  the company shall be restricted in that the
  directors of the company may decline to register
  any Transfer without assigning a reason
  therefore.

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Decision -

• Per Gibbs J (with whom Stephen, Aickin and Wilson
  JJ agreed)
• The position is, I think, different if the
  alleged rights, powers or privileges of the third
  party are only a sham and have been brought into
  being, in appearance rather than reality, as a
  device to assist one party to evade his or her
  obligations under the Act. Sham transactions may
  always be disregarded. Similarly, if a company
  is completely controlled by one party to a
  marriage, so that in reality an order against the
  company is an order against the party, the fact
  that in form the order appears to affect the
  rights of the company may not necessarily
  invalidate it.
• Except in the case of shams, and companies that
  are mere puppets of a party to the marriage, the
  Family Court must take the property of a party to
  the marriage as it finds it.

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In the Marriage of Kelly, J.A and Kelly, C.Q
(1981) FLC

• Mooramook Pastoral Pty Ltd
• Directors - Wife, accountant, Husbands
  brother
• Shareholders -
  Wife and accountant (one ordinary share
  each)
• TRUSTEE Wife, accountant, Husbands brother
  ATF the Boorpool Settlement Trust
• TRUST Boorpool Settlement
  Trust
• BENEFICIARIES Any children of the Husband

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Grounds for appeal -

• 1. His Honour was wrong in law in treating the
  assets of the company and of the trust as part of
  the financial resources of the Husband and
• 2. That His Honour was wrong in concluding that
  the Husband exercised de facto control over the
  officers of the company and the trust and that
  this made the assets of this company a financial
  resource of the Husband.

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Held -

• At first instance
• The husband has control of the person who are
  directors of the company and trustees of the
  trust. It follows that he has control as a
  matter of fact over the assets and income of the
  company and the trust. More to the point, the
  assets and income of the company and the trust
  represent a stock or reserve that the husband
  may draw upon when necessarythus constituting a
  financial resource of the husband

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Stephens Stephens and Ors 2007 FamCA 680

• Property pool of 9,818,144.37 ONLY IF
• 4,760,152.00 trust capital distributed to the
  childrens trust funds could be brought to
  account
• Wife argued that this amount should be included
  when considering the property / financial
  resources of the parties.

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Trust Instruments / Dispositions

• Instruments / Dispositions from the Trust as
  follows
• 7 December 1998 instrument of variation of the
  trust (executed by the Husband as settlor of the
  Trust) excluding the Husband and Wife from
  receiving Trust capital.
• 18 January 2002 Husband set up four trusts
  one in favour of each of the children and
  executed a document
• for the forgiveness and release of all amounts
  owing to the Husband and to the Wife by the
  Trustand
• for the application of one quarter of the income
  and capital of the trust to each of the Trusts
  set up for the children.
• NB Each childs Trust benefited in the amount of
  875,000.00 from this transaction.
• 20 January 2002 Husband executed a further
  document, the effect of which assigned shares
  held by him to each of the four children.

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Section 106B

• Property adjustment Mrs Stephens argued to have
  the childrens trust funds brought to account as
  part of the property pool
• Pursuant to Section 106B Family Law Act 1975
  Court has the power to set aside transaction(s),
  if the transaction(s) which is made or proposed
  to be made to defeat an existing or anticipated
  Order
• S106B used to reverse the 1998 instrument and the
  dispositions made to each of the childrens
  trusts in 2002.

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Appeal by Husband (and Trustees)

• Basis of appeal
• The childrens trusts should not be brought to
  account.
• If the Orders were made giving effect to what
  the Wife wanted (i.e. bringing the childrens
  trusts to account) the result would be a breach
  of trust or fraud on the power of the trustees.
• Held (at first instance)
• I have found that once the instruments and / or
  the dispositions of 7 December 1998 and 18
  January 2002 are set aside the assets of the
  Trust can be treated as property of the Husband
• Held (by Majority on appeal)
• The trial Judge correctly set aside the 1998
  instrument and the 2002 dispositions.

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Family Law Act 1975 Part VIII AA