Monday, October 31, 2011

Why do so many people still talk about Richstar?

The interest from recent posts about accessing assets of a family trust on marriage breakdown reminded me of the Richstar decision.

It has been a few years since the very well publicised decision in Richstar was handed down. The decision does however remain an interim one and there does not seem to be any clear indication as to if or when proceedings might be restarted.

For those unfamiliar with the exact decision of Richstar, please email me and I can provide a summary.

While there have been a number of cases that have criticised various aspects of Richstar, it still seems to be generally the case that most commentators strongly recommend that the broad principles in Richstar be considered as part of any trust structuring exercise (whether it be the establishment of a new trust or the variation of a pre-existing trust).

Pragmatically, it may also be that part of the reason that Richstar has remained so relevant despite the fact that it is only an interim decision of a single judge from Western Australia is that the judge involved has now gone on to become the Chief Justice of the High Court.

Until next week.

Monday, October 24, 2011

Insurance funding via superannuation

Earlier posts have mentioned the ‘debt reduction’ and ‘hybrid’ buy sell arrangements and I can forward information in this regard for those interested.

One particular issue raised with me recently in this area was the ability to use superannuation owned policies for insurance arrangements supporting a debt reduction (or asset protection) solution.

Generally the position is that the asset protection (debt reduction) component of any insurance policy should be self owned, rather than superannuation owned.

This is because a superannuation fund trustee is unlikely to be able to make the required payment directly to the other principals, as the fund can only pay a benefit to a member (in the case of disablement), or to the dependants or estate (in the case of death).

Furthermore, a superannuation fund could not be a party to the agreement as this would raise issues about compliance with the sole purpose test, and also might be construed as an assignment of a benefit, which super fund trustees are prohibited from recognising.

Given these technical limitations, there could be no certainty that insurance proceeds held in superannuation would find their way to the correct parties to enable them to pay down the external debt.

This said, it is often possible to have two policies for each principal under a hybrid buy sell deed, one being a self owned policy for asset protection (debt reduction) purposes and the other policy being owned through superannuation for equity transfer (that is, traditional ownership or buy sell) purposes.

Until next week.

Monday, October 17, 2011

Further comments on assets protected by a family trust on marriage breakdown

Further to last week’s post, some feedback was received about other aspects of the decision mentioned (Keach & Keach).

To provide some more context to the main conclusion of the case mentioned last week, it is worth noting that:

1. The relevant trust was established by the father of the divorcing husband.

2. The father had all practical control over the trust as well as legal control.

3. While the main asset of the trust (being a home that the husband and wife were living in) was allegedly used by the husband 'as if it were his own', this did not change the legal ownership position.

4. In order for an arrangement to be a sham (and therefore, for example, for the trust’s ownership to be ignored), it must be shown that all relevant parties had the common intention to mislead others.

5. Even if the husband was conducting himself as if he were the owner, unless it could have been shown that the husband’s father intended the arrangement to be a sham, then there was no access to the assets of the trust.

6. Here the evidence was in fact the opposite – i.e. the husband’s father deliberately structured the arrangements to ensure that he retained control and direction of the trust. On this basis, the assets of the trust could not be considered as assets of the marriage.

Until next week.

Monday, October 10, 2011

Family law case excludes assets owned by a family trust

As mentioned in last week’s post, a family law case from earlier this year involving a family trust has received an amount of attention given the decision seems somewhat at odds with the High Court’s decision in Spry.

The more recent case (named Keach & Keach and Ors [2011] FamCA 192 – (if you would like a copy of the case please email me
) focused on a family trust that the father of the divorcing husband had established.

The father admitted that among other things, one reason for setting up the trust was to keep the assets as far away from the reach of the family court as possible.

The divorcing wife argued that the assets of the trust should be available to her on a property settlement as her former husband effectively treated them as his own.

The court held that the assets should be ignored on the property settlement. Essentially, it was held the only time that the legal documents and arrangements could be ignored was where they were a sham or a 'mere puppet'. In all other instances, the family court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.

Until next week.

Monday, October 3, 2011

Spry - one year on

Undoubtedly, the highest profile family law case (at least involving trusts from 2010) was the Spry case.

While the actual scenario was somewhat unique and obviously the decision became one of the highest profiled decisions issued by the High Court in this space in recent years, the actual implications of the case may not in fact be as far reaching as first thought.

In particular, what many advisers in this area are seeing is that a number of the aspects of the decision can be explained by the particularly aggressive and arguably misleading approach that the husband took in relation to attempting to remove assets from the pool that could be distributed to his former wife.

Unless something else comes up during the week, next post I will summarise a recent family law decision that further confirms that the Spry decision may not be as concerning as many commentators first thought.

Until next week.