Monday, March 12, 2012

Another family law case on trusts

Posts made in October 2011 focused on a high profile family law case involving a family trust (Keach).

In that case, the assets of a family trust were essentially protected on a property settlement.

Towards the end of last year, the case Harris v Harris (for a full copy of the decision follow this link - http://www.familycourt.gov.au/wps/wcm/resources/file/eba721407bde792/2011_FamCAFC_245.pdf
) provided further context to the general attitude of the Family Court in relation to traditional trust structures.

The outcomes of both cases can be contrasted with the outcomes in cases involving arrangements that the Court believes are unconscionably designed to hide assets (for example, the case of the Kennon v Spry, also featured in the posts during the latter half of 2011).

In brief terms, the Harris case involved a trust established by the husband’s father.
At the relevant time, the appointor of the trust was the husband’s mother and the controllers of the trustee company were the husband’s mother, a son from a previous relationship and a friend.

The main asset of the trust was a business which it was accepted was run on a day-to-day basis by the husband and wife.

The main beneficiaries of the trust were the husband’s parents and their children (i.e. the husband and his siblings).

Distributions from the trust had been amongst the entire family group (including the wife), although the distributions to the wife ceased on separation with the husband.

In summary, the Court held:

1. The trust and its assets were not an asset of the marriage.
2. At most, the trust should be considered a significant financial resource for the husband.
3. If a party to the marriage is not directly the appointor or in control of the trustee, then they do not have direct control.
4. In order for there to be indirect control by a beneficiary, there must effectively be a situation where someone who has direct control is the mere puppet of the beneficiary.
5. In order to demonstrate indirect control (e.g. through a ‘puppet’ scenario), there must be clear evidence to support the argument and merely reviewing a history of trust distributions of itself will not be sufficient.

Until next week.