Tuesday, October 20, 2020

‘The Vibe’, family trusts and family law (part 2)

View Legal Blog ‘The Vibe’, family trusts and family law (part 2)

Last week's post considered some of the key issues in relation to the Family Court's ability to access assets of a trust.

The decision in Harris & Dewell and Anor [2018] FamCAFC 94 provides more context to the approach of the court in this area. As usual if you would like a copy of the case please contact me.

In summary, the factual matrix was as follows:
  1. A unit trust was established about 5 years before the start of the relevant relationship.
  2. The husband and husband’s father were the sole shareholders in the corporate trustee of the unit trust (the father owning 67%, the husband 33%). Although the husband was for many years a director of the corporate trustee, he had retired from this role some years before the trial, replaced by his solicitor. The solicitor was however accustomed to acting in accordance with the husband's wishes.
  3. At trial the husband’s father was the sole unit holder of the unit trust (and the husband had never owned any units), although it was assumed that the husband would inherit the units on his father's death (the father was aged 99 at the time of the trial).
  4. It was concluded that the level of control held by the husband over the trust was clearly significant.
In holding that the trust was not an asset of the husband (although it was taken into account as a financial resource) the court confirmed as follows:
  1. Property of a trust can be treated as property of a party only where evidence establishes that the person or entity in whom the trust deed vests effective control is the ‘puppet’ or ‘creature’ of that party.
  2. Control of itself is not sufficient to deem trust assets to be the property of a party to a relationship. Instead, what is required is control over a person or entity who, by reason of the powers contained in the trust deed can obtain, or effect the obtaining of, a beneficial interest in the property of the trust.
  3. In other words, the spouse must have an actual ‘lawful right to benefit from the assets of the trust’.
  4. Here, despite the extensive control held by the husband, he did not have the ability to guarantee benefit of the assets to himself - that right at all times rested with the husband's father.
  5. In a sentence, the trust was not the husband's alter-ego nor a device used by him for his sole benefit.
Therefore, the assets of the trust were not property of the husband for the purposes of the settlement proceedings with the former wife.

** for the trainspotters closely behind Dennis Denuto and his vibe principle is the refrain ‘tell ‘em they’re dreaming’.