Protecting your (farming) property with a Family Trust?


Countless clients facing a relationship breakdown, especially those with farms held over the course of several generations, believe that simply instructing their accountant to create a family trust will be enough to protect the property from their ex-spouse by excluding it from the marital asset pool.

In most cases they are wrong.

When married or de facto couples separate, they have usually acquired several assets and liabilities during the relationship and both parties have either a legal or an equitable interest in them by way of direct or indirect financial contributions (known as the “marital asset pool”).

In determining what each party is entitled to receive from the marital asset pool, the first step is to ascertain what property is to be included in the pool. This will generally include residential and investment properties, motor vehicles, shares, bank accounts, furniture, businesses or companies and anything else that could be sold by the parties. It can also include parties’ superannuation entitlements, but these are dealt with differently depending on whether or not the parties were married.

At this stage, all assets are included, whether owned jointly by the parties, or in their individual capacity. But it is not just limited to assets that have one or both of the parties recorded as the registered proprietor.

Many clients are unaware that where an asset is held by a company or a trust, and one of the separating parties has a controlling interest in that entity (that is, they are able to deal with the property as their own) the asset will fall into the marital asset pool (to the extent of the ownership of the party). Even where an asset owned by a third party, the fact that one or both parties have made significant contributions to it may draw it into the marital asset pool.

Clients often list all of the assets and liabilities, but exclude the family farm which is owned by the family trust. There can be significant distress when the client realises that the family trust has not in fact “protected” the asset.

It should be noted that the fact that a trust exists does not necessarily mean that assets held by that trust are automatically included either.

The Court will examine the particular facts of the case, including (to name just a few):

  • who set up the trust and when
  • who controls the trust
  • what assets are held by the trust
  • who has made contributions to the assets held by the trust
  • who the beneficiaries of the trust are
  • whether they have ever received any distributions from the trust
  • whether a party has a fixed and irrevocable entitlement to a share in the trust or a mere expectancy

The take home message is this: if you have tried to protect your property, whether a farm or any other kind of property, by transferring its ownership to a trust, you need to know that this will not of itselfoperate to exclude it from the marital asset pool. The Court will have regard to all the facts and circumstances surrounding the creation of the trust and the acquisition of the property to determine whether it is fair and equitable for the property to be included in the asset pool.

For more information on this article of any other family law matters please contact our Family Law Team on (08) 9321 3755.

The information published on this website is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.