When Do Family Trust Assets Count as Marital Property? Court Provides Key Clarification
A recent decision in the matter of Caldwell & Caldwell [2025] FedCFamC1F 506 has provided valuable guidance on when discretionary trust assets are not treated as property for division as part of a separation – a point of interest for families with long-standing private businesses and trust structures.
The Background
The case involved a couple married for 30 years with three adult children.
The husband was part of the fourth generation in a family business valued at around $22million, operated through various “discretionary” trusts originally established by his great-grandfather.
The trusts and corporate trustees were passed from the husband’s great-grandfather to his father, who until his passing at around the time of the parties’ separation, had been the sole appointor and controlling shareholder of the trustee companies. The husband’s late father had left his interests in those trusts and company’s to the husband and two of the parties’ children and in his Will, clearly expressed a desire for the business to remain within the family and benefit only direct lineal descendants.
Outside of the trusts, the husband and wife held assets worth between $16 million and $22 million to divide between them.
The Issue
The matter came before the Court in relation to the discrete issue of whether or not the trusts (and their assets) formed part of the asset pool to be divided between the parties. The key question for the Court was whether the husband’s powers over the trusts meant he effectively controlled them for the purposes of property division.
The Decision
Whilst the Court acknowledged that the law allows it to “lift the corporate veil” and look beyond formal ownership of assets if justice requires – particularly where one spouse uses a trust or company as a personal vehicle to hide assets – it found that this was not the case for the Caldwell’s. The key reasons given by the Court included:
- The husband did not control the trusts in substance or act as his father’s alter ego;
- The trusts were not a sham or vehicle for concealing assets;
- The trusts’ assets represented the accumulated wealth of the wider family over four generations, not the efforts of the husband or wife; and
- The couple already had ample personal wealth outside the trusts to achieve a fair settlement.
However, the judge accepted that the trust interests could still be considered a “financial resource” of the husband and therefore impact the way that the parties’ actual assets were to be divided between them. We will need to wait until the matter is determined on a final basis, however, to see exactly what that impact is.
Key Takeaways for Business Owners and Advisers
- Family legacy trusts genuinely designed to preserve intergenerational wealth can be excluded from a property settlement following the breakdown of a relationship (although they may still impact what the overall settlement looks like).
- Control matters – Courts will scrutinise whether a spouse has effective control or merely formal powers constrained by trust purposes.
- Clear documentation, such as a detailed will or codicil stating the settlor’s intentions, can strongly influence a court’s assessment.
- Whether or not a trust is used for personal enrichment may impact whether or not it is considered an asset of the parties
If you’re unsure whether your family trust could be considered marital property, reach out to our experienced family law team for clear, practical guidance on protecting your family and business assets.