Trusts, Businesses and Understanding Complex Property Pools in Family Law Property Settlements

Giselle Roman

Special CounselAitken PartnersView Profile

This article explores how trusts, businesses, companies and other complex asset structures are treated in family law property settlements. It outlines the key challenges involved in identifying, valuing and disclosing these assets, and the steps parties can take to achieve a fair and equitable outcome.

In family law matters, the Court must identify the assets, liabilities and financial resources of the parties before determining how property should be divided. A similar assessment is undertaken during settlement negotiations to assist the parties in reaching an informed resolution.

Many individuals and families hold wealth through trusts, businesses, companies, investment structures and other complex financial arrangements. These arrangements can make it difficult to determine who owns, controls or benefits from particular assets, and how those assets should be treated in a property settlement.

Examples of complex asset structures include:

• Family trusts
• Discretionary trusts
• Unit trusts
• Companies and partnerships
• Family and commercial businesses
• Investment portfolios
• Property development projects
• Cryptocurrency and digital assets

Unlike property held in an individual's personal name, assets held through these structures can present unique challenges as legal ownership, beneficial ownership, control and value do not always rest with the same person.

In some cases, a party may not legally own an asset but may nevertheless control it or benefit from it. Determining the nature and extent of a party's interest, and whether that interest forms part of the property pool or constitutes a financial resource, can be a complex exercise. However, properly identifying and valuing these interests is critical to achieving a just and equitable outcome.

Below we discuss trusts and businesses in family law matters, together with the steps that should be taken during negotiations and litigation to identify, value and properly consider complex assets in a property settlement.

Trusts - including Discretionary and Unit Trusts

Trusts are commonly used by families for asset protection, succession planning and for tax and business purposes. As a result, they frequently arise in family law property settlements.

A common misconception is that assets held in a trust are automatically protected from a property settlement because they are not owned personally by either party. This is not always the case.

When considering a trust, the Court will look beyond the legal structure and examine the practical reality of how the trust operates. In particular, the Court will consider the extent to which a party controls the trust, benefits from the trust, or has the ability to access trust assets or income.

For example, in Kennon v Spry (2008) HCA 56, the High Court of Australia held that the assets held within the family trust were available for distribution between the parties.

Similarly, in Woodcock & Woodcock (No 2) [2022] FedCFamC1F 173, the Court examined the husband's control over several trusts. The Court ultimately found that his level of control and influence was sufficient for the trust assets to be taken into account in determining the property division.

Depending on the circumstances of the case, trust assets may be treated as property available for division between the parties. Alternatively, they may be treated as a financial resource that, while not forming part of the property pool itself, may still have a significant impact on the overall settlement outcome.

Understanding the structure, operation and control of a trust is therefore a critical step in any family law matter involving trust assets.

Proper investigations, disclosure and, where necessary, valuations or expert evidence can assist the Court and the parties to understand the true nature of the trust and its effect on the overall property division.

Businesses and Companies

Businesses and companies are also commonly encountered in family law property settlements and can represent some of the most valuable assets within a property pool.

When assessing a business interest, some important factors to consider are:-

• The ownership structure of the business;
• The value of the business and its underlying assets;
• Any business debts and liabilities;
• Shareholder interests and company records;
• Director loans and retained earnings;
• The extent to which a party controls or manages the business; and
• The income and benefits derived from the business.

Unlike assets such as real estate or bank accounts, the value of a business is not always immediately apparent. Questions can arise regarding the true value of the business, outstanding business liabilities, shareholder interests, director loan accounts, retained earnings and future income-generating capacity.

It is important to understand both the business structure, ownership and how the business operates in practice. This assists in identifying the appropriate enquiries to make, the documents that should be obtained through the disclosure process, and whether valuations may be required.

It is also important to understand each party's role and involvement in the business throughout the relationship. This assists in assessing the contributions made by each party, including both financial contributions and non-financial contributions to the business.

Other Complex Assets

There are a number of other examples of complex assets. A further example which is becoming more prominent is cryptocurrency and other digital assets.

Examples of digital assets can include:

• Cryptocurrency (such as Bitcoin and Ethereum);
• Digital wallets and exchange accounts;
• Non-fungible tokens (NFTs);
• Online businesses and digital investments; and
• Other blockchain-based assets.

These assets can present unique challenges because they are often highly volatile, can be held across multiple platforms, and may be more difficult to trace than traditional assets. In some cases, specialist accounting or forensic investigation may be required to identify transactions, confirm ownership and determine value.

How to Deal with Complex Assets – Disclosure and Valuations

When trusts, businesses, companies or other complex assets are involved, obtaining complete and accurate information is critical. Without proper disclosure and reliable valuations, it can be difficult to identify the true value of the property pool and negotiate a fair outcome.

Family law proceedings require parties to provide full and frank disclosure of their financial circumstances. Disclosure extends not only to assets held in a party's personal name, but also interests in trusts, companies, businesses and other financial structures.

Once relevant assets have been identified, it may be necessary to obtain independent valuations to determine their value.

Disclosure and appropriate valuations are often essential to ensuring that all assets are properly accounted for and that any property settlement is based on reliable financial information.

How We Can Help

Property settlements involving trusts, businesses and complex asset structures require strategic planning from the outset, including considerations of any urgent restraints which may need to be sought.

Early legal advice can assist in identifying key issues, obtaining relevant disclosure, engaging appropriate experts and developing a pathway toward resolution.

Whether through negotiation, mediation or litigation, a clear understanding of the underlying asset structures is essential to achieving a fair outcome.

We regularly assist clients in matters addressed in this article and involving:

• Family trusts and discretionary trusts
• Business ownership disputes
• Complex corporate structures
• Self-managed superannuation funds
• Farming and rural properties
• High-net-worth property settlements
• Third-party interests
• Valuation disputes
• Forensic accounting issues
• Asset tracing and disclosure concerns

We understand that complex financial structures can be overwhelming during an already difficult time. Our team works closely with accountants, valuers and other experts to ensure our clients receive practical, strategic and commercially focused advice throughout the property settlement process.

If you are separating and you or the other party have interests in a trust, business or other complex asset structure, obtaining legal advice can help protect your interests and place you in the strongest position for future negotiations or Court proceedings.