Why family trust control is so important to protecting your wealth

Imagine building a family business over generations, your great-grandfather’s vision turning into a thriving legacy that supports your children and grandchildren. Now picture a divorce threatening to unravel it all, with a court potentially clawing back those hard-earned assets. The assets in your family trust may represent generations of hard work, sacrifice, and careful planning. However poor drafting or improper control of the trust may put this careful planning at risk of a family law claim, which can have severe consequences for your family business and legacy.

What the Court considers

As a general principle, beneficiaries of a discretionary trust do not hold equitable interests in the trust’s assets. This means trust assets are not ordinarily treated as property available to satisfy third-party claims. However, the Family Court has the power to look deeper.

As established by Kennon v Spry HCA 56, the Court can determine whether property held in a trust should be treated as property of the relationship to be divided between the separating parties.

Some of the factors the Court will consider include:

• Who truly controls the trust;
• The purpose for which the trust was established;
• The range of beneficiaries;
• The source of trust assets;
• The flow of distributions;
• Whether there is an intention to mislead third parties; and
• Whether the overall outcome is just and equitable.

How careful planning can protect your wealth: Caldwell & Caldwell [2025] FedCFamC1F 506 (Caldwell)

Mr and Mrs Caldwell were married for 30 years. They separated in early 2022, and divorced in 2023. They had significant assets outside of the trust and companies, estimated to be between $16 million and $22 million.

Mrs Caldwell sought a declaration under s79 of the Family Law Act 1975 (the Act) from the Court that the assets in the trusts and companies in control of the husband and his family were property of the marriage and are therefore divisible between them.

The case focused on the assets held in three family trusts, which were the cornerstone of a multi-generational family business founded by Mr Caldwell’s great grandfather. The assets of these trusts had been built over four generations.

Ultimately, the Court did not accept Mrs Caldwell’s position.

Several factors shaped the Court’s decision:

• The trusts were established specifically to benefit the lineal descendants of the founder and to support the future intergenerational operation of the family business. The trusts were not a vehicle for the Mr Caldwell’s personal benefit;
• The trusts were not a sham or alter ego of Mr Caldwell;
• There were significant assets available to create a just and equitable outcome between Mr and Mrs Caldwell without having to rely on the trust assets;
• Neither of Mr Caldwell nor Mrs Caldwell ever received any distributions from the trust. Mrs Caldwell was formally excluded as a potential beneficiary of the trust in 2019 when Mr Caldwell’s father updated the trust deeds to exclude any beneficiary who was not a direct linear descendant of the founder. This was years before Mr and Mrs Caldwell separated; and
• Mr Caldwell’s father undertook deliberate succession planning through his control structure and his Will. In a codicil to his Will he stated: ‘I have discussed with my family at various times over the years the origins of the [family] business and the intention of my father and me that the [family] Business remains within the … family. … I consider that all three of them should have the privilege and opportunity to take the [family] Business into the future’

The Court determined that the trusts and their assets were not considered property of the marriage to be divided between Mr and Mrs Caldwell under s79 of the Act. They were instead financial resources (relevant to assessing future needs, but not available for division).

Not sure if your trust assets are truly protected? We can help, call us on 1300 654 590 or email us.

Why does this matter for your family?

Caldwell demonstrates that the Court does not always treat trusts as property of the marriage. A properly structured trust can protect assets from family law claims.

In contrast to Kennon v Spry:

The origins of the trust assets in Caldwell did not reflect contributions made by the Mr and Mrs Caldwell. Instead, the assets originated from the generational family business, and their generational input. The trusts each ‘reflect[ed] the efforts of a long line of direct lineal descendants of the founder of the business’.

In Caldwell, the structure and intention of the trusts had been established and documented over generations, independent of any relationship breakdown. In Kennon v Spry, the husband made changes to the trust to exclude both himself and his wife as capital beneficiaries of the trust in contemplation of their divorce. Accordingly, the protection that the trust provides will depend on how it is drafted, controlled and administered over time.

For guidance on trust succession, explore our booklet on how to control a family trust when you die.

How we can help

Protecting your trust against potential future family law disputes is a difficult task, it is not as simple as having a well-tailored trust deed. It is a matter of intention, control and fact. The Court will consider family trust assets in the context of each situation. However, this is not something which you have to tackle alone. At ADLV Law we have extensive experience assisting families and family businesses on these issues. We work with you to create a comprehensive plan, and implement considered and well drafted documents to best protect your business and legacy.

You might not think you need to review your family trust today, and a dispute may never arise. But if you’re unprepared, the legal costs and legacy risks down the track can be devastating. Don’t wait until it’s too late, call us on 1300 654 590 or email usto get started.