Divorce Protection Trust Australia (Stop Costly Mistakes)

Thinking quietly about a divorce protection trust? Many Cairns families set up discretionary trusts, believing their assets will stay safe if their marriage ends. The reality is more complex – and getting it wrong could cost you thousands in property settlement disputes.

Key Insights

Can a discretionary trust protect your assets during divorce in Australia?

• It depends on control – If you or your spouse control the trust as trustee or appointer, the trust assets will likely form part of your property pool
• Being a beneficiary isn’t enough – Simply receiving distributions doesn’t automatically protect trust assets
• Timing matters – Trusts set up during marriage with spouse involvement are rarely protected
• Each case is different – Courts assess individual circumstances under Section 79 of the Family Law Act 1975

What Is a Discretionary Trust?

A discretionary trust allows a trustee (an individual or a company) to hold and manage assets on behalf of the beneficiaries. The trustee has complete discretion over how trust income and capital are distributed among beneficiaries, as specified in the trust deed.

Many people set up family trusts for tax planning or asset protection – but this doesn’t automatically shield those assets when relationships break down.

The Common Misconception About Trusts and Divorce

Here’s what we hear from clients almost weekly: “My assets are in a family trust, so they can’t be touched in a divorce.” Unfortunately, this belief has led to costly surprises during property settlements.

Research from the Australian Institute of Family Studies indicates that property settlements vary significantly depending on individual circumstances. When trusts are involved, the courts don’t simply exclude them – they examine who controls them.

When Trusts DON’T Protect Assets

Under the Family Law Act 1975, if you or your spouse have control over a discretionary trust, it will typically be treated as property and included in the asset pool during divorce proceedings.

The court considers you “in control” when:

• You’re the trustee or appointer of the trust.
• You have significant influence over the trustee or appointer.
• The trust has primarily benefited you and your spouse during the marriage.
• You’ve contributed to building the trust’s assets.

The landmark High Court case Kennon v Spry [2008] HCA 56 established that trust assets can form part of property settlements when one spouse effectively controls the trust. This precedent still guides family law decisions today.

If you set up a family trust during your marriage, appointed yourself as trustee, made your spouse and children beneficiaries, and used trust income to fund your lifestyle, the court will almost certainly include those trust assets in your property pool. The trust structure alone doesn’t create protection.

When Trusts MAY Protect Assets

A discretionary trust might protect assets from your property settlement when:

• Your parents established the trust, not you or your spouse.
• They remain as trustees and appointers, maintaining independent control.
• You’re simply a beneficiary with no controlling role.
• Your spouse has never been involved and has no influence over distributions.
• The trust built its wealth independently without contributions from either of you.

In this situation, the trust would likely be treated as a financial resource (not property), meaning the court considers its existence but doesn’t divide the trust assets themselves.

The Four Factors Courts Examine

When divorce solicitors present trust matters to the court, judges assess:

1. Trust structure – Who holds legal control per the trust deed?
2. Distribution history – How have trust benefits been shared historically?
3. Contributions – Did either spouse contribute to trust assets?
4. Influence – Can either spouse practically control trust decisions?

The court’s job under Section 79 of the Family Law Act 1975 is to achieve a “just and equitable” property settlement. This means they’ll look through trust structures that appear designed to hide assets from your former spouse.

What This Means for You

If you’re separating and either you or your spouse has connections to a family trust, don’t assume it’s automatically protected or automatically included. The answer depends entirely on your specific circumstances.

Getting expert family law advice early prevents costly mistakes. Our experienced divorce lawyers in Cairns regularly handle complex property settlements involving discretionary trusts, business structures, and other financial arrangements.

Facing separation and concerned about trust assets? We’ll assess your situation during a confidential consultation and explain exactly where you stand. Our team understands both the legal complexities and the emotional weight of this challenging time.