Discretionary Trust Divorce NSW — How Family Trusts Are Treated

Discretionary trusts (commonly called family trusts) create one of the most contested areas in Australian property settlement. The core question: does the trust's property belong to the controlling spouse for the purposes of dividing assets? The answer depends on who controls the trust and how it's been used — and the court's approach has produced some of the most complex case law in Australian family law.

Why Trusts Complicate Property Settlement

A discretionary trust holds assets (property, shares, cash, business interests) on behalf of a class of beneficiaries. The trustee decides who receives distributions and when. No beneficiary has a fixed entitlement — distributions are at the trustee's discretion.

This creates a legal tension. On one hand, a beneficiary of a discretionary trust doesn't legally "own" the trust assets. On the other, if one spouse controls the trust as trustee and appointor, they effectively control when and how assets are distributed — including to themselves.

Australian family courts have developed a two-track approach to resolve this tension.

Track 1 — Trust Assets as "Financial Resources"

Under Section 75(2) of the Family Law Act 1975, the court considers each party's "financial resources" at Step 3 (future needs adjustment). A financial resource isn't something you own — it's something you can reasonably expect to access in the future.

If a spouse is a beneficiary of a discretionary trust but doesn't control it (for example, a trust controlled by their parents), the court treats the potential for future distributions as a financial resource. It won't add the trust assets directly to the property pool, but it may adjust the overall split in favor of the other party because the trust beneficiary has access to resources the other doesn't.

Track 2 — Trust Assets in the Property Pool

When a spouse effectively controls a discretionary trust — as trustee, appointor, or the person who directs the trustee — the court may treat the trust assets as property available for distribution.

The key question is effective control: can this person cause the trust to make distributions to themselves? If yes, the court may include the trust's assets in the Step 1 property pool, or make orders directing the trustee to make specific distributions as part of the property settlement.

Factors the court considers:

• Who is the trustee? If the spouse is the sole trustee or a director of the corporate trustee, they have direct control
• Who is the appointor? The appointor can remove and replace the trustee — this is the ultimate control position
• History of distributions: Has the trust regularly distributed income or capital to the controlling spouse? Regular distributions show the trust functions as a personal financial resource
• Trust purpose: Was the trust set up primarily to benefit the family, or does it serve a broader purpose (business operations, employees, extended family)?
• Third-party beneficiaries: Are there other genuine beneficiaries (children, parents, business partners) whose interests the court must protect?

Company Shares and Business Interests

Private company shares in an NSW divorce are treated as property in the Step 1 pool. The challenge is valuation. Unlike listed shares with a market price, private company shares require an independent business valuation that considers:

• Net tangible assets
• Capitalised future maintainable earnings
• Discounted cash flow analysis
• Goodwill (personal vs enterprise)
• Minority discount (if the shareholding is less than 50%)

The court can make orders requiring the sale of shares, the transfer of shares between parties, or the restructuring of shareholdings. But the court is generally reluctant to order the sale of an operating business if it would destroy value or affect employees and customers.

Disclosure Requirements for Trusts and Companies

The financial disclosure obligation extends to all entities a party controls or has an interest in. This means providing:

• Complete trust deeds and any amendments
• Trust financial statements and tax returns (last 2–3 years)
• Trustee minutes showing distribution decisions
• Company financial statements, tax returns, and BAS statements
• ASIC company extracts showing directorships and shareholdings
• Details of all trust property (real estate, investments, cash)
• Appointor and guardian details

Failure to disclose trust and company information triggers the same consequences as hiding personal assets — adverse inferences, cost orders, and potential setting aside of the settlement.

Practical Implications

If you or your former partner controls a family trust:

1. Get the trust deed early — it defines who has control and what distributions are possible
2. Obtain independent valuations — for trust-held property, business interests, and goodwill
3. Consider an independent trustee — if both parties are involved in the trust, appointing an independent trustee during the settlement process reduces conflict
4. Amica can't help — the government's DIY platform explicitly excludes trusts and complex business structures
5. Factor in tax consequences — distributing trust assets as part of a settlement can trigger CGT, income tax, and stamp duty implications that need expert analysis

The NSW Divorce Financial Split Guide covers the trust and business interest assessment process, including how to document trust control, what financial records to gather, and how trust assets interact with the four-step property settlement framework.

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