When a couple separates, one of the first questions is often “what about the family trust?” For many Chinese and Asian families in Australia, the business, the investment properties and sometimes even the family home sit in a discretionary trust. The trust may have been set up by the couple or by one spouse’s parents.
Many believe that because a discretionary trust “owns” the assets, the family law courts cannot reach them. That is often wrong. The courts look past legal title to who controls the trust and who can benefit. This article explains how trust assets are treated, why control is the key question, and what families can do in advance.
How the Family Law Act treats trust assets
In a property settlement under section 79 of the Family Law Act 1975 (Cth), the court identifies the parties’ existing legal and equitable interests in property and their liabilities, considers contributions and each party’s current and future circumstances, and makes orders only if it is just and equitable to do so. Amendments from 10 June 2025 set these steps out more expressly, but the treatment of trusts still turns largely on case law.
A trust’s assets can be dealt with in one of two ways:
- As property of the parties. If a spouse effectively controls the trust and can benefit from it, the court may treat the trust assets as part of the property pool to be divided, and make orders directed at the spouse or the trustee.
- As a financial resource. If a spouse cannot control the trust but has a realistic expectation of benefiting from it, such as regular distributions from a parent-controlled trust, the court may treat it as a financial resource. A financial resource is not divided, but it can affect how the other property is split.
Control is the key: Kennon v Spry
The leading Australian case is the High Court’s decision in Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366. The husband was the sole trustee of a discretionary trust he had established decades earlier. During marital difficulties he varied the trust to exclude himself and his wife as capital beneficiaries, and after separation he distributed the trust’s assets to trusts for the couple’s daughters.
By majority, the High Court upheld orders that took the trust assets into account. In broad terms, the court reasoned that, apart from the steps taken to defeat the wife’s claim, the husband as trustee had the power to appoint the whole fund to his wife, and she had a right to be considered and to have the trust properly administered. Those rights were property of the parties to the marriage. The trial judge had also set aside the variation and distributions as transactions designed to defeat the wife’s claim, a power the court has under section 106B of the Act.
Since then, the courts have focused on substance: who can appoint and remove the trustee, who controls the trustee company, who has benefited, and whether the trust operates as one spouse’s own. In a 2026 appeal decision, the Full Court of the Federal Circuit and Family Court treated trusts as a husband’s property where he held voting control of the trustee companies and could remove his co-appointors, even though he had never used those powers. In September 2026 the High Court refused special leave to appeal, so that decision stands. Each case still turns on its own facts, and the law in this area continues to develop.
Trusts controlled by parents versus the separating child
Many families set up trusts in the parents’ generation, with the children as beneficiaries. On a child’s separation, the treatment of such a trust depends on the facts.
- If the parents genuinely control the trust, through the appointor role and the trustee company, and make real decisions, the trust is less likely to be treated as the child’s property. It may still be a financial resource if the child has received regular distributions.
- If control has passed to the child, for example as a director of the trustee company or as appointor or successor appointor, the trust is more likely to be treated as the child’s property, even if the parents built the wealth.
- If the parents are trustees in name only and the child in practice directs everything, the court may look to the reality rather than the paperwork.
Family understandings that the trust is “for the grandchildren” usually carry moral rather than legal weight. If the founders want the trust protected, the deed, the trustee company’s constitution and the appointor succession must reflect that.
Parents who rearrange a trust after a child’s separation to defeat a claim may find those steps challenged.
Offshore trusts and overseas assets
Some families hold wealth through trusts or companies in Hong Kong, Singapore, Malaysia or elsewhere. An overseas structure does not take assets outside the court’s view. Each party has a duty of full and frank financial disclosure, which covers overseas interests. Australian courts make orders against the parties personally, and can take overseas assets into account by adjusting how Australian assets are divided, even where an order cannot easily be enforced overseas. Moving assets offshore after separation usually damages a party’s credibility. Enforcing Australian orders overseas can be difficult, so early advice in both countries is important.
Binding financial agreements
Couples can make a financial agreement before, during or after a marriage (and equivalent agreements for de facto relationships). A financial agreement can set out how trust interests and family wealth will be dealt with on separation. To be binding, each party must receive independent legal advice from an Australian legal practitioner before signing, and the agreement must meet the Act’s technical requirements. Courts can set aside an agreement in some circumstances, such as fraud or unconscionable conduct.
A financial agreement works best alongside well-drafted trust documents; excluding a trust on paper helps little if the spouse in fact controls it.
Practical steps
- Map control. Identify the trustee, the trustee company’s directors and shareholders, the appointor and successor appointor, and the beneficiaries.
- Review the history. Gather recent distribution minutes, financial statements and loan accounts.
- Check succession clauses. In parent-founded trusts, check whether control will pass to a married child on the parents’ death or incapacity, and whether that is intended.
- Avoid post-separation changes. Do not vary the deed, change the appointor or make unusual distributions after separation without advice; these can be set aside.
- Disclose fully, including overseas trusts, companies and accounts.
- Consider a financial agreement when a child marries, with a review of the trust documents.
- Try mediation early. Trust disputes often involve parents and siblings too, and mediation can find solutions that keep the business running.
Frequently asked questions
Is a family trust included in a divorce settlement in Australia?
It can be. If a spouse controls the trust and can benefit from it, the court may treat its assets as property of the parties. If not, it may still be a financial resource that affects the division of other property.
What did Kennon v Spry decide?
The High Court held in 2008 that assets of a discretionary trust controlled by the husband could be taken into account in a property settlement, because his powers as trustee and the wife’s rights as a beneficiary were property of the marriage. It also confirmed that steps taken to defeat a claim can be set aside.
Can my parents’ family trust be divided in my divorce?
Generally not if your parents genuinely control it. If you control it, or it operates in practice as yours, the position may differ. Regular distributions to you may also be treated as a financial resource.
Does an offshore trust protect assets in a divorce?
Usually not. Australian courts require full disclosure of overseas interests and can adjust the division of Australian assets to account for them.
How Chua Tan Associates can help
Chua Tan Associates advises families on how their trusts are likely to be treated on separation, and on structuring trusts so that control passes as intended across generations. Justin Chua is a Nationally Accredited Mediator and Family Dispute Resolution Practitioner and an Accredited Family Business Advisor, and we work alongside the family’s accountant to trace the chain of control from the appointor to the trustee company. We prepare financial agreements, review trust deeds and succession clauses, and assist in property settlements involving trusts and overseas assets, working with local lawyers in Asia where needed. We advise in English, Mandarin and Cantonese.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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