Discretionary Trusts & Preserving Assets After Woodcock Vs Woodcock
Discretionary Trusts in Family Law: Preserving Assets in Jeopardy in Light of Woodcock vs Woodcock 2021
Trusts have long been utilized by wealthier parties as a means of safeguarding assets in the context of Family Law following the breakdown of a relationship. However, a significant setback occurred in 2008 when the High Court, led by Chief Justice Robert French, ruled that a trust controlled by a husband, where both parties had access to funds, could not be isolated from the joint asset pool. This decision underscored the importance of trust control. Despite this ruling, trusts have continued to be employed in asset preservation efforts. The advantage of a trust lies in the fact that the assets are not owned by a party involved in family law proceedings; rather, they are owned by the trust itself. As such, these assets are not considered property under family law but are regarded as financial resources that a party may access in the future. While this financial resource may entitle the beneficiary without trust benefits to a larger share of the joint assets, the trust and its assets are excluded from the joint asset pool.
The Rise of Discretionary Trusts:
Subsequent to the High Court’s decision, discretionary trusts have become the favoured option for beneficiaries who anticipate potential family law litigation, as they lack control over the trust. As anticipated, the Family Court and Federal Court of Australia (FCFCOA) have consistently viewed a beneficiary’s interest as a financial resource rather than as relationship property.
Shifting Perspectives: Woodcock & Woodcock [2021]:
However, the perception of trusts in Family Law may be on the brink of change, prompted by the recent ruling in Woodcock & Woodcock [2021]. During the appeal, the Court was asked to determine whether a beneficiary’s interest in a discretionary trust could be considered an asset included in the joint asset pool of the parties.
The husband argued against the inclusion of his interest in family discretionary trusts, citing his lack of control and absence of a protected right to income or capital. On the other hand, the wife argued that subpoenas should be granted to obtain trust documents in order to ascertain whether the husband’s interest in the trust constituted an asset or a financial resource.
Subpoenas were indeed granted, and the Judge has made a preliminary ruling that, despite lacking control over the trust, the husband had “influenced its operations,” leading to significant income. Consequently, the Judge concluded that the husband’s interests “are property that his wife can claim.”
While the Judge did not determine the division of the trust’s value among the beneficiaries, it is evident from the decision that even discretionary trust property can be considered part of the joint asset pool. Consequently, the ability of wealthier parties to safeguard assets through trusts is now facing significant jeopardy.
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