This article was written by Melinda Gao Pricipal Solicitor at W & G Lawyers.
The last article covered loans from parents. This one covers another question I am often asked. “Our family’s business and house are all in a trust, and she/he is not even one of the beneficiaries. Does that mean it doesn’t count in the property settlement?”
My answer used to be “it depends”. After an Australian Full Court decision in May 2026, my answer has become “it most likely counts, though how it is divided is another matter”.
Why trusts are set up, and the conflict at property settlement
Chinese families usually set up a family trust for three reasons.
Tax planning, distributing income to family members on lower tax rates.
Asset protection, separating the family assets from the trading risks of the business.
Succession, passing the family business down from generation to generation.
Many trusts were set up by the previous generation, or on an accountant’s advice when the business was started. When they were set up, nobody was thinking about divorce.
The conflict lies precisely in the design logic of the trust. A trust is flexible because the beneficiaries have no fixed entitlement. Whether to distribute, to whom and how much is up to the trustee and the appointor. In tax law this is a strength. In family law it is the weak point, because the court tends to regard the assets as in reality belonging to whoever has the say.
How the court decides whether a trust counts as property of the marriage
The test comes from the High Court’s 2008 decision in Kennon v Spry and looks at two things. The first is control, that is, whether one spouse can control the trust. The second is capacity to benefit, that is, whether the trust can deliver a benefit to one spouse. If both are present, the trust assets may be treated as property of the marriage.
Unsuccessful examples where the trust was counted as property
Kennon v Spry is itself the classic. The husband was the trustee of the trust and the wife was originally one of the beneficiaries. Around the time the marriage ran into trouble, the husband amended the trust to exclude both his wife and himself, and after separation he transferred the assets into trusts for the daughters. The High Court held that the trust assets were property of the marriage, and the transfers were set aside.
This year’s Caldwell & Caldwell [2026] FedCFamC1A 81 is even more worth reading for Chinese families. It was a thirty-year marriage. The husband’s family business had run from the early 1900s into its fourth generation. All three trusts were set up by the husband’s father, and the assets were all built up by him and earlier generations. The couple had never directly received a trust distribution. The trust deed also expressly limited the beneficiaries to the lineal descendants of the husband’s father, and the wife had been excluded by an amended deed back in 2019.
The trial judge found that this was not property of the marriage. The majority of the Full Court overturned that, for a simple reason. After the husband’s father died, the husband became a joint appointor of the trusts. He could at any time remove the two sons, appoint himself or a company he controlled as trustee, and control the boards of the trustee companies through his voting rights. The gist of the judges’ words was that at this very moment he could vote himself into effective control, and that was enough.
Two details are telling. First, the husband had never actually exercised these powers. The Court said that whether they had been exercised did not matter, and what mattered was whether they could be. Second, the husband had signed an agreement with his sons promising to give up the power to remove them, in exchange for the trusts lending him money for the litigation. The Court said that intention was secondary, and the question was whether he had control now.
As for the deed excluding the wife as a beneficiary, the Court considered that this only affected what orders could ultimately be made, and did not affect the trusts being characterised as the husband’s property. The High Court refused special leave to appeal in September 2026.
Successful examples where the trust was not counted as property
There are also results the other way. What they have in common is that control really was not in the spouse’s hands, and the spouse was structurally unable to control the trust, not merely saying so.
In Harris & Harris [2011] FamCAFC 245, the appointor of the trust was the husband’s mother. The directors and shareholders of the trustee company were the mother, the husband’s son from a previous marriage and an old friend. The wife argued that the mother was only the husband’s puppet. The Full Court considered the evidence insufficient and could only find that the trust was a very significant financial resource of the husband.
In Harris & Dewell and Anor [2018] FamCAFC 94, the unit trust was set up by the father. The ninety-nine-year-old father was the sole unitholder, and the husband had managed it in practice throughout the twenty-four-year marriage. The Full Court found no evidence that the father was a puppet. The trust was not the husband’s property, only a financial resource.
In Morton & Morton [2012] FamCA 30, the trustee company was held half each by the husband and his brother, and neither could make decisions unilaterally. The Court likewise found that the trust was not the husband’s property.
The first-instance decision in Caldwell itself also shows that these cases are a real tug of war, and the trial and the appeal can reach completely opposite conclusions.
The reality in practice is that a trust you control will basically go into the asset pool
To put it plainly, most of the cases I see in practice look like this. One spouse is the trustee, or a director and shareholder of the trustee company, or the appointor who can replace the trustee, and is also within the range of beneficiaries. The court will generally treat such a trust as that spouse’s property, without you needing to have ever actually paid yourself a distribution. The accountant’s advice back then to “put the house and the business into a trust” usually does not hold up at property settlement.
Two things many people misunderstand
1. A trust that is “not property” does not mean it “does not count”. It will be considered as a financial resource and will affect the final division percentages. The High Court made it very clear in Hall v Hall that money a party can expect to keep receiving from family is a financial resource to be considered.
2. A trust that “is property” also does not mean the spouse will necessarily receive a share. The Court in Caldwell repeatedly stressed that characterisation and adjustment are two different things. That the assets were built up by earlier generations and that the spouse made no contribution will still be seriously considered at the division percentage stage. So putting assets into a trust often only changes the stage at which the argument happens, and does not make the argument disappear.
Where the trust is held by a company controlled by other family members, what to watch for in litigation
This is the most complicated situation. The directors and shareholders of the trustee company are the parents-in-law or siblings, and one spouse is nominally nothing at all. In cases like this, several points need particular attention.
1. The court looks at substance, not form. The director on paper may be the father, yet if it is the son who actually makes the decisions, signs the bank instructions and deals with the accountant, the court may find that the son is the real controller. Conversely, if the mother truly holds the appointor’s power, as in Harris, then it really is not the son’s property. So the evidence should be gathered around “who has actually been making the decisions all these years”.
2. Even if it is not property, investigate the financial resource. How much the trust has distributed to this spouse over the years, and whether there is a steady pattern of distributions, will all affect the final percentages.
3. Money the trust owes this spouse on its books is itself property. Many family trusts “distribute” income to a family member year after year, yet the money is never actually paid out and stays on the books as an unpaid amount or a loan account. This money is a debt the trust owes that person, and it is that person’s property no matter who controls the trust. It can often be found in the financial statements prepared by the accountant.
4. Third parties need to be joined to the case (joinder application). An application should be made to join the trustee company and the family members who hold control as parties. There are three reasons. The court’s orders can bind them directly. From then on they also carry disclosure obligations and can no longer say “the documents are not in my hands”. After judgment they cannot say “I am not a party, the orders have nothing to do with me”. In Caldwell, the two sons and each of the trustee companies were respondents.
4. Third parties need to be joined to the case (joinder application). An application should be made to join the trustee company and the family members who hold control as parties. There are three reasons. The court’s orders can bind them directly. From then on they also carry disclosure obligations and can no longer say “the documents are not in my hands”. After judgment they cannot say “I am not a party, the orders have nothing to do with me”. In Caldwell, the two sons and each of the trustee companies were respondents.
6. Watch what is done around separation. Changing the appointor, changing directors, amending the deed to exclude the spouse, or suddenly making large distributions to other family members can all be the subject of an application to set aside, and if necessary an injunction can be sought first to freeze things.
Living in the trust’s house and receiving benefits, what happens at property settlement
There is another situation that is not uncommon in Chinese families. The house is in the parents-in-law’s trust, the couple have always lived in it, neither has much in assets in their own name, and one of them is even receiving Centrelink benefits. On separation, does this house count?
First, the benefits side. Centrelink has a set of “look-through” rules. Whoever is the trustee or appointor of a trust, or can influence its distributions, has the trust’s assets and income counted as theirs. The home they live in can be exempt, and the rest is counted. So for “no assets in my name, living in the trust’s house, receiving benefits” to stand up, there is usually only one possibility. This person truly does not control the trust, the parents-in-law do, and the person only lives there.
Next, the family law side. This is exactly the “financial resource” category discussed earlier. Where, as in the two Harris cases, the trust is truly controlled by the parents and the spouse only lives there and receives distributions, the court will generally not count the trust as that spouse’s property. It will, however, treat the years of housing and distributions as a financial resource, pushing up the other party’s percentage. In other words, living there is itself evidence of being “able to benefit from the trust”.
Next, the family law side. This is exactly the “financial resource” category discussed earlier. Where, as in the two Harris cases, the trust is truly controlled by the parents and the spouse only lives there and receives distributions, the court will generally not count the trust as that spouse’s property. It will, however, treat the years of housing and distributions as a financial resource, pushing up the other party’s percentage. In other words, living there is itself evidence of being “able to benefit from the trust”.
So when the other party says “it is all in the trust, I have nothing” while receiving benefits, there are only two possibilities. Either they truly do not control it, in which case take the financial resource route and join the parents-in-law and the trustee company to the case, or their declarations are untrue and their credibility collapses. Neither path is bad for the honest party. Centrelink declaration records can be obtained by subpoena and are very strong evidence.
If you are the excluded party, how to investigate the assets
1. Make good use of the other party’s disclosure obligations. Both parties have a duty of full and frank disclosure, including for trusts and companies they control or have an interest in. This covers the trust deed and all amendments, financial statements, tax returns, distribution resolutions and loan dealings with the trust. Make a formal request first, listing each item clearly.
2. If the other party does not cooperate, use the court’s tools. You can apply for a subpoena to obtain documents from third parties such as accountants, banks and Centrelink. You can search the company register for directors and shareholders, and the title register for properties and caveats. Where a party refuses to disclose, the court may draw adverse inferences against them and penalise them in costs.
3. For complex money flows, engage a forensic accountant. Transfers between several companies and several trusts are hard to understand by reading the statements yourself, and a professional analysis can often find the key.
Nine self-check questions on whether your family’s trust will go into the asset pool
1. Are you or your spouse a trustee? A director or shareholder of the trustee company?
2. Who is the appointor? Who has the power to replace the trustee?
3. Are you or your spouse within the range of beneficiaries? Even if not a cent has ever been received.
4. Who has the trust distributed to over the years? Whose account did the money end up in?
5. Does the trust owe you or your spouse money on its books, such as amounts distributed but not paid, or a loan account?
6. If other family members control it in name, who is actually making the decisions and who is signing?
7. Around separation, were the deed, the trustee or the appointor changed?
8. Where did the money in the trust originally come from, and who built it up?
9. Is what you or your spouse declared to Centrelink and the tax office consistent with what you plan to say in court?
If the answers to the first three questions all point to one spouse, the trust is very likely to be treated as property. If the answer to the fifth question is yes, that part is property, regardless of who is in control. The sixth question decides whether “nominal control” can stand up. The eighth question does not affect characterisation and affects how things are finally divided. If the answer to the ninth question is no, think it through before going to court.
If you are the party wanting to use a trust to protect family assets
A true intergenerational trust is one where the previous generation arranges control and the beneficiaries clearly at the time of establishment, and where the person holding control is not the one facing separation. Hastily amending the deed before separation to kick the spouse out will most likely be useless, may be set aside, and may affect the judge’s impression of you. To protect pre-marriage family assets, a financial agreement is one tool. It has its own risks, which I will write about separately.
A few words from the heart
I have seen too many families who, in order to “hide”, turned something that could have been properly talked through into years of litigation, spending more on legal fees than the part being fought over. I have also seen cases like Caldwell, where the first-instance decision was not right, the wife persisted with an appeal, the Full Court corrected it and the High Court declined to hear it further, and only after three years was the result settled.
I have seen too many families who, in order to “hide”, turned something that could have been properly talked through into years of litigation, spending more on legal fees than the part being fought over. I have also seen cases like Caldwell, where the first-instance decision was not right, the wife persisted with an appeal, the Full Court corrected it and the High Court declined to hear it further, and only after three years was the result settled.
Related cases
Kennon v Spry [2008] HCA 56
High Court. A trust controlled by the husband was held to be property of the marriage, and the arrangements around separation to exclude the wife and transfer assets were set aside. The two preconditions for deciding whether a trust is property, control and capacity to benefit, were established here.
Caldwell & Caldwell [2026] FedCFamC1A 81 (first instance [2025] FedCFamC1F 506)
Full Court decision of May 2026. A four-generation family trust from which the wife had been excluded by the deed. The Court still held that the trust was the husband’s property, because being able to take control today is having control. The High Court refused special leave to appeal in September 2026.
Harris & Harris [2011] FamCAFC 245
Control was in the hands of the husband’s mother. The trust was not the husband’s property, but a very significant financial resource.
Harris & Dewell and Anor [2018] FamCAFC 94
A unit trust held by the father was managed in practice by the husband. There was no evidence that the father was a puppet. The trust was not property but a financial resource.
Morton & Morton [2012] FamCA 30
The trustee company was held half each by the husband and his brother, neither could decide unilaterally, and the trust was not the husband’s property.
Hall v Hall [2016] HCA 23
High Court. Money a party can expect to keep receiving from family is a financial resource that must be considered, even if it is not property.
Visit or Contact Us
📍 68 Bryants Road, Shailer Park QLD 4128
📞 (07) 2810 5666
🌐 www.wglawyers.com.au
✉ info@wglawyers.com.au
Disclaimer
This article is general information only and does not constitute legal advice under Australian law. For advice specific to your situation, please contact W & G Lawyers. For further details, please click here to view our disclaimer.