Discretionary trusts are widely used to hold business interests, investment property and intergenerational wealth, and business owners often assume that structure alone keeps assets out of a family law property settlement. It does not. Whether a discretionary trust is protected from division depends on control, not the trust deed’s wording, and family courts will look past the paperwork to work out who is actually running the trust when a marriage or de facto relationship ends.
How Family Courts Treat Discretionary Trusts in Property Settlements
The leading authority remains Kennon v Spry, the 2008 High Court decision that examined a discretionary trust where the husband was settlor, trustee and beneficiary. The Court found the trust assets could be treated as property of the marriage under section 79 of the Family Law Act 1975, because he exercised effective control over the trust in substance, despite a trust deed describing a discretionary structure with no fixed entitlements. That decision continues to shape how the Court approaches trust interests today.
The practical approach illustrated by Kennon v Spry looks beyond the trust deed to ask who genuinely controls and operates the trust. The roles of the trustee, appointor and beneficiaries are therefore important when assessing where control sits.
Warlows Legal’s guide to discretionary trusts in Australia explains how these roles operate and the different powers they can have within a trust structure. Trusteeship, the appointor role, a pattern of distributions and, where a corporate trustee is used, control of that company as a director can all be relevant to the Court’s assessment.
Where one party holds substantial control over the trust, the relevant trust interest may be treated as property available for division. Where control is genuinely shared with independent trustees or other beneficiaries, the Court may instead consider the nature of the party’s interest as a financial resource relevant to the overall property settlement.
This is not a simple rule that control automatically converts every trust asset into matrimonial property. The Court still has to characterise the specific interest and apply the statutory framework to the facts before it, which is why a trust’s history can be as important as its current structure.
Disclosure Obligations Now Name Trust Interests Directly
Since 10 June 2025, the Family Law Amendment Act 2024 has changed how property settlements are approached. As the Federal Circuit and Family Court of Australia confirms, the court now applies a clearer framework for identifying the parties’ existing legal and equitable rights and interests before assessing contributions and future needs.
The elevated disclosure duty applies from the point a party is preparing to start a property proceeding, and extends to trust and company interests, not only assets held in a party’s own name.
For business owners and high net worth clients, a trust cannot be left off a financial disclosure because a party is not a named trustee or fixed beneficiary. If the trust forms part of either party’s practical financial position, it needs to be disclosed and explained, including who controls it and how distributions have historically been made.
Trust Deeds Do Not Override the Court’s Powers
A discretionary trust can also raise issues that go beyond the two separating parties. Part VIIIAA of the Family Law Act 1975 gives the court specific powers to make orders and injunctions binding a third party, including a trustee, where statutory requirements are satisfied.
Section 90AE lets the court make an order under section 79 directing a third party to do something in relation to the property, or altering that third party’s rights, liabilities or property interests. Importantly, section 90AC of the Family Law Act 1975 provides that this part of the Act has effect despite anything to the contrary in a trust deed or other instrument, so a trust deed cannot itself block an order the court is otherwise empowered to make.
This does not mean every trust automatically becomes a party to a property settlement. Where a significant portion of the asset pool sits inside a trust, however, the trustee’s rights or interests may be directly affected, and its involvement can become both a procedural and a substantive issue.
This has real consequences for corporate trustees and their directors. Where the same individuals control the trustee company, operate the business and decide on trust distributions, the court may need to examine the relationship between those entities rather than treating each structure in isolation.
Binding Financial Agreements: Where They Help, and Where They Do Not
Binding financial agreements are often raised as a way to protect trust assets in advance, and they can play a genuine role. We cover the drafting requirements in our article on binding financial agreements under the Family Law Act. A properly drafted agreement between the parties can set out how business and trust assets will be treated if the relationship ends, and can reduce the scope for dispute.
What a binding financial agreement cannot do is bind a trustee or other third party who is not a party to it. If a trust holds significant assets and the trustee has not agreed to be bound, the agreement only governs the position between the spouses, not the trust’s separate legal position. Where control is genuinely shared with independent parties, that gap can matter a great deal, which is a reason to review trust structures and financial agreements together.
What Business Owners and Trustees Should Review Now
A practical review for anyone holding assets through a discretionary trust should cover who holds the trustee and appointor roles, whether distributions have consistently favoured one party, whether a corporate trustee’s directors reflect the intended control, and whether agreements or trust deeds have been updated since circumstances last changed.
Strategic Advice on Trust and Family Law Structures
Warlows Legal advises business owners and trustees through our family law and wills, trusts and estate law teams, helping clients understand how trust and corporate structures are likely to be treated in a property settlement and how to structure control and agreements accordingly.
If your business or family wealth is held through a discretionary trust and you have not reviewed how it would be treated in a family law dispute, now is a good time to do so. Request assistance from Warlows Legal to arrange a confidential discussion about your structure.
This article is general information only and does not constitute legal advice. You should obtain specific advice tailored to your circumstances before acting on anything in this article.
