Case Note: Family Trusts and Property Settlements

Summary of Facts

The parties were married in 1978 and had four children together. During the marriage, the husband established and controlled a discretionary family trust. The trust held substantial assets and the husband had significant control over how the trust operated and who benefited from it. As the marriage began to deteriorate, changes were made to the trust structure that had the effect of limiting the wife's potential access to the trust assets.

Following separation, the wife sought property settlement orders and argued that the assets held within the trust should be taken into account when determining the parties' property interests. The husband contended that the trust assets did not form part of the matrimonial property pool because they were owned by the trust rather than by either spouse personally.

Kennon v Spry [2008] HCA 56

Legal Issues

The Court was required to determine:

• Whether assets held in a discretionary family trust could be treated as property available for division in family law proceedings.
• Whether the husband's control of the trust was relevant when assessing the parties' property interests.
• Whether transactions affecting the trust could be scrutinised by the Family Court when determining a just and equitable property settlement.

Decision

The High Court found that the trust assets could be taken into account in the property settlement proceedings. The Court recognised that while the trust assets were not held directly in the parties' names, the husband's extensive control over the trust and his ability to benefit from it made the trust relevant to the property adjustment process.

The Court upheld orders that effectively allowed the trust assets to be considered as part of the property available for division between the parties. The decision confirmed that courts are entitled to look beyond formal ownership structures and consider the practical reality of a party's control over wealth and financial resources. 

Why This Case Is Important

Kennon v Spry remains one of Australia's most significant family law decisions involving trusts. It dispels the common misconception that assets can be protected from family law claims simply by placing them into a family trust. Where a party retains significant control over trust assets, the Court may consider those assets when determining a property settlement.

The case is particularly relevant for business owners, professionals, farmers and families who use discretionary trusts as part of their asset-holding structures. It demonstrates that the Family Court will carefully examine the substance of financial arrangements rather than merely their legal form.

Key Takeaways

• Assets held in a family trust may still be relevant in a property settlement.
• The Court may look beyond legal ownership and consider who effectively controls the trust.
• Restructuring assets shortly before or after separation may not prevent those assets from being considered in family law proceedings.
• Trusts do not automatically shield assets from family law claims.
• Obtaining early legal advice is essential where trusts, companies or complex asset structures are involved in a separation.

Case Citation: Kennon v Spry [2008] HCA 56

This information does not constitute legal advice. You should consult with a lawyer to obtain independent legal advice relevant to your situation.