1. Trust assets and the Family
Court
How has the dust settled after Kennon v
Spry
Matthew Burgess
Partner
18 March 2013

2. Overview
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Basis of protection
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Kennon v Spry
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Family Law Act
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Cases since Spry
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Practical implications
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3. Specific themes
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Assets v Resources
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Resources v The vibe
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Intergenerational issues
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Structuring and estate planning
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4. Presentation
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Paper references
□ Protecting the Family Assets (Trusts and Divorce) by Arlene MacDonald (2010)
□ Trust – A Brave New World (Trust and Asset Protection Best Practice) by Ken
Schurgott (2011)
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Fantastic related sources
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Practically focused
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Interactive
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5. Background
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Trusts mean change
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Matrix
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Tax, Duty, Bankruptcy, Succession, Equity, Partnership
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Family v Spouse
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7. Basis of protection
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Structuring 101
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Richstar
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McPhail v Doulton
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DIY
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8. Example
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9. Kennon v Spry
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Facts are important
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Perceptions also key
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Initial reactions
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Pragmatic view
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Post Script
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11. Kennon v Spry timeline
Established trust
1968
Married
1978
Removed Dr Spry
as beneficiary
1983
Removed Mrs Spry
as beneficiary
Separated
1998
2001
Split trust
2002
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12. Kennon v Spry
■
The trust property was the property of the parties to the marriage
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The order of the family court to ‘do all things’ included making a trust
distribution
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Only extension of law is the definition of ‘property’
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Family Law Act supports argument that ‘property includes assets that a party
to the marriage may be ultimately entitled to’
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13. Family Law Act 1975
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Section 79 is key
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Resource v Property
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‘Notional’ pool
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Setting aside transactions
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Sham
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Altering third party ownership
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15. Cases since Spry
Four themes:
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Control
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Purpose
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Source of assets
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Testamentary Trusts
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16. Example
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17. Control – Beeson & Spence
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
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Beeson & Spence is an example of an unsuccessful attempt to quarantine a
discretionary trust from a property division
After separation, the wife made changes renouncing her power of
appointment and removing the husband and wife as eligible beneficiaries
The Court set aside these transactions
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19. Beeson & Spence
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By its plain terms, the trust was not established for the sole benefit of the
children but for the benefit of the family
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An unsigned memorandum of wishes prepared around the time of the
separation and provided the primary role of the trust was to benefit the
parties children was irrelevant
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The only available finding is that the trust was never created to benefit the
children alone but created to benefit the described beneficiaries which
initially included the husband and the wife as parents of the specified
beneficiaries
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The assets of the trust were included in the property available for division
between the parties
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20. Control – Morton v Morton
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

The trustee company, J Pty Ltd had two
ordinary shares, one owned by each of
the brothers
The brothers were both the directors of
the corporate trustee
The brothers jointly were the appointors
of the Trust
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22. Morton v Morton
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The court held there was a bona fide trust arrangement
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Insufficient evidence to convince the judge there was sufficient control over
the trust assets to follow Spry
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Interest in the trust treated as a financial resource only
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Neither brother had control
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23. Purpose – Harris v Harris
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Husband’s mother was the appointor
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Shareholders of the corporate trustee, X Pty Ltd, were the H’s mother, H’s son and H’s friend
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Assets of a family trust not included in the matrimonial property
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H did not control trust
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Indirect control = puppet situation
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Was H’s mother his alter ego?
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Evidence must be provided to support a puppet scenario
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Shifted focus from history of trust distributions
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25. Purpose – Keach & Keach and Ors
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The husband’s interest in a discretionary trust was not to be included in the
asset pool
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Facts
□ H’s father set up 4 trusts – one for each of his children
□ F wanted to protect the assets of the trust from any matrimonial breakdown
□ H and W lived in a house owned by the trust for many years
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26. Keach & Keach and Ors
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No sham
□ High threshold for ‘sham’
□ F’s intention was clear
□ F ‘controlled’ the trust
□ H had no ownership nor control
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Court could not include property of a third party unless there was a sham
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27. Purpose – Webster v Webster
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Court was prepared to treat the wife's interest in a discretionary trust (which
she controlled) as a financial resource and not the property of the wife, due
to the intent to set up the trust for the benefit of the children of the
marriage
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The wife's father set up a discretionary trust
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Under father’s estate plan, the capital of the trust was to be distributed
between the wife on her attaining 40 years and any of her children in such
proportions as the trustees then thought fit
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29. Source – Pittman v Pittman
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A discretionary trust with significant property valued in excess of $250
million
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Established in 1977
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The trust deed was amended fixing the entitlements of the nominated
beneficiaries (including the husband) to a 25% share each
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Assets of trust found to be property of the husband
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30. TDTs – Ward v Ward
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Will made post separation
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TDT set up
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Husband not a trustee
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Purpose admitted
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Not an asset, even though assumed assets would pass to husband
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32. TDTs- Lovine v Connor
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History of TDT and distributions
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Included as an asset, although wife made no contribution
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Overall contribution of total pool 75% in husband’s favour
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That was held insufficient for husband on appeal
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33. Practical Implications
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Structuring still important
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Early, often
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Solo approach risky
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Only constant = change
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35. Example
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36. Contact
Presenter:
Matthew Burgess
Position:
Partner
Direct line:
0403 209 977
Email:
mburgess@mccullough.com.au
Website:
www.matthewburgess.com.au
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