Trusts have suffered another setback from a recent Court decision awarding an ex-wife almost a quarter of a million dollars, even though the trust was established before the marriage with assets held before the marriage.

The Supreme Court has overturned decisions made by the High Court and the Court of Appeal and allowed a spouse to receive assets from her spouse’s Family Trust as part of a relationship property division.

The Courts have in the past considered this in situations where marriages have been over 10 years in duration and/or where there were children of the spouses together.  In this particular case the parties were married under 5 years and the assets were not transferred during the marriage. They also had children to previous relationships.

Both the High Court and the Court of Appeal agreed that the husband, by adding his spouse to the Trust as a discretionary beneficiary during the marriage, constituted a “nuptial settlement” or created an interest in property not part of the relationship property pool of assets.

However, these Courts indicated that any award to the wife should not be given because there was no guarantee she would be provided for under the Trust due to her interest being at the discretion of the Trustees.

The Courts in the past have said there is a two stage process in determining this type of application.  The two steps to determine for the Courts were whether there was a nuptial settlement by adding the spouse as a  beneficiary to the trust, and whether discretion should be given to provide for that spouse under the Trust. 

The Supreme Court in this case added a third stage.  The Court said that it is important to assess whether there was a difference in position of the spouse who was added as a beneficiary upon the marriage ending, and what position they would have been in had the marriage continued.  If there was a difference, then discretion should be given to provide for that spouse out of the Trust. 

In simple terms the wife was added as a beneficiary and if the marriage continued she stood a good chance of receiving a benefit of property under the Trust.

This position after the marriage ended was completely different, as her chances of receiving something under the Trust significantly diminished with the relationship ending.  The woman was granted a sum of $243,000,which reflected about 15% of the value of the equity in the trust assets.

It is important therefore to think about whether a partner or spouse should be added as a beneficiary of a Trust, and if they are, to provide clarity as to whether they would still benefit if the marital relationship was to end.

It is likely the case that had the husband not added his wife as a discretionary beneficiary, the wife would have likely not succeeded in her claim and the Trust assets would have remained outside of the property available to divide.