Trusts in Family Law: How the Family Court Treats Discretionary Trusts in High-Net Worth Property Settlements 

In Victoria, high-net-worth separations often involve far more than co-owned real property and bank accounts. Many families structure wealth through discretionary trusts, corporate trustees, and layered investment entities designed for asset protection, tax planning, and intergenerational succession. When a relationship breaks down, those structures are placed under scrutiny by the Family Court. A central question quickly emerges: is the trust treated as property available for division, or merely as a financial resource influencing the settlement outcome? 

For business owners, medical professionals, investors, and families with complex wealth arrangements, understanding how a discretionary trust family law Victoria dispute is assessed can significantly affect a property settlement outcome. The Court’s approach is heavily shaped by authorities such as Kennon v Spry, one of the most influential High Court decisions on trusts in family law. Issues including the control test, trustee influence, and the distinction between a trust as property versus a trust as financial resource are central to disputes involving sophisticated HNW asset structures. 

This article explains how Australian courts assess discretionary trusts in Victorian family law proceedings, the relevance of Kennon v Spry, and the legal risks high-net-worth individuals should understand before separation. 

How the Family Law Act Applies to Discretionary Trusts 

In Australia, discretionary trusts are assessed in family law proceedings under the Family Law Act 1975 (Cth), particularly section 79, which gives the Court broad powers to alter property interests between parties following separation. In high-net-worth disputes, a key issue is whether trust assets form part of the matrimonial asset pool or whether they are treated only as a financial resource available to one party. The distinction can significantly affect the outcome of a property settlement. 

Under Australian family law, a trust does not automatically fall outside the Court’s reach simply because assets are held by a trustee. Instead, the Court examines the practical reality of the arrangement, including who controls the trust, who benefits from it, and how the structure operated throughout the relationship. This approach is commonly referred to as the control test. 

The leading authority is Kennon v Spry (2008) 238 CLR 366, where the High Court held that assets within a discretionary trust could be treated as property of the marriage because the husband exercised extensive control over the trust as trustee, appointor, and beneficiary. The decision confirmed that a discretionary trust may constitute a trust as property where one party effectively controls the structure and can access its assets or income at will. Kennon v Spry remains one of the most influential authorities in any discretionary trust family law dispute involving sophisticated HNW asset structures. 

However, not every trust will be treated as property. In some cases, the Court may classify the trust as a trust as financial resource only, meaning the assets are not directly divided but may still influence the settlement outcome. This distinction often arises where a party has limited authority over distributions or lacks practical trustee influence. 

The Full Court’s decision in Bernard v Bernard [2019] FamCAFC 75 reinforced the importance of examining actual control rather than formal legal titles alone. Courts will look beyond trust deeds and corporate structures to determine whether a party has genuine influence over trust assets during property settlement proceedings. 

How Courts Determine Whether a Trust Is Property or a Financial Resource 

When Will a Discretionary Trust Be Treated as Property? 

The Family Court does not automatically exclude trust assets from a property settlement simply because they are held through a discretionary trust. Instead, the Court examines whether one party exercises sufficient control over the structure for the assets to be treated as part of the matrimonial property pool. In many discretionary trust family law Victoria disputes, this becomes one of the most contested issues in the proceedings. 

A key consideration is the extent of a party’s practical control over the trust. Courts assess whether the individual acts as trustee, appointor, director of the corporate trustee, or holds powers to remove trustees. Disputes involving trustee removal powers can significantly affect how courts assess control of the structure. The Court also considers whether the party can influence distributions or access trust assets for personal use. This analysis is commonly referred to as the control test. 

The High Court’s reasoning in Kennon v Spry remains central to this assessment. In that case, the husband’s extensive authority over the trust structure led the Court to conclude that the assets could be treated as a trust as property under section 79 of the Family Law Act 1975 (Cth). The decision confirmed that courts focus on practical control rather than formal legal structure. 

When Is a Trust Considered a Financial Resource Instead? 

A discretionary trust will not always be treated as a divisible property. In some cases, the Court may classify the arrangement as a trust as financial resource only. This occurs where a party may benefit from the trust but lacks meaningful control over trust decisions or distributions. 

For example, a beneficiary of a family trust may receive occasional distributions without exercising authority over the trustee or trust administration. In those situations, the Court may regard the trust as relevant to future financial capacity rather than property available for division. 

Even where trust assets are excluded from the property pool, the Court may still consider the trust when determining an appropriate adjustment between the parties. Ongoing access to trust income or family-controlled wealth can influence the settlement outcome, particularly in matters involving sophisticated HNW asset structures. 

What Evidence Do Courts Examine in Trust Disputes? 

Courts examine far more than the trust deed itself. Judges analyse how the trust operated throughout the relationship and whether trust assets were effectively treated as personal assets by either party. 

Relevant evidence commonly includes financial statements, trustee resolutions, taxation records, loan agreements, distribution histories, and company documents linked to the corporate trustee. Courts may also examine whether trust funds were used to pay personal expenses, acquire family assets, or support the parties’ lifestyle during the relationship. 

The Court will also scrutinise changes made shortly before separation, including trustee removals or asset transfers involving related entities. Attempts to restructure wealth before proceedings may attract heightened scrutiny, particularly where significant trustee influence remains despite formal structural changes. 

What Issues Commonly Arise in Discretionary Trust Family Law Disputes? 

One of the most common disputes in a discretionary trust family law matter arises where one party argues that trust assets should remain outside the matrimonial property pool despite exercising substantial control over the structure. This frequently occurs in high-net-worth separations involving family businesses, medical practices, property investment entities, and intergenerational wealth arrangements. Courts will closely examine whether the trust operated as a genuine independent structure or as a source of personal wealth controlled by one party throughout the relationship. 

Disputes often intensify where trust income funded the parties’ lifestyle over many years, including mortgage repayments, school fees, business expenses, or luxury assets. In these circumstances, courts may be less persuaded by arguments that the trust functioned entirely separately from the marriage. Where an individual acts as trustee, appointor, director of the corporate trustee, and beneficiary simultaneously, significant trustee influence may support a finding that the trust constitutes a trust as property under section 79 of the Family Law Act 1975 (Cth). The reasoning in Kennon v Spry continues to heavily influence how courts assess these arrangements. Related issues involving trustee removal powers can also become central to disputes about control of the trust structure. 

Another recurring issue involves trust restructures or asset transfers shortly before separation. In many high-value disputes, parties attempt to reduce exposure by resigning as trustee, transferring control to relatives, amending trust deeds, or altering distribution arrangements once relationship breakdown becomes likely. Courts examine the timing, purpose, and practical effect of those changes rather than relying solely on formal documentation. Attempts to distance assets from family law proceedings while retaining effective control can significantly damage credibility during litigation. These matters frequently overlap with broader discretionary trust disputes involving control, distributions, and asset protection strategies during separation. 

Complex HNW asset structures also create substantial evidentiary challenges during property settlement proceedings. Trusts are frequently linked to private companies, related entities, development projects, or layered borrowing arrangements requiring detailed forensic analysis. Obtaining disclosure often becomes one of the most contested aspects of the proceedings, particularly where historical trust records, financial statements, taxation material, and distribution histories are incomplete or controlled by one party. 

What Should You Do Before Pursuing or Defending a Discretionary Trust Claim? 

In a discretionary trust family law dispute, early strategic preparation is often decisive. Courts place significant weight on the practical operation of the trust, meaning parties should expect detailed scrutiny of financial records, trust governance, and historical control arrangements long before a final hearing occurs. Delays in securing documents or addressing inconsistencies can materially weaken a party’s position during negotiations or litigation. 

For parties seeking to include trust assets in the property pool, the strongest evidence usually relates to control and actual use of the trust throughout the relationship. Financial statements, trustee resolutions, taxation records, distribution histories, and correspondence concerning trust decisions can all assist in establishing whether the trust operated as a source of personal wealth. Evidence that trust income funded family expenses, business activities, or asset acquisitions may support arguments that the structure should be treated as a trust as property rather than merely a trust as financial resource. 

For parties defending trust structures, courts will closely examine whether the trust genuinely operated independently from personal finances and whether other beneficiaries maintained meaningful interests in the structure. Attempts to alter trustee arrangements, transfer control, or amend trust deeds shortly before separation can attract heightened judicial scrutiny, particularly following authorities such as Kennon v Spry. 

In high-value matters involving sophisticated HNW asset structures, effective strategy requires coordinated family law, commercial, and estate planning advice from the earliest stages of the dispute. 

Frequently Asked Questions 

What Happens to a Discretionary Trust After Separation in Victoria? 

Discretionary trusts can significantly affect the outcome of a family law property settlement, particularly in matters involving family businesses, intergenerational wealth, and complex HNW asset structures. Whether a trust is treated as property or as a financial resource will depend on issues such as control, trustee influence, and the practical operation of the structure throughout the relationship. As Kennon v Spry demonstrates, courts will closely examine the reality of the arrangement rather than relying solely on formal trust documents. 

Pentana Stanton Lawyers advises clients across Victoria on complex family law disputes involving discretionary trusts, property settlement matters involving sophisticated asset structures, and estate planning strategies designed to protect long-term wealth. To arrange a confidential consultation, contact Pentana Stanton Lawyers today.