Important Developments: Relationship Property and Family Trusts
The impact of the two Supreme Court Clayton decisions has been a hot topic with lawyers who specialise in trust and relationship property law.
The consequence of the decisions is that it has become more important than ever for people in a relationship to ensure that they have adequate protection in the form of a relationship property agreement and that they regularly review the terms of their agreement and trust structure to ensure that it is updated, complies with the current laws and reflects their wishes and intentions.
The Clayton decisions dealt with the fall out following an acrimonious separation between Mr and Mrs Clayton and division of their substantial property and trust interests. There were two trusts involved:
1. The “Claymark Trust”
The “Claymark Trust” was a discretionary family trust settled by Mr Clayton after the birth of the parties’ second child, for the benefit of himself, his wife, or any former wife or widow and his children. Mr Clayton argued that the trust was set up primarily for business purposes (to acquire and isolate the trust’s assets from bank guarantees). The Court however found that the trust constituted a “nuptial settlement” as it was set up for the benefit of both of the parties to the marriage and their children.
If you have a partner, and are considering forming a trust, or if you have an existing trust and enter into a relationship, it is now even more important than ever to ensure that you enter into a satisfactory relationship property agreement. These agreements will assist in protecting separate property and remove doubt regarding the intentions of the parties.
2. The “Vaughan Road Property Trust”
The second trust “Vaughan Road Property Trust” was set up by Mr Clayton shortly after the parties’ marriage. The property at Vaughan Road owned by Mr Clayton prior to the marriage was transferred to the trust (at that time the property was valued at $500,000). During the marriage, the value of the property increased considerably.
Mr Clayton was both the settlor of the trust, the sole trustee and principal beneficiary. He had power to appoint and remove the directors of the trustee company and the trustees themselves. He also had the power to exclude beneficiaries and to allocate all the capital of the trust and income to himself as well as the ability to choose the vesting date in order to distribute the trust’s assets. In essence he had complete control.
The Supreme Court held that the control that Mr Clayton had over the trust constituted property as defined in the Property (Relationships) Act and that the trust had benefitted from relationship property which increased the value of the assets of the trust during the marriage. As such, the increase in the value of the property (over and above its initial value of $500,000) was deemed to amount to relationship property to be shared equally.
Once again, this aspect of the decision reinforces the importance of relationship property agreements for people who wish to protect separate property owned by them prior to their relationship (be it de facto, marriage or civil union). We also recommend that relationship property agreements are reviewed on a regular basis to ensure that they do provide the protection that has been sought. In light of these recent developments, we recommend that you contact our family law team as soon as possible if you are contemplating entering into a de facto relationship or marriage and you would like us to consider your current trust/relationship property structure in order to ensure that it is providing the protection that has been sought.
This article has been prepared by Wendy Andrews, Consultant at Turner Hopkins who works in conjunction with Michael Robinson (Partner) and Sharon Chandra (Senior Solicitor) in our Family Law team.
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