When family lawyers or judges come to consider how to divide property between the parties to a relationship that has broken down, what do they do?

Most of the approach is clear.  The first step is to identify existing legal rights in property.  Then, it is to find out whether there is any order that needs to be made to separate the property.  If the parties have kept their finances separate, there is nothing in common, in some circumstances the court might decide to do nothing.  If it decides that something has to be done, then the court looks at the contributions that each party has made to the acquisition, conservation or improvement of property and what are loosely called the "future needs aspects".

But what does the court do with an interest in a family trust? Well, it depends upon the interest.  If you are simply a discretionary beneficiary of a trust, and have no control over it and cannot determine whether the trust makes any distributions to you or not, then what you have as an interest in that trust is not property.  It is what the Family Court calls a financial resource.  Therefore, that interest cannot be treated as property and cannot be divided. 

But it can still be relevant. It can come into play in the step involving the future needs of each of the parties.  One party might have a resource or an income stream potentially that the other does not have.  The High Court of Australia in Hall & Hall said, when discussing what a financial resource might be, that it is a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency. 

The court said "it must involve something more than an expectation of benevolence on the part of another.

But it goes too far to suggest that the party must control the source of financial support… a nominated beneficiary of a discretionary trust, who has no control over the trustee but who has a reasonable expectation that the trustee's discretion will be exercised in his or her favour, is a financial resource to the extent of that expectation".

This was recently considered again in the case of Gadde & Gadde which one of our Senior Associates, Louise Carter, was involved.  In that case, the judge observed that while the wife was a beneficiary of a trust that had a lot of money in it, and had received benefits in the past, during the marriage she received no benefits, other than loans, and not gifts or distributions.   While the judge said that there was a suspicion that she may benefit from the trust, there had to be more than a mere suspicion.  As the High Court said, the wife's benefit had to be "reasonably expected to be forthcoming" should she call upon it.  The judge said that the circumstances could go no higher than that the trust might help her. Therefore the judge gave no significance to the wife's role as a discretionary beneficiary.

Had the circumstances been otherwise, that during the period of the marriage the wife had received regular distributions from the trust, no doubt the judge would have found that she had a financial resource, and that it should be taken into account. The problem that then frequently arises is: how is it brought to account, and what value might it have?  In that circumstance a judge will often simply "take it into account" in an undefined way that could be significant, but significantly difficult to explain.