Trust assets and separation: the lesson from Caldwell & Caldwell

Many business owners and high-net-worth families assume that assets held in a discretionary trust can be excluded from the asset pool in a family law property settlement.

The decision in Caldwell & Caldwell [2026] FedCFamC1A 81 shows why that assumption can be unsafe and confirms that, trust assets may be treated as the property for the purposes of a family law property settlement, even where the trust was established by an earlier generation and forms part of a broader family business structure.

What happened in Caldwell?

The case concerned three discretionary trusts connected with a long-standing family business. The trusts had been established by the husband’s father and were part of an intergenerational business structure.

The wife sought a declaration that the trusts, or their assets, were property of the husband for the purpose of the parties’ family law property settlement.

At first instance, the Court held that the trusts were not property of either party. The primary judge placed weight on matters including that:

1. the trusts were established by the husband’s father;
2. the trust assets were generated through the husband’s family over several generations;
3. the wife was excluded as a beneficiary;
4. the husband had not historically treated the trusts as his own; and
5. the trusts were intended to preserve family wealth for lineal descendants.

The wife appealed.

By majority, the Full Court allowed the appeal and declared that the three trusts and/or their assets were property of the husband.

Why were the trusts treated as property?

The majority focused on the husband’s effective control of the trusts. Although other family members were involved, the husband had powers that enabled him to control the trust structure. In particular:

1. he could remove the parties’ adult sons as co-appointors or principals;
2. he had voting control through shares in the trustee companies;
3. he could influence or control the identity of the trustees;
4. he was a beneficiary of the trusts; and
5. the trust deeds permitted distributions to him.

The husband argued that he had not actually exercised those powers. The majority rejected that argument. The key question was not whether the husband had already exercised control, but whether he had the present ability to do so.

That distinction is critical. A party may not avoid a finding of control simply by choosing not to exercise powers that are already available.

Why the decision matters

The decision does not mean that the wife will necessarily receive a share of the trust assets.

The majority drew an important distinction between:

1. whether the trusts are property for family law purposes; and
2. whether it is just and equitable to make orders altering interests in that property.

Matters such as the origin of the assets, the purpose of the trusts, contributions by other family members and the interests of third parties may still be highly relevant when the Court decides the final property settlement.

However, those matters did not prevent the trusts being characterised as property where the husband had effective control and could benefit himself.

Caldwell challenges the common belief that family trust assets are protected from family law claims.

The more accurate position is that trust assets may be:

1. treated as property of one spouse where there is sufficient control and capacity to benefit;
2. treated as a financial resource in other cases; or
3. excluded from the asset pool in some cases.

The Court will examine the legal and practical reality of the structure, including:

1. who can appoint or remove the trustee;
2. who controls the trustee company;
3. who holds voting rights;
4. whether a spouse can remove other appointors;
5. whether a spouse is a beneficiary;
6. whether income or capital can be distributed to either spouse;
7. how the trust has historically been used; and
8. whether amendments were made before or after separation.

The decision is particularly relevant to:

1. family business operators;
2. farming and rural families;
3. appointors and beneficiaries of discretionary trusts;
4. families with inherited or intergenerational wealth;
5. high-net-worth individuals; and
6. parents undertaking succession or estate planning.

Trust structures should be reviewed not only for tax and asset protection purposes, but also for family law risk. Control mechanisms that appear routine in a trust deed may have significant consequences if a relationship breaks down.

How Baker Love Lawyers can assist

Baker Love Lawyers is a long-established Newcastle law firm assisting clients across family law, commercial law, property law, wills and estate planning, estate litigation and commercial disputes. That combination of expertise is particularly important where family law proceedings involve trusts, companies or business assets.

Baker Love Lawyers regularly assists clients by:

1. reviewing trust deeds and advising whether trust assets may be property or a financial resource;
2. advising business owners before or after separation;
3. assisting with disclosure issues involving private entities;
4. negotiating property settlements involving trusts and businesses; and
5. representing clients in contested family law proceedings.

Where family trusts and separation intersect, early strategic advice can be critical. Every family structure is unique, and advice must reflect the specific circumstances of that matter. If you require any advice and/or representation in any family law matter involving corporate entities, please contact our firm and arrange a conference with Matthew Carney, Director and Accredited Specialist in family law on (02) 4944 3322.. If you would like tailored advice for your circumstances, contact Baker Love today to arrange a confidential consultation.

ABOUT MATTHEW CARNEY
Director | Accredited Specialist Family Law

Matthew provides practical and effective advice in all family law matters, including property settlements, parenting matters, divorce, child support, contravention, recovery and/ or relocation proceedings. Matthew’s experience also allows him to advise clients in matters involving corporate entities, complex tax structures, self-managed superannuation funds and international assets. He also has experience in high-risk children’s proceedings including matters in the Magellan list.

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