Everything you know about protecting family trusts in divorce is now outdated. Family trusts divorce Caldwell case 2025 just changed the rules for every Australian family lawyer.
Are family trusts protected when it comes to asset division during a divorce? This is an issue that’s been litigated over and over again throughout the years, particularly in the context of property settlement proceedings. Our understanding of the role of trusts in divorce property settlement claims, and how they are treated within the property pool for division, is still evolving. In 2025, the Family Court ruled on a case that may have significance going forward for the way trusts are considered when dividing the property pool in a property division. Let’s look at what this case study teaches us.
Key takeaways
The Caldwell case demonstrated that family trusts may protect assets.
There’s a difference between property and financial resources.
Property can be owned and divided.
Financial resources affect a party’s future needs.
Certain factors increase the chance of a trust being protected from a settlement.
Follow our steps to ensure your trust is handled appropriately.
What is a family trust?
Before we get into the weeds about the Caldwell case, let’s briefly touch on what a family trust is. Trust structures hold family assets in a tax-effective way and can play a significant role in the property settlement process during divorce. One of the big advantages of a trust is that it can generate income to beneficiaries, which may impact how the property pool is assessed and divided. The major players in a trust are:
The trustees. Trustees handle the daily operations of the trust. They decide when distributions are made and to whom.
The appointors. The appointors decide who the trustees will be. They can also remove a trustee when they see fit.
The beneficiaries. These are the parties the trust was set up to benefit. They receive income distributions when the trustees approve the payments. Trusts may have multiple beneficiaries.
Transferring assets into a family trust may have strategic advantages. For example, trust assets may be shielded from creditors in bankruptcy. But what about divorce, especially when one or both properties are involved in the trust and become part of the asset pool?
In family law proceedings, the treatment of trust assets is a complex issue, and the Family Court will closely examine whether those assets form part of the property pool for division under family law. We’ll get to that.
Family trusts divorce Caldwell case: What the Family Court decided
The Caldwell case gives us insight into how the Court approaches a property settlement involving a family trust, particularly when trust assets are held for the benefit of family members and one or both parties to the relationship.
In family law, the Court must determine whether those trust assets should be included in the asset pool for division. Let’s look at the facts of the case.
Facts of the case
The property pool was valued at between $16 million to $22 million (excluding trusts and business interests).
The dispute centred around 3 discretionary trusts and interests in multiple businesses. One of the businesses was multi-generational and had not been contributed to by either party.
The wife argued that the trusts should form part of the marital pool as the husband received control of the trusts after his father’s death.
The husband was an appointor of the trusts alongside his family members. As appointors, they could assign and remove trustees. The trustees control daily trust administration and determine when to make distributions and to whom.
The husband was a beneficiary of the trust, but had never received an income distribution. The wife had been excluded from being a beneficiary during the marriage.
The decision
The Court did not believe the trusts should be a part of the property division. Here’s why.
It was clear that the family trust was established to benefit the husband’s family, as evidenced both by the terms of the discretionary trust deed and the way it had always operated. In the context of family law and property settlement proceedings, the wife being excluded as a beneficiary was also an obvious signal that the trust was not intended to benefit her.
Many would say that a property pool worth over $10 million is quite large. The Court could make a just and equitable division for the wife, even without the trusts.
The husband never got any distributions. Not benefiting from the trust during the marriage made it more of a resource than an asset.
The husband was one of several appointors. He didn’t have effective control of the trust’s assets, which was a key factor in the Court’s assessment of asset protection. As a result, the trust didn’t belong to him for the purposes of the family law proceedings or asset division.
Property vs financial resources: The critical distinction
In family law, there’s a distinction between property settlement and financial agreement. Here’s how it breaks down.
Property
Anything that can be owned and divided by the Court is considered to be property. This encompasses a wide range of assets, including:
Real estate.
Bank accounts.
Share portfolios.
Superannuation.
Division is determined by each party’s contributions to the marriage and their future needs.
Financial resources
The Family Law Act doesn’t provide a strict definition of a financial resource. In family law matters, the court has a broad scope to determine the treatment of financial resources based on the particulars of each case. Resources are generally financial means that can be drawn upon at a future date, and this may include interests in a family trust established for the benefit of a family group. Such structures are sometimes used to shield assets, but their treatment will depend on the circumstances.
This may include:
The capacity to take out a loan.
Future pension payouts.
Compensation claims.
Expected inheritances.
Under some circumstances, a beneficiary’s interest in a trust.
These kinds of resources aren’t divided during a settlement, but they will likely influence the Court’s consideration of each party’s future needs.
Why family trusts don't provide absolute asset protection in the event of a divorce
Even though assets held in a trust may be protected in some cases, they may not provide cover in your own circumstances. The Court will consider family trust assets in the context of each situation.
When family trust assets may be protected
When is the Court more likely to exclude a trust from the settlement process? There are several factors that may increase the chances of a trust holding up to scrutiny:
The trust was established more than 10 years before the marriage. The trust doesn’t contain joint assets and was only contributed to by one partner.
The trust should be maintained separately from the marriage. If the trust is used like a marital asset, it’ll be treated like one by the Court.
Trustees and appointors have a lot of control over a trust. The people in those roles should be independent. Neither former spouse should have significant control.
What’s the reason for the trust? If the trust is part of an estate plan to protect inter-generational wealth, there’s more of a chance that the Court will respect that intent. A judge can tell when a trust has been created to hide assets. Arranging a trust at the last minute won’t fool anyone.
Practical steps if you have family trusts in your separation
Are you going through a divorce and have a trust to worry about? Follow our four-step process.
Step one: Asset pool disclosure
Provide the trust deed and the trust’s financial statements. Identify all of the trustees and appointors, as well as the beneficiaries. Disclose documentation for any distributions made over the course of the trust’s existence. Provide a complete list of all assets contained in the trust, such as:
Real estate.
Share portfolios.
Bank accounts.
Art or collectibles.
Liabilities.
Step two: Document your role
Detail what your role is in the trust. Here’s some information you may need to include.
Trustees
When you became a trustee.
Your obligations to the trust.
Decisions you’ve made regarding distributions or investments.
Records such as income statements and financial reports.
Whether you acted independently or in conjunction with other trustees.
Appointor
Your powers as set out in the trust deed.
Any trustee appointments or removals you made.
Who takes your place if you die or become incapacitated.
Beneficiary
A copy of the trust deed listing you as a beneficiary.
Financial records of any distributions you have received.
Documentation of any involvement you had.
Step three: Detail the trust's history
Show when the trust was created. Was it formed during the marriage? Has it been operating for decades? Provide evidence for why the trust was made. For example, it could be part of a long-term estate plan. Identify who contributed the trust’s assets and how it has operated. Has it made any distributions? What is its succession planning?
Step four: Seek legal advice
Trusts are complicated. It’s essential to consult family lawyers with experience handling fixed trusts, especially where there are concerns about attempts to hide assets in the context of a property settlement. It’s also valuable to work with an accountant to cover all financial and tax planning and tax purposes.
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Conclusion
Trusts are often used to provide long-term financial spousal support to future generations and to protect assets within the family. But what if a beneficiary is getting a divorce under family law? Trusts can fit into all kinds of settlements, whether through a binding financial agreement or by seeking a court order.
The court considers how trusts are treated on a case-by-case basis in family law proceedings. The Caldwell case demonstrates how effective a trust can be to shield assets, but that finding was based on specific facts.
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Frequently asked questions
Are family trusts protected in divorce in Australia?
No, family trusts do not provide absolute protection in divorce. The 2025 Caldwell case confirmed that while trust assets cannot be directly divided, they are considered financial resources that influence the overall property settlement. Courts examine who controls the trust, who benefits, timing of establishment, and purpose.
What did the Caldwell case decide about family trusts in divorce?
The Caldwell case (2025) decided that discretionary trusts and their assets are NOT property under section 4 of the Family Law Act 1975 (cannot be directly divided), but ARE financial resources under section 79(5) (considered when determining fair property settlements). This means trust assets influence settlements even though they cannot be directly transferred.
What is the difference between property and financial resources in divorce?
Property refers to assets courts can directly divide (houses, cars, bank accounts). Financial resources are assets or income streams a person has access to but courts cannot directly divide (trust distributions, inheritance expectations). Courts consider financial resources when determining how to fairly divide property under sections 4 and 79(5) of the Family Law Act 1975.
Can I protect my assets from divorce by putting them in a family trust?
Not reliably. Courts look at substance over form, examining who controls the trust, who benefits, when it was established, and its purpose. Trusts created to avoid fair settlements may be ignored. Trusts established 10+ years before marriage with legitimate purposes and independent trustees may provide some protection if sufficient other assets exist.
How are discretionary trusts treated in divorce settlements?
Discretionary trusts are treated as financial resources, not property. Courts cannot directly divide trust assets but consider them when determining fair property settlements. Courts examine trustee control, beneficiary status, distribution history, timing of establishment, and whether the trust represents the labours or contributions of either party.
What factors do courts consider with family trusts in divorce?
Courts consider: when the trust was established, why it was created, who controls it (trustees, appointors), who benefits from it, distribution history, whether it represents either party’s contributions, whether there are sufficient other assets for fair settlement, and whether the trust was created to avoid obligations. Courts look at substance over legal form.
What mistakes should I avoid with family trusts during divorce?
Avoid: hiding trust arrangements (courts impose penalties), manipulating trust distributions during proceedings (looks suspicious), assuming trusts are untouchable (causes unrealistic expectations), DIY trust analysis (missing complex issues), and creating trusts during separation (courts will likely ignore). Full disclosure and expert advice are essential.
Can my ex-spouse claim assets in my family trust?
Not directly, but trust assets influence the overall property settlement. If you control the trust or benefit from it, courts consider this when dividing other property. The Caldwell case confirmed trust assets are financial resources that affect what is fair, even if your spouse cannot claim them directly.
