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Trust Assets: In or Out?

The first step in implementing a Family Law property settlement following separation, is to identify the asset pool available for distribution. Sometime this is straight forward, sometime it is not.

One common point of contention in this regard, is whether a spouse’s beneficial interest held in a discretionary trust should be treated as an asset, and therefore included in the matrimonial asset pool available for division, or whether the beneficial interest should be treated as a financial resource. If treated as a financial resource, the value of such interest does hit the botting line of the asset pool. This is not to say that it become irrelevant, rather, it will a factor which impacts on the just and equitable division of the (smaller) asset pool.

For example, the Husband may have a beneficial interest in a discretionary trust worth $500,000. The Husband and Wife own a home worth $1.5M, with a mortgage of $500,000. If the interest in the discretionary trust was treated as an asset, the net value of asset pool would be $1.5M, whereas if it were treated as a financial resource, the net value of the asset pool would be $1M. In the first scenario, the Wife may be entitled to 40% of the larger asset pool, whereas in the second scenario, she may be entitled to 50% of the smaller pool.

A key deciding factor as to whether an interest in a discretionary trust is an asset or financial resource, is control. If the beneficiary has actual control how and when the trust assets are distributed because they are also the trustee of the trust, chances are the interest in the trust will be treated as an asset. If the trustee of the discretionary trust is different and autonomous to the beneficiaries, an interested in a discretionary trust will most likely be treated as financial resource.

What constitutes a just and equitable division of the matrimonial asset pool will vary from case to case. Our team of lawyers are experience and ready to assist you in what can be a foreign and challenging process.

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