Trust, Home and Divorce

cauilfield on 31/12/2016 - 11:47

Hi All,

first of all, my question is raised for educational purposes only.

I totally understand that for all financial and legal advice I need to get in touch with the relevant professionals in the industry however, let's assume the following scenario:

Bob is a young professional providing consulting services. Bob is single. He sets up a Family Trust with a Corporate trustee (PTY LTD company).

Bob puts himself as a director.

All his income is being pushed into a trust. All income that has not been distributed to the beneficiaries attracts a huge marginal tax of 40+%. Bob is fully aware of this so he does distribution every year.

Bob is purchasing a house on a mortgage. He puts his family trust on title. He pays off his mortgage in X years time. Bobs Family Trust ends up with a clear title.

Bob gets married and they move together. X years later things change rapidly and Bob's missus files a divorce. What are the chances of her getting 50% of the house?

Scenario #1 - Bob is still a director of the corporate trustee. Theoretically, the court can make an order for Bob acting as a director of the trustee to sell the property ?

Scenario #2 - Immediately after acknowledging the court case Bob puts his Brother as a Company's Director. Would the court "freeze" the directorship?

Scenario #3 - Bob was a smartarse and put his Brother way before she files a divorce application?

In my understanding, only director of the trustee can make the decisions to sell the property ?

Financial

Comments

  • kingmw on 31/12/2016 - 12:22
    +1

    Not sure anyone can give you a straight answer to this.

    This article might shed some light for you though.

    http://www.hopgoodganim.com.au/page/Publications/Family_Law_…

    • cauilfield on 31/12/2016 - 12:46

      Nice one :) so if Bob transfers the directorship to his mother/brother they can be deemed to be in the indirect control? Interesting…

      • Kangal on 31/12/2016 - 17:34

        If Bob transfers it now, it would seem suspicious.
        And if the Wife (Deborah) manages to find any evidence that implies puppeteering, this only strengthens her case.

        It doesn't mean she will get more, it means she is more likely to take 50%.
        Unless Wife (Deborah) can prove Bob had an affair with (Alice) the wife of his Brother (Ted)….
        ….then she can potentially get higher %.

        Wether that's fair or not is a different matter all in itself.

  • try2bhelpful on 31/12/2016 - 13:37

    I work on the basis, you don't get married you can't get divorced; It has worked for my man and me for the last 36 years. It also helped that neither of us had anything substantial to bring to the table when we first got together. My suggestion is that "Bob" finds himself a solicitor and gets real legal advice, rather than asking us.

    • tsunamisurfer on 31/12/2016 - 15:06

      Legally married or not, Bob being the accumulator of significant assets is greatly exposed when a relationship (de facto or marriage) breaks down.

      I feel the law should protect Bob's assets from being taken away.

      • Baysew on 31/12/2016 - 15:12
        +3

        But Bob also had an affair with with his brother's(Ted) wife(Alice).

        • StewBalls on 31/12/2016 - 17:36
          +2

          Poor Carol…

      • try2bhelpful on 31/12/2016 - 15:56
        +1

        It depends on how long Bob has been married. Both parties bring different things to the table. The law recognises that one party may be more responsible for child care, house work, etc. There is also the issue of a depreciating asset; the other party may have significantly reduced their chance of a financially beneficial relationship by investing in this one. I know people whinge about gold diggers, but people who turn down potential partners just 'cause they aren't attractive enough are just as despicable. i have no problem with Bob protecting his assets as long as he makes it clear to the bride to be up front, so she knows exactly what type of guy she is dealing with. If she still says "OK" then fair enough.

  • Almost Banned on 31/12/2016 - 15:18
    +5

    Unfortunately for you the Family Court is a law unto itself and can disregard corporate and trust structures to determine effective ownership.

    • try2bhelpful on 31/12/2016 - 15:58
      +1

      So you mean they are taking into account all the assets of the marriage? OMG how unfair is that - sarcasm intended. Family trusts are about finding a way to cheat the taxman and, apparently, spouses. I have no idea why they are still allowed.

      • Almost Banned on 31/12/2016 - 16:32
        +1

        Seriously? The only reason you can think of for trusts is to 'cheat' on tax (not spouses as I already told you that this doesn't work)?
        There are many reasons for structures like trusts including to hold multi-generational assets, to provide for the disabled, to operate charities, to safeguard assets for true owners, and distribute royalties, among others.
        The fact that you are not smart enough to work out any of these things doesn't mean that they are not still useful vehicles and well known to the law and the ATO.

        • try2bhelpful on 31/12/2016 - 16:55

          You really think "Bob" was doing any of these things with his trust. I also think most of the things you have highlighted can probably be done without the need for a trus. . I will guarantee you that the majority of trusts are about tax minimisation and the fact that they are well known to the law and ATO does not mean that they are not being rorted by special interest groups. The ATO keeps losing cases in the courts which appear pretty straight forward, but the lawyers still find a loop hole somewhere. Frankly, you have no idea how smart I am and I am willing to put my intelligence up against yours any day. I am just not interested in being a tax cheat.

  • Kangal on 31/12/2016 - 17:38
    +7

    You can Trust she will take your Home during the Divorce ; )

  • Odin on 01/01/2017 - 09:54
    +1

    Bob purchased and paid for the house prior to getting married. It is possible that assets owned prior to marriage will remain in the original owners possession. That said, the family court isn't very fair in these matters, so, there's no single answer.

    • tenner on 01/01/2017 - 11:26
      +1

      The biggest issue will be whether there are children involved or not and next time in marriage, prior ownership will hold more weight if no children are involved if there are then everything will be up for grabs and I know this first hand.

  • OBEY YOUR MASTERS on 01/01/2017 - 13:25
    +1

    The simple answer is NOT TO GET MARRIED in the first place. How many of our friends, relatives, fathers etc have been through all of this before. When will we learn that it simply doesn't make sense for the modern man?

    • blimpyboy on 01/01/2017 - 19:18
      +1

      Why do you think not getting married makes any difference? Are you aware that de facto couples in Australia receive the same treatment under the law?

      • OBEY YOUR MASTERS on 02/01/2017 - 10:24

        Yes, you're right. De facto can get messy as well. Even if you don't have a marriage contract you're still bound under similar conditions by the law. Don't live together, don't have kids, don't share property.

  • ROTJ on 01/01/2017 - 16:25

    Issue No.1: if Bob is pushing his consultancy income through a Trust…if he doesn't satisfy the ATO's Personal Services Income (PSI) tests, the income will be deemed to ALL be his personally anyway for tax purposes and the Trust would not be able to distribute to other lower income beneficiaries. Easiest way to satisfy PSI test is to not have any one client who makes up > 80% of the consultancy business.

    • cauilfield on 01/01/2017 - 18:02

      Absolutely correct but the issue is not this

  • su27dvr on 02/01/2017 - 10:39
    +1

    The question as always is "who can you really trust?" Generally immediate family is more trustworthy, but have heard of cases of people being ripped off by a brother and I myself had an ex-wife that never took advantage of me. So figure. How do you know up front - you can't.
    Heard recently about BFA's (Binding Financial Agreement) being a good solution, but of course that has to be done before the relationship gets serious. Can imagine easily that she will leave you once you demand or even mention it.

    • kingmw on 03/01/2017 - 10:59

      Problem is that the family court can overrule BFAs in the case of children or the longer the marriage has been.

  • echelon6 on 11/01/2017 - 16:31

    House was a pre-marital asset. If no kids in picture, family court will usually not split the home. If she contributed to mortgage payments during marriage, this complicates things, but roughly will be pro-rated.

  • Dr Prepper on 13/11/2018 - 17:04

    General rule :short marriage (2 yrs-6yrs) look only at financial , Medium it gets watered down. Long Marriage 10 plus years 50/50 then adjust for needs (s75(2)).

    When it comes to trusts. In this jurisdiction they are sometimes seen as as scheme. See Spry v Kennon [2008] HCA 56 - 4,058

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