Many business owners hold assets in a family or discretionary trust and assume that what sits in the trust is safely out of reach if the relationship ends. The reality is more nuanced. A trust can offer some protection – but it does not put assets beyond the reach of a property settlement on its own.
This blog explains how family and discretionary trusts are treated in a property settlement in Western Australia, why control matters more than the label on the structure, and what business owners can realistically do.
Why a discretionary trust is not an automatic shield
This is the question most business owners ask, so here is the direct answer. A family or discretionary trust does not automatically protect its assets from a property settlement. Whether trust assets are counted depends on control, ownership and benefit, not on the fact that a trust exists. If you control the trust and benefit from it, the Family Court can treat its assets as part of the pool.
How trusts are assessed in a WA property settlement
In Western Australia, property settlements are dealt with in the Family Court of Western Australia, under the Family Law Act 1975 (Cth) for married couples and the Family Court Act 1997 (WA) for de facto couples. The court works through four steps: it identifies the asset pool, weighs each party’s contributions, considers future needs, and checks that the result is just and equitable. A trust is examined as part of the first step. Whether its assets belong in the pool depends on the trust structure, the timing of contributions, and the role each of you played. This is the same framework that applies to any divorce and separation matter.
Why court scrutiny focuses on control rather than structure
A discretionary trust and a unit trust are not the same, and neither is a silver bullet. What the court looks at is how the trust actually works: who controls it, who can benefit, and how it has been used during the relationship. A trust addressed only on paper, without regard to its legal footing, will not hold up. This matters most when the trust holds the business itself, or the assets the business relies on.
Take a common structure. The business may sit in a discretionary trust where your former partner was never a named beneficiary. That structure alone does not exclude it from the asset pool. If you control the trust and have drawn income from it, its value can still be brought in.
Trusts that pre-date the relationship
A trust set up before the relationship is not automatically excluded either. It can still be relevant, depending on how it was used, what was contributed to it during the relationship, and the role each of you played. The age of the trust is one factor, not a shield.
What business owners can realistically do
You cannot make a trust immune from a settlement, but you can strengthen your position. Keep clear records of how and when the trust was established and funded, and keep your accountant involved, because the trust’s history matters. Then consider the right instrument. Consent orders can record an agreed outcome in a form the Family Court recognises. A binding financial agreement can help in some circumstances, though the High Court decision in Thorne v Kennedy set limits on when one holds. Where the trust holds the business, protecting it is the focus of our Retaining Your Business service.
Speak to Leach Legal
If your assets sit in a family or discretionary trust and you are facing separation, the earlier you take advice, the more you can do. Leach Legal acts for business owners in Perth and has advised on family law matters for more than two decades. We specialise in separation and asset division. You will be assigned a lawyer who handles your matter from the first meeting to final settlement.
To talk it through, book a confidential 15-minute phone consultation with Leach Legal.
