This case involved detailed consideration of whether various interests held by the Wife are to be treated as property for the purposes of a property settlement pursuant to the Family Law Act 1975 (Cth) (the Act).
It is generally accepted from years of case law that:
- The question of whether assets within a trust is property available for division between parties in a family law matter encompasses consideration of the degree of control of the trust. For example, if the parties or a party have / has control of a trust such that the assets are / could be the property of one (or both) of them, then it will often form property available for division.
- Shares in a company are property, albeit the shareholding does not inextricably mean ownership of underlying assets. The degree of control of the assets of the company (for example through majority or sole shareholding) remains a significant consideration.
In this case the Court was asked to consider whether the Wife’s:
- rights as a discretionary beneficiary in various trusts were property;
- residuary beneficiary interests in various trusts were property;
- rights as a shareholder in various companies were property.
The Court found that the Wife’s interest in various trusts and companies were not property pursuant to the Act. It further found that there ought not be a property settlement at all between the parties.
The facts
The parties were in a relationship from 1986, married in 1991, and separated in October 2015. It was a relationship of approximately 29 years. There were two adult children of the marriage. Both parties were approximately 56 years of age at the date of the trial.
The Husband applied for 35% of the parties’ property and spousal maintenance from the Wife. The Wife contended that it was not just and equitable for any property settlement and that the Husband’s application for spousal maintenance should be dismissed.
The dispute involved several parties, including:
- The Husband;
- The Wife;
- The Wife’s two brothers, Mr F and Mr G; and
- three corporate trustees of three trusts.
The Husband owned modest assets. It was agreed that the Wife’s assets were worth in excess of $7,000,000.
There was a dispute about whether the Wife’s interests in the ‘Kingston Group’ was ‘property available for division’ between the parties. The Wife argued that she did not control the entities and, at best, those interests represented a financial resource. It was also common ground that if the Wife’s interests in the Kingston Group equated to one third, then this would equate to $50,000,000, or more.
The Kingston Group was established by the Wife’s father in 1939. The Wife’s father had the Husband sign a ‘prenuptial agreement’ prior to the parties’ marriage to ensure that the Husband did not benefit from the wealth he created. The prenuptial agreement was not binding.
The Court determined that there were several distinguishing facts in the matter. They were that the:
- Wife’s wealth was largely derived from her mother and father;
- parties entered a ‘prenuptial agreement’ to protect their respective property;
- parties kept their finances separate from 1991 until 2007 and shared joint living expenses;
- Wife nonetheless paid for all accommodation expenses;
- parties did not own real property or have bank accounts in joint names;
- parties maintained ledgers of their respective expenditure on joint expenses; and
- Husband was unemployed for various periods, albeit same did not result in him making greater homemaker and parenting contributions, as the Wife remained the primary carer and homemaker.
The Wife’s father died in 2008. The Wife’s father made it clear to her two brothers and the Wife that he did not want the wealth created by him over his lifetime to be distributed to any spouse of his children or grandchildren. The Will of the Wife’s father made those intentions clear, in the creation of the Kingston Testamentary Trust.
The Court cited long-held principles (summarised) that:
- a right to consideration as an object of benefaction of the trust, and to due administration of the trust, was property, however same is difficult to value;
- shares in a company are property, however this does not necessarily equate to an interest in the assets of the company, which is subject to the level of control of the assets of the company.
After restating those principles, the Court undertook the detailed examination of identifying the Wife’s individual interests in each company and trust within the Kingston Group. This involved the examination of 16 different interests held by the Wife (either as shares or forming a class of beneficiary). The Husband contended for the inclusion of a further eight interests, but the Wife was not a shareholder of any of the eight entities.
In each of the company interests, the Wife was one of three directors with her two brothers. The Court examined the nature of the shareholdings in the company interests and whether the Wife had, for example, voting rights and, if she did have voting rights, what she was able to vote on.
In terms of the five Trusts:
- Trust 1 - The Wife was a director of the corporate trustee with her two brothers, but not a shareholder. The power of appointment was not known. The Wife had never received a distribution from the trust. The Husband was not a beneficiary.
- Trust 2- The Wife was a director of the corporate trustee with her two brothers. The power of appointment rests with the Trustee. There was no requirement for income to be distributed. The Husband was not a beneficiary.
- Trust 3 - The Wife was a director of the corporate trustee with her two brothers, but not a shareholder. The principal of the trust was the three siblings. The Wife had never received a distribution from the trust. The Husband was not a beneficiary.
- Trust 4 (The Kingston Testamentary Trust) - The three siblings are the trustees of the trust established through the Wife’s father’s estate. The Husband was not a beneficiary.
- Trust 5 – This was a residuary beneficial interest of an estate to be distributed, of a modest nature.
The Husband argued in relation to the Kingston Testamentary Trust that the Wife had a right to due administration of the trust but conceded that she could not '…put her hand on the money in the testamentary trust'. It was also conceded that the trust may not have assets upon vesting. There was also reliance by the Husband upon an ‘Umbrella Deed’ that all members would be paid an equal minimum annual dividend from the trust.
The Wife argued that she did not own ‘one third’ of the Kingston Group and that her rights were as a minority shareholder and a discretionary beneficiary in trusts that she did not control. The Wife contended that the Umbrella Deed did not override the terms of the Kingston Testamentary Trust itself.
What was the outcome?
The Court accepted the contentions of the Wife that there should not be property settlement between the parties. It concluded that:
- The Wife had a right to consideration as an object of benefaction as a discretionary beneficiary in each trust included in the Kingston Group and a right to due administration of the trusts, and a right to due administration of the Kingston Testamentary Trust as a residual beneficiary (which does not vest until 2026 and may be worth nothing).
- The Wife had a legal, but not beneficial interest, in the various shareholdings where she held those shares on trust with her siblings and, to the extent where she held minority shareholdings in her own right, she had a legal and beneficial interest.
- The factors of control, legal title and powers of distribution and the source of the trust fund did not exist in the case. The Wife did not control any of the trusts. Further the source of the funds was a stranger to the marriage.
- In relation to the companies, the Wife had shareholdings, but she was one of three directors, she did not control the companies.
- The terms of the Umbrella Deed did not override the obligations of trustees to administer the trust in accordance with its terms.
- The fact the parties were in a long marriage was not by itself determinative of the need for a property settlement.
- The prenuptial was still relevant as part of the various factors outlined above in finding that there should not be a property settlement distribution between the parties.
Issues to note
The decision in Rigby is important for many reasons. Among others, it demonstrates that:
- Care should be taken when creating trusts and establishing companies to ensure that, to the extent possible, the client’s objectives are met (e.g., avoiding a family law claim in the future).
- Care should be taken when determining what decisions are made with respect to distributions from trusts etc from time to time.
- A party’s Estate planning is incredibly important.
- Legal representatives and financial advisors need to work closely to clearly understand and outline each parties’ interests in any entities or trusts, including understanding the history of those entities or trusts.
- It should not be automatically assumed that the assets of any entity or trust are included or excluded a property in family law proceedings.
- A long marriage is not by itself determinative that there should be a property settlement between the parties, and it is dependent on the circumstances of the parties and the way the relationship was conducted.
- Evidence in the form of documents is more often than not key.
