For many years, discretionary trusts have been one of the most contentious issues in Australian family law. Parties have often argued that valuable assets are “protected” because they are owned by a trust rather than by either spouse personally.
The recent Full Court decision in Caldwell & Caldwell [2026] FedCFamC1A 81 has significantly clarified the law and, in many cases, makes it easier for trust assets to be treated as property available for adjustment in family law proceedings.
The Facts
The case concerned three long-standing discretionary family trusts established by the husband’s father as part of a multi-generational family business.
The trusts had not been created by the parties during the marriage. Instead, they formed part of an established family structure, with the trust assets largely reflecting wealth accumulated by previous generations rather than by the husband and wife themselves.
At first instance, the trial judge found that the trusts were not property of the husband for the purposes of section 79 of the Family Law Act 1975. A significant factor in that decision was the judge’s view that the trusts existed primarily to preserve intergenerational family wealth and that the husband could not properly exercise his powers in a way that benefited the wife.
The wife appealed.
What Did the Full Court Decide?
By majority, the Full Court overturned the original decision.
The Court held that the primary judge had focused on the wrong question.
Rather than asking whether trust assets should ultimately be divided between the parties, the first question is whether the trust itself is property of one of the parties under the Family Law Act. Those are two separate enquiries.
Importantly, the majority concluded that all that is required for a discretionary trust to be regarded as property is that one party:
- controls the trust; and
- has the capacity to benefit themselves from the trust.
If those two features exist, the trust may constitute property for the purposes of the Family Law Act, even if:
- the trust was established by previous generations;
- the trust assets originated from family wealth;
- the trust exists for succession planning or asset protection;
- there has been little or no history of distributions to the party; or
- the trust has historically operated for the benefit of a wider family group.
The Court explained that factors such as the origin of the trust assets, the purpose of the trust, and the history of trust dealings may be relevant, but they are not essential requirements before a discretionary trust can be characterised as property.
This represents an important clarification of the law. The majority emphasised that the key enquiry is whether the party has effective control of the trust and the ability to benefit themselves from it. Once those elements are established, other considerations may influence the ultimate outcome of the property settlement, but they do not prevent the trust from first being characterised as property.
Why Is This Decision Important?
This decision is likely to have significant consequences for many property settlement cases involving family businesses and discretionary trusts.
Historically, parties have often argued that because trust assets came from parents or grandparents, or because the trust existed to preserve family wealth, the trust itself could not be treated as matrimonial property.
Caldwell makes clear that those considerations do not necessarily determine the issue.
Instead, the Court’s primary focus is on control.
If a party effectively controls the trustee or can appoint and remove trustees, and can ultimately cause trust assets or income to be distributed to themselves, there is now much stronger authority that the trust may itself be property available for consideration under the Family Law Act.
Does This Mean Trust Assets Will Always Be Divided?
No.
One of the most important aspects of the decision is that the Court distinguished between:
- whether a trust is property; and
- what orders should ultimately be made about that property.
Even where a trust is classified as property, the Court must still undertake the usual discretionary exercise required by the Family Law Act.
That includes considering:
- each party’s contributions;
- current and future needs;
- whether it is just and equitable to alter existing interests; and
- what orders, if any, should ultimately be made.
In other words, finding that a trust is property does not automatically mean trust assets will be divided or transferred.
What Does This Mean for Family Law Cases?
For anyone involved in a property settlement where discretionary trusts form part of the asset structure, Caldwell is an important decision that provides greater clarity about when trust assets may be treated as property under the Family Law Act.
The decision reinforces that courts will increasingly look beyond the legal ownership of assets and examine who really controls the trust and who has the practical ability to benefit from it.
For parties seeking to include trust assets in the property pool, the case provides stronger authority that effective control may be sufficient.
For parties seeking to argue that trust assets should not be included in the property pool, the decision highlights the importance of carefully analysing the trust deed, governance arrangements, the powers held by the relevant individuals, and the particular circumstances of the trust.
As with most family law matters involving trusts, every case will turn on its own facts.
How We Can Help
Discretionary trusts are among the most technically complex issues arising in family law property settlements. Determining whether a trust is property, a financial resource, or neither requires careful analysis of the trust deed, corporate structures, control mechanisms and the relevant case law.
At Powell Family Law, we regularly act in property settlement matters involving family trusts, companies, family businesses and intergenerational wealth. We work closely with forensic accountants, valuers and commercial advisers to ensure trust structures are carefully analysed and properly presented to the Court.
If your property settlement involves a discretionary trust or family business, obtaining legal advice early can help you understand your rights, identify the issues that may affect your case, and develop an appropriate strategy for your matter.
