Financial agreements can be useful in many family law contexts. The Family Law Act 1975 (Cth) (the Act) allows de facto and married couples to make a range of financial agreements before, during or after their relationship as long as they abide by the duty of disclosure the Act prescribes. But what about beneficiaries of discretionary trusts? Do they need to disclose their benefits in a trust? This article will run through how the Act treats different assets and financial resources and the disclosure obligations for each. It will then look into the disclosure requirements for beneficiaries of discretionary trusts in more detail.
Duty of Disclosure
The Family Law Rules 2004 (Cth) and the Act set out the duty of disclosure for financial agreements. Importantly, section 90UM states that the court can set aside a financial agreement if either of the parties obtained it by fraud, which includes non-disclosure of a material matter.
In other words, even though two parties have reached an agreement as to how to divide property, the court can set this agreement aside if it has found that either party has not disclosed material matters. In many instances, this can include the non-disclosure of property or financial resources from one of the parties.
What is Property?
Section 4 of the Act defines property. In many financial agreements, it can include:
- Real property (e.g. a house or apartment);
- Cash in the bank;
- Ownership of shares; or
- Personal items (e.g. furniture or jewellery).
Ownership of shares in a private company is particularly relevant for small business owners who may own 100% of shares in their business.
Further, superannuation is also deemed to be property. Notably, although you must provide details of your superannuation balance, the financial agreement itself does not deal with any arrangements to divide super, and parties will need to enter a separate agreement.
What are Financial Resources?
Financial resources are different from property. You can consider it to be those resources that do not fit under the definition of property. A party may have access to the financial resource now, or in the future, and may receive a financial benefit from it. For example, pension entitlements or future inheritances. A party will also need to disclose any interest they may have in financial resources as per the Act.
What are the Disclosure Requirements for Beneficiaries of Discretionary Trusts?
The trustee and the beneficiary are two important individuals in a family discretionary trust. The trustee is the legal owner of the assets in the trust, while the beneficiary has the benefit of the assets in the trust. You could argue that as the beneficiary, you do not need to disclose any benefits that you will receive from the trust as you do not legally own it.
However, the law will require beneficiaries to disclose their assets in the trust if they can prove that the beneficiary has a level of control over the trust. It shows that the law may consider beneficiaries to be the owners of the assets in the trust in strict circumstances.
Even if the assets in the trust are not deemed to be the property of the beneficiary, it will nevertheless be considered a financial resource. Therefore, the beneficiary will still need to disclose it according to the Act.
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When drafting financial agreements, you need to disclose all your possible property and financial resources to lessen the chances of a court setting it aside for fraud and non-disclosure. If you are unsure what you need to include in your financial agreement or require assistance drafting it, get in touch with our family lawyers on 1300 544 755 or complete the form.