In 2008, the High Court held in Kennon v Spry that for assets held in a discretionary trust to be called into the property pool available for division in a family law property settlement, one of the parties needed to have both effective control of the trust and a right as a beneficiary of the trust in order to constitute property under section 79 of the Family Law Act 1975 , it was held that if a party only has a right as a beneficiary under the trust deed and no effective control it is merely a financial resource under section 75(2).
The recent decision in Woodcock (No 2) challenged this previous decision by asserting that a beneficiary’s rights in a discretionary trust, specifically the right to due administration and consideration, constitutes property under section 79 of the Family Law Act 1975. The trial judge found that despite the lack of control over the potential benefits of the trust, the husbands rights as a beneficiary were considered property, influencing the division of the property pool.
The decision in Woodcock has created uncertainty as to how a court will treat a party’s interest in a discretionary trust in family law matters. There is a possibility that following the decision that there could be an appeal as to the trial judge’s decision but if upheld, it could have a significant impact on how discretionary trusts are dealt with in the division of assets, with the potential of not favouring the party who benefits under the discretionary trust.
