January 2019 Family Law Case Watch

Prue Hawkes & Stephanie Ordanoska​

Can a trust be included in the matrimonial pool of assets where one party argues that it did not exist in the first place?

A trust can be created in a variety of ways not limited to only express creation. The recent case of Tamaris & Tamaris [2018] FCCA 3696 explores the circumstances in which a trust was said to be formed without the clear intention of one party and excluded from the matrimonial pool of assets. The relevant issue in this case was whether the particular trust was in fact constituted by the husband and wife in favour of their daughter for the purpose of her tertiary education.

Background

The husband and wife in this case were married for 31 years and had one (1) daughter of their marriage.

The husband asserted that in the course of the marriage he and his wife agreed to create a trust to set aside money to meet the costs of their daughter’s tertiary education. Following that agreement, he said he opened an account and then deposited significant sums of money into the account and thereafter retained those funds as trust funds that he said should be set outside of the assets that existed for Family Law property division in the Family Court proceedings.

The husband’s evidence about his and his wife’s intention to create a trust was however not very detailed. He asserted that he and his wife had discussed their daughter’s education needs and the fact of tertiary education being expensive. The husband further said that it was after these discussions that they decided to make provision for their daughter’s education and following these discussions the husband then opened an account, described as a custody account, into which he progressively paid sums of money from the joint income earned by himself and his wife.  At the time of trial, the balance in the particular account was $275,000.

The wife agreed that there was a bank account that held the above sum however denied the existence of any trust. She contended that there was no written agreement that proved any intention to create the supposed trust. 

The wife said that her relationship with the daughter was strained and in any event had no recollection of a discussion with the husband about a proposal to create an education fund for the daughter. She said that if the father was “so keen” for their daughter to study at a tertiary level, he could pay for that education from his share of the proceeds after the division of matrimonial assets was made in their Family Law case.

Law

The High Court in the case of Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation (1993) held that a trust exists where the holder has either a legal or equitable interest in property and holds that property for the benefit of others and perhaps themselves.

The fact that a trust was intended may be deduced from the conduct of parties (Scott on Trusts, fourth edition, at paragraph 23). A presumed/implied trust may arise from the circumstances of a case where the law may presume that a trust was intended (James v Holmes). A trust formed in this way may also be referred to as a “resulting trust” where property is held by the trustee for a particular purpose and, once the purpose is fulfilled and a surplus remains, the surplus is held on trust for the creator of the trust or his representatives.

The law does not require an express agreement, that is, the use of formal words in writing or in a verbal exchange, as an appropriate expression of an intention to create a trust could be enough (Re Armstrong (deceased) [1960], JW Broomhead (Vic) Pty Ltd) (in liquidation) v JW Broomhead Pty Ltd [1985] and Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation (1993)).

As such the intention to establish a trust is found after considering the entirety of the evidence available, including the surrounding circumstances (Swain v The Law Society [1982], Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988), Byrnes v Kendle (2011), and Korda v Australia Executor Trustees (SA) Ltd [2015]).

The existence of an intention to create a trust, howsoever established is not the only requirement. The essential elements of a valid trust further include certainty as to the object of the trust, the beneficiaries and the extent of the benefit. In circumstances where there is uncertainty, the trust fails and the trustee holds the property as a resulting trust (Sprange v Barnard (1789)).

Application

In the present case the husband asserted that he and his wife expressly agreed to establish a fund for their daughter’s education whereas the wife said she had no recollection of any such agreement.

 The Family Court was therefore required to consider whether in the circumstances, the language or conduct of the parties during the marriage showed a sufficiently clear intention to create a trust.

In this case, the wife’s evidence was clear that during the entirety of the marriage she either agreed to or accepted that the husband would deal with the financial matters. The Court found that on the balance of probabilities, if the discussion occurred in the way the husband said, the wife may not have understood its significance as she would not have focused on the nature of the discussion pertaining to financial aspects and left it to the husband.

The judge in this Family Law case stated that the wife’s “inability to recall the conversation about the creation of the trust did not amount to denial. It was more probable than not that she abandoned any involvement in joint financial affairs as she was content for the husband to attend to them”.

Based on this analysis, the judge found that a valid express trust had been created for the sole benefit of the daughter.

The judge went on to consider the possibility of being incorrect in his finding however determined that a trust was definitely created, if not expressly, then in the form of an implied or resulting trust.

Conclusion

Having determined that a trust existed in the present case for the sole benefit of the daughter of the marriage, the funds held in the account managed by the trust were not considered as assets to be divided between the parties in the Family Law property proceedings.

We hope that our January 2019 Family Law Case Watch has provided you with some clarity about the complexities of trusts and in what circumstances such trusts will be included in identifying and valuing the matrimonial pool of assets in Family Law matters.

If you have recently separated or have a Family Law enquiry, please contact us on (02) 9437 0010 or enquiries@familylawyersdw.com.au to discuss your matter in complete confidence. We are conveniently situated in St Leonards on Sydney’s Lower North Shore and have a team of experienced and caring professional family lawyers available to help you.

These posts are only intended as an overview or comment on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us.

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