News & Insights

In a recent financial dispute between husband and wife, assets worth $3.5 million were excluded from the matrimonial property pool thanks to the husband’s late father’s careful estate planning.

In Bernard & Bernard [2019], the Family Court considered whether assets held in the husband’s testamentary trust formed part of the matrimonial property pool available for distribution between the husband and the wife.

The husband successfully argued that the trust assets were not matrimonial property as he did not control the trust assets, nor did he have control over the appointment or removal of trustees.

A testamentary trust is a form of discretionary trust created by a Will. It is a common tool used in estate planning, particularly for high net worth clients and those seeking to protect their assets from events such as a relationship breakdown. This protection is created by separating the beneficial entitlement under the trust from the control of the trust.

In this case, the husband’s late father made a Will which created two testamentary trusts; one for the husband, and the other for his sister. While the husband was the primary beneficiary of his trust, his sister (as trustee) solely controlled his trust. The sister’s trust mirrored the husband’s, with the husband having control of her trust.

The wife unsuccessfully argued that because the husband and the sister’s trusts mirrored one another, the husband’s trust assets were effectively his, and the sister’s trust assets were hers. If she had been successful in this argument, the matrimonial property pool available for division would have been approximately $3.5 million larger.

The Court disagreed with the wife and ultimately found the trust assets were not matrimonial property because:

• the husband had no legal title to the assets of the trust as he had no control over the trust assets, nor any guaranteed entitlement to the trust capital or income; and
• the husband’s sister had complete discretion in determining trust distributions to the beneficiaries (the wife and the parties’ children were also beneficiaries).

While the trust assets were not matrimonial property, the Court found the testamentary trust was a financial resource of the husband.

This case perfectly illustrates how a testamentary trust can provide additional asset protection in the circumstances of a relationship breakdown.

If you are experiencing a relationship breakdown, it is important to know how your assets may be treated by the Court and whether they may form part of the matrimonial pool available for division between you and your former partner.

Similarly, if a loved one who you intend to benefit in your Will is at risk of a relationship breakdown, or you wish to protect your estate assets in case of such a situation, we recommend considering a testamentary trust Will.

For more information or assistance, please contact Macpherson Kelley’s experienced Private Clients team.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.