Family trusts in family law: when are they considered “property”?
Understanding control, beneficial interest and the significance of Caldwell & Caldwell [2026] FedCFamC1A 81. Family trusts have long been used in Australia to preserve wealth across generations, protect assets and manage tax outcomes. But when a relationship breaks down, the question becomes sharper: can trust assets be treated as “property” in family law proceedings? The Full Court’s decision in Caldwell & Caldwell reshaped the answer. It puts the spotlight on who controls the trust and who can benefit from it.
The core principle: control and capacity to benefit
The Full Court in Caldwell & Caldwell made it clear that the key question is not simply who legally owns the trust assets. It is who effectively controls the trust, and whether that person can benefit from it.
This moves away from older assumptions that carefully drafted trust deeds, especially those that exclude spouses, could reliably shield trust assets from property settlements.
The Court emphasised two separate questions:
Is the trust (or the powers connected with it) “property” of a party?
If so, should any adjustment be made in relation to that property?
These questions must be answered separately. The first is about identifying property. The second is about fairness and the Court’s discretion to adjust.
Why control matters more than ever
In Caldwell & Caldwell, the husband argued that the trusts were not his property because:
they were set up by his father for lineal descendants (his direct bloodline);
his wife was excluded as a beneficiary;
he had never received distributions; and
his sons shared appointor powers (the power to appoint and remove trustees).
At first instance, the trial judge accepted this reasoning and found the trusts were not property of the marriage. On appeal, the Full Court overturned that decision.
The Court found that the husband had effective control because:
he held the power to remove and replace trustees;
he could remove his sons as co-appointors at any time, without reason;
he had voting control through the trustee companies; and
nothing stopped him from using these powers whenever he chose.
Crucially, it did not matter that he had never used these powers. What mattered was that he could.
This principle, that a present ability to control is enough, is now central to deciding whether trust assets may be treated as property.
Who benefits under the trust?
The Court also considered whether the husband had the capacity to benefit from the trust. Even though he had not received distributions, the trust deed allowed him to be a beneficiary. That capacity, combined with control, meant the trust assets were properly treated as his property under section 79 of the Family Law Act 1975 (Cth).
What this means for families using trust structures
The Caldwell decision is a wake-up call for families relying on discretionary trusts to protect wealth. It highlights that:
Substance wins over form: courts look past the trust deed to who has practical control.
A bloodline purpose is not decisive: even trusts set up for future generations can be scrutinised.
Control mechanisms need careful review: appointor powers, trustee arrangements and governance structures all matter.
Excluding a spouse is not enough: if the other spouse has effective control, the trust may still be at risk.
As one commentary put it , the decision marks “the end of the untouchable bloodline trust” where a spouse has both control and the capacity to benefit.
Key takeaways for families and advisers
Review trust deeds regularly, especially appointor and trustee powers.
Consider independent or joint control structures to reduce risk.
Use Binding Financial Agreements where appropriate to manage expectations and reduce the risk of litigation.
Understand that trust assets may be included in the property pool if one spouse has effective control, even if they have never received a cent from the trust.
Conclusion
Caldwell & Caldwell is now a leading authority on how family trusts are treated in Australian family law. The decision confirms that control and capacity to benefit are the main considerations when deciding whether trust assets form part of the property pool.
For families with significant wealth held in discretionary trusts, this case shows the importance of thoughtful structuring, careful succession planning and early legal advice, long before a relationship breakdown becomes a possibility.
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