When Is a Family Trust Really Your Property? What Caldwell means for separating couples
Effective Control Without Lifting a Finger: When a Family Trust Can Be Property
Discretionary family trusts are often treated as being separate from the personal assets of the people associated with them. But in a family law property settlement, that is not always the case.
In Caldwell & Caldwell (2026) FLC ¶94-324; [2026] FedCFamC1A 81, the Full Court considered whether three family trusts should be treated as property of the husband, even though he had not actually exercised all the powers available to him to take complete control of them.
By a 2:1 majority, the Court said yes.
What happened?
The trusts were connected to a family business established by the husband’s great-grandfather and developed over several generations.
Importantly, the husband did not establish the trusts and had no powers of control over them until his father died in late 2022, after the parties had separated.
Following his father’s death, however, the husband acquired significant powers. He was a joint appointor with the parties’ two adult sons, held voting rights in the trustee companies and, critically, had the power to remove his sons as co-appointors and replace them.
The husband had not actually exercised that power.
At first instance, the Court found that the trusts and their assets were not property for the purposes of the parties’ property settlement.
The wife appealed.
The Full Court’s decision
The Full Court majority found that the husband had effective control of the trusts.
The important point was not whether he had already exercised his powers. It was whether there was any present impediment preventing him from doing so.
The majority also drew an important distinction between two questions:
Are the trusts or their assets property of the husband?
If so, should the wife ultimately receive an adjustment involving that property?
Those are not the same question.
Simply characterising trust assets as property does not mean they will automatically be divided between separating spouses. The interests of other beneficiaries and the circumstances in which the trust wealth was created can still be relevant when the Court ultimately determines what property orders should be made.
What about the intended purpose of the trusts?
The husband argued that using his powers in a way that ultimately benefited the wife would be contrary to the purpose for which those powers had been given.
The majority rejected that argument.
The trust deeds permitted the husband to benefit himself. In those circumstances, the majority considered the proper purpose doctrine did not prevent the trusts from being characterised as his property.
The Court also rejected reliance upon a later codicil to the husband’s father’s will to restrict the purpose of trusts that had been established much earlier. A later document could not retrospectively redefine the purpose for which powers under the original trust deeds had been conferred.
A strong dissent
The decision was not unanimous.
Strum J considered that having the ability to obtain control was different from actually having control. Because the husband would first need to remove his sons as co-appointors, his Honour considered the husband did not presently control the trusts.
That disagreement is important. It shows how fact-sensitive these cases remain.
What does Caldwell mean in practice?
For separating couples with discretionary trusts, the legal structure alone will not necessarily determine whether trust assets form part of the property available for consideration.
The Court may look closely at:
who controls the trustee;
who holds appointment and removal powers;
whether those powers can be exercised immediately;
whether anything genuinely prevents a spouse from assuming complete control; and
the terms and purpose of the trust deed itself.
Most importantly, a person may effectively control a trust even though they have never exercised the powers that give them that control.
Caldwell also does not mean that every family trust controlled by one spouse will automatically be divided in a property settlement. Characterising the trust as property is only part of the analysis. What orders the Court should ultimately make remains a separate question.
For anyone entering or leaving a relationship where substantial wealth is held through family trusts, the decision is a timely reminder that who has the power to control the trust may matter just as much as who has actually exercised that power.