Has how family law approaches trusts changed? Caldwell and the focus on control

By Christopher Ragozzino & Monique MacRitchie, Senior Associates

In the recent decision of Caldwell & Caldwell [2026] FedCFamC1A 81, the Full Court found that trusts that were established by the husband’s father were property of the husband. The Court reaffirmed the High Court decision of Kennon v Spry [2008] HCA 56, with the focus of the enquiry remaining on who has control of the trusts.

Background

The case concerned three long-standing discretionary trusts (A Trust, B Trust and C Trust, collectively referred to as the trusts) that formed part of a wider intergenerational family business structure. The trusts had been established by the husband’s father during his lifetime, and the assets held within them were not the product of the parties’ joint efforts during the relationship, but rather derived from family wealth accumulated over time.

Importantly, there were no trust distributions from the discretionary trusts to the husband or wife directly, the husband had at all times been one of the objects of the trust, the wife was the object of two of the trusts for a period, and the husband took steps which gave him powers as an appointer of the trusts to remove the co-appointors of the trusts (being the seventh and eight respondents, who were the parties’ sons). The husband also entered favourable loan arrangements between himself and the trustee and received funds from the distributions received by his father.

The wife filed an application seeking a declaration that the three family trusts and/or their assets were the property of the husband.

Initial decision

At first instance, the primary judge declined to treat the trusts as property of the husband for the purposes of s 79 of the Family Law Act 1975. Significant weight was placed on the origin of the assets, the intention that the trusts be preserved for future generations and the potential constraints imposed by the proper purpose rule. The trial Judge was not satisfied that the husband’s role within the trust structure translated into the kind of proprietary interest that would justify inclusion of the trust assets in the divisible property pool.

The appeal

Position as co‑appointor;
Ability to remove and replace other appointors;
Control over the corporate trustees through his preferential voting rights; and
Capacity under the trust deeds to appoint income or capital to himself.

The fact that the husband had not previously exercised his powers to benefit himself did not diminish the reality that he had the capacity to do so. The husband had present voting rights that permitted him to control the trust (should he choose to exercise those rights) and it was not necessary for the husband to have taken the action necessary to assume control.

The Full Court also addressed arguments that the husband’s powers were constrained by fiduciary obligations, including the proper purpose rule. It accepted that such obligations exist but found that they did not negate the husband’s capacity to control the trust and benefit himself. Under the terms of the trust deeds the husband was permitted to exercise his fiduciary powers to his own benefit.

A different emphasis

Justice Strum, in dissent, would have dismissed the appeal and upheld the trial Judge’s decision. His Honour placed greater emphasis on the broader factual context in which the trusts operated. In particular, Strum J considered the origin of the trust assets, the purpose for which the trusts were established and the absence of any history of the husband exercising control for his own benefit to be highly significant.

From this perspective, Strum J considered that the husband’s powers were insufficient, in context, to justify treating the trust assets as his property. Rather, the trusts should properly be characterised as a financial resource available to the husband, but not part of the divisible property pool.

Special leave

The husband’s application for special leave to appeal to the High Court was refused.

Trust Valuation

A long line of authority stands for the proposition that a discretionary beneficiary’s equitable chose in action in a trust cannot be said to have “no value”.

The issue, however, is establishing what that value is. Justice Campton in Quinones & Quinones (No 3) addressed this issue recently. Justice Campton refused the wife’s application in that case to appoint a single expert given the wife failed to identify a suitably qualified expert who could establish a reliable methodology for valuing a right to due consideration in this trust. The husband in that case has no present entitlement to the income or capital of the trust and the effective control rests with his parents. The Court did, however, order valuations of various real property assets owned by a corporate entity, as that entity held tangible assets that were capable of valuation.

Key points

Caldwell does not mark a departure from existing principle. Rather, it reinforces and clarifies the approach in Kennon v Spry. It serves as a reminder that the identification of property is concerned with legal characterisation. The primary Judge’s error lay in conflating discretionary considerations (that are more appropriately dealt with in coming to a just and equitable property division) to influence that initial identification of existing legal and equitable interests in any property.

It remains to be seen how this decision will impact the overall property division between the husband and wife. Now that the trusts have been identified as the husband’s property, the court will be required to consider the remaining steps in the legislative pathway to arrive at a just and equitable outcome.

Kennedy Partners Lawyers is well placed to provide advice regarding complex trust structures and their interplay with an overall property division. Contact us on (03) 9618 7300.

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