ISSUES

1. Was the wife’s interest in family entities “property” within the meaning of the Family Law Act?
2. Was the wife’s interest in a testamentary discretionary trust, due to vest in equal shares on 2 November 2026, “property” within the meaning of the Family Law Act?

FACTS

The proceedings concerned a hotly contested, complex property matter in the Family Court.

The parties were the husband and wife, the wife’s brothers and a number of the wife’s family entities.

The husband had “effectively” nothing and the wife had at least $7m, and access to substantial family wealth held in entities.

The dispute concerned whether the wife’s interest in the entities comprising her family wealth (known as the Kingston Group), were to form part of the property pool for division.

The wife’s own family trust, which she controlled and was a discretionary object of, was accepted by all parties as being property for the purposes of the family law proceedings.

The husband argued that the wife’s interests in the Kingston Group were proprietary in nature, and should be included in the pool.  He valued those interests at between $35m and $100m.

The wife argued her interests in the group were not proprietary in nature, but if they were, her one-third could be worth up to $50m.

The wife’s interest in the entities was variously as minority shareholder and a discretionary object of family trusts, with no control of the entities.

In addition to the interest the wife had in various entities, she was also a subscriber to the “Umbrella Deed” which purported to operate something like a shareholders’ agreement and regulate the way in which distributions and dividends from the group of entities were to be made.  It contained provisions about “minimum dividends” for subscribers to the Deed. 

In addition, there were some aspects of the Umbrella Deed that were inconsistent with the Deeds of the trusts which were subscribers to it.

Much of the wealth in these entities had been generated by the wife’s father, and some had commenced before the wife was even born.  He passed away in 2008.

The wife’s father also left part of his estate to his children in a testamentary discretionary trust. 

The wife and her two brothers were discretionary objects, as well as the trustees, although the trust provided that the trustees should make their decisions by majority.  Additionally, the terms of the trust provided that the trust would vest when the youngest sibling turned 60 and at that time, the remaining capital would be distributed equally between them.

There was an express clause in the trust that the father did not want the spouses of any of his children to benefit from the trust.

Husband’s Arguments

The husband argued that the pool should include one-third of the legal and equitable interest in the entire Kingston Group which involved many entities, including companies and trusts. 

This argument was that the particular TDT was, by analogy, the same as a life interest: a certain gift that was simply postponed until a certain event occurred, instead of being completely contingent.

It was accepted that it was theoretically possible that the assets of the TDT could pass to the Wife’s brother’s alone and before the vesting date.

However, the Husband simply argued that this did not mean it was not “property” (for family law purposes), just that it was property with no value.  It is well settled that just because property is difficult to value, does not mean that it is not property, for family law purposes.

Wife’s Arguments

The wife argued that she does not own one-third of the Kingston Group.  She is either a minority shareholder or a discretionary beneficiary of a number of trusts, which she does not control.

She argued her interest in the trusts are “choses in action” (being the right to compel the due administration of the trust and the right to be considered as a beneficiary each year) which are effectively “valueless”.

As to the Umbrella Deed, she said that it has no power to, in effect, override the terms of the TDT or any other trust, where these did not accord with the terms of the Umbrella Deed in material respects.

Other Parties’ Arguments

The other parties were the Wife’s brothers and the corporate trustees of 3 of the trusts.

They argued the wife had no present entitlement in the TDT.  Further the TDT Deed permitted the trustees to act by majority and the brothers could do so and exclude the wife.

The Wife did have a right to receive one third of the assets of the TDT on the vesting date of the trust.  However, they emphasised that this did not mean she had a proprietary interest in the assets of the TDT as it presently exists.

Further, the Wife had no power to compel a distribution to herself and the assets of the trusts were not assets acquired by the parties during the marriage.  They argued these two matters distinguished the matter from Kennon v Spry.

DECISION

Carew J was careful to consider the exact interest held by the wife in each entity, rather than considering the entities as a whole.

The details of those interests are set out at [44] to [47].

There is then a detailed discussion about the nature of these rights in a family law context, by reference to numerous authorities at [80] to [95].

Carew J specific findings in relation to the Kingston Group entities were as follows:[1]

“(b)        The wife has a minority shareholding in the various entities within the Kingston Group as set out in [44].  The wife does not control any of the entities and does not thereby have an interest in the assets of the entities.  A number of the shares owned by the wife hold no voting rights or entitlements to share in distributions on winding up;

(c)           The wife has bare legal title to the shares in various companies held on trust as particularised at [44];

(d)          The wife’s right to consideration as an object of benefaction as a discretionary beneficiary and to due administration of the Kingston Family Trust, the Kingston Special Trust and the Kingston Group Trust may well be choses in action but the wife does not control the trusts and as such the assets of the trusts are not a “species” of property of the wife for the purposes of s79 proceedings;

(e)          The rights of the wife are of little practical worth and, in the absence of control, do not equate to a proprietary interest in the assets of the trusts;

(f)            In relation to the Kingston Testamentary Trust, I make the following additional findings:

                (i)            As discretionary beneficiary, the Wife has no proprietary interest in the trust assets;

                (ii)           The wife has a right to dues consideration and due administration which are choses in  
                action;

(iii)         As a residuary beneficiary the wife has no proprietary interest in the trust assets until
the besting of the trust on 2 November 2026;

(iv)          The entirety of the trust assets can be distributed to beneficiaries other than the wife prior to the vesting date;

(v)           In those circumstances her interest as a residuary beneficiary would be worthless;

(vi)          Given clause 6 of the will, such a decision would be entirely consistent with the purpose of the trust, created by a stranger to the marriage, that none of his property should benefit a spouse of his children;

(vii)        As the wife does not control the trust, being one of three trustees, the fact of her being a trustee does not enhance her rights;

(viii)       The wife has no irrevocable rights to income or capital of the trust;

(ix)          The rights that the wife has are of little practical worth and, in the absence of control do not equate to a propriety interest in the assets of the trusts;

(x)           To the extent that the husband contents that transactions giving effect to such decisions might be amenable to attack under s 106B of the Act, I reject that contention in circumstances where the assets of the trust are not and were not property of the wife but rather of her late father and the wife has no and had no irrevocable rights to income or capital.  Section 106B cannot be utilised to create rights that did not otherwise exist.”

Findings – Umbrella Deed

Ultimately, the Court made the following findings:[2]

1. The Umbrella Deed sets out the intentions and expectations of the three parties to it, namely the wife and her two brothers;
2. It primarily relates to the operation and Cessation of the business (as defined) and the entitlements of the parties to the Umbrella Deed eg salary, dividends if paid;
3. While the Umbrella Deed provides for equality of division as between the three parties to the Umbrella Deed upon cessation of the business (as defined) and realisation, on the cessation date at 20 June 2040, it cannot override the fiduciary obligations of the trustees of the testamentary trust to administer the trust in accordance with its terms and indeed the Umbrella Deed specifically so provides.
4. The Umbrella Deed does not override the fiduciary obligations of the trustees of the other discretionary trusts and unit trusts within the Kingston Group;
5. The Umbrella Deed does not affect the entitlement of members in the two superannuation funds in the Kingston Group;
6. The Umbrella Deed does not create any irrevocable rights to income other than a salary for “active members”;
7. The Umbrella Deed does not have any effect on the existing legal and equitable interests of the wife in property.

Findings – Financial Resource

Carew J made a specific finding that the wife’s interests in her family entities did constitute a financial resource, within the meaning of the Family Law Act.[3]

Read the full decision here.

---

[1] At [96].

[2] At [124].

[3] At [129].