Federal Court reaffirms discretionary trusts protect generational wealth
Caldwell v Caldwell [2025]
Caldwell v Caldwell is a Federal Circuit and Family Court of Australia case that affirmed that intergenerational family trusts, established by earlier generations and not by the couple, are not matrimonial property, even if the husband has significant control over them.
In Caldwell, the wife sought a declaration that three family trusts—established and controlled by the husband’s late father—were property of the marriage for the purpose of the Family Law Act 1975 (Cth), on the basis of the husband’s control over the trusts, including his power to remove trustees and appoint himself or others.
The court found that the trust assets, accumulated over four generations and not contributed to by the couple, were a financial resource rather than part of the marriage's asset pool. This decision highlights the strength of discretionary trusts in protecting family wealth from being divided in a divorce
Background
Parties: A couple with a substantial asset pool (~ $20 million excluding trust and company assets) , separating after 30 years of marriage, the dispute centred on three discretionary family trusts.
Trusts: Three intergenerational discretionary family trusts, established by the husband's great-grandfather in the early 1900s, holding assets including an intergenerational family business. These assets were built over four generations and were not created, or increased, by the efforts of the couple during their marriage. The husband had acquired extensive powers following his father’s death, including the ability to remove trustees and appoint replacements as a consequence of his role as an Appointer of the trusts.
Key Issue: Whether the trust assets, controlled by the husband, should be considered matrimonial property under section 79 of the Family Law Act 1975 (Cth).
The wife argued the trusts formed part of the matrimonial property pool, based on the degree of the husband’s control over the trusts. The husband, although included in the pool of discretionary beneficiaries who could benefit from the trust (at the Trustee’s discretion), had not received a distribution from the trusts. The wife was expressly excluded as a beneficiary during the marriage.
Outcome
The court ruled that the trust assets were not matrimonial property.
They were considered a financial resource of the husband, but the assets remained intact to pass to the next generation, as intended.
The Court’s Reasoning
Origin of Trusts: The trusts were not created or increased by the efforts of the couple during their marriage.
Beneficiary Status: The wife was excluded as a beneficiary of the trusts.
Purpose: The trusts were established for intergenerational wealth transfer and succession planning. The estate planning undertaken by the husband’s father, particularly through his Will and the structured transfer of control, was critical in protecting the trust assets.
Control vs. Property: While the husband had extensive control over the trusts, including the power to appoint trustees and benefit from them, control alone was not determinative. The court considered the origin, purpose, and nature of the trusts.
Asset Pool: There asset pool outside the trusts were sufficient for a just and equitable property settlement between the parties.
Key Takeaway
Caldwell v Caldwell demonstrates that properly structured discretionary trusts can effectively protect family wealth from divorce proceedings.
The decision emphasises the importance of structured estate planning for intergenerational wealth transfer and the weight given to the purpose of setting up the trust.
Keep in mind, the outcome may have been different if:
the husband been the sole Appointor of the trust with sole discretion over the trust assets and how income of the trust may be distributed to beneficiaries; or
if the wife was not expressly excluded as a beneficiary of the trusts.
If you would like a similar level of protection for your family ask us about our Testamentary Discretionary Trust Wills to safeguard your legacy and children’s inheritance.
