Divorce case tests status of trust assets
Copy of article that appeared in The Australian Financial Review - Friday, 30 July 2010
A trusts law expert is attempting to take his ex-wife to the High Court for the second time, reports Marsha Jacobs.
A top retired Melbourne barrister is attempting to take his ex-wife to the High Court of Australia for the second time over their family trust in a case that could have wide implications for the tax-efficient entities.
Dr Ian Spry, QC, would today ask the High Court to grant him special leave to have his case heard. He wanted the court to determine whether he should be required to hand over trust money that is technically not his, as part of a settlement.
According to a summary put out by the High Court Melbourne-based Dr Spry married his wife Helen in 1978, they had four children and divorced in 2003.
During the Marriage, Dr Spry distributed $4.6 million in family-trust assets into four trusts set up for their children.
The family court of Australia then ruled that transferring assets out of the trust was invalid and said the assets were to be counted as pool assets in the divorce settlement, and ordered Dr Spry to pay his wife $2 million. He lost appeals to the full Federal Court of Australia and the High Court.
Justin Dowd, a family law partner at Watts McCray, said the High Court decision made it "difficult to see what family trust is now beyond the reach of courts".
"If a spouse is a trustee of a family trust, the spouse must make sure not to place funds that have been acquired in the course of the marriage into the trust fund or else it may become characterised as property of the parties to the marriage," Mr Dowd said.
According to the High Court summary, after his appeal was rejected by the High Court, Dr Spry converted $4.4 million of the trust's assets into cash and threatened to destroy it. His wife applied to the Family Court to have the money from the settlement paid to her.
Dr Spry agreed to pay his ex-wife just over $1 million. He said he could not hand over the rest of the money because it belonged to the trust, not him, and asked the High Court to rule on the same issue.
Merthyr Law principal Kieran Hoare said the case was significant because Dr Spry and members of the High Court were "all leading authorities and have written text on the law of equity which governs law of trusts".
"The High Court is being asked to consider whether the Family Court was allowed to make orders against the trustee of the discretionary trust, to satisfy a personal debt of the trustee...The court, by making orders against Dr Spry in his capacity as trustee of the trust, especially in circumstances where he is not a beneficiary, would seem to be a change in direction of centuries of trust law," Mr Hoare said.
Bruce Provan, partner at Harrington Family Lawyers, said the case was about whether a trustee can be ordered to pay money in breach of their obligations to a trust.
"Family courts have long taken the view that if you control the trust money, it is to be included as assets of the parties in a marriage," Mr Provan said.
"Dr Spry argues he is the trustee and would be breaching his obligations as a trustee if he takes trust money and gives it to his wife. The question is if you can be required to hand over money that is technically not yours."
He said he would be surprised if the court ruled in favour of Mr Spry, and in doing so overturned a substantive precedent of family law about trust assets.
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