Can Your Family Trust Be Touched in a Property Settlement? What Caldwell & Caldwell Means for Queensland Families

For decades, the family discretionary trust has been the go-to structure for protecting wealth across generations. Many clients have been told, with some confidence, that “the trust isn’t yours, so it can’t be touched in a divorce”. A recent appellate decision of the Federal Circuit and Family Court of Australia, Caldwell & Caldwell [2026] FedCFamC1A 81, should prompt a serious rethink of that assumption.

The case has moved through two stages that tell quite different stories, and the contrast between them is the real lesson for anyone with family wealth tied up in trust structures.

The background

The matter involved a husband and wife married for around 30 years before separating. The husband’s family had, over several generations, built up substantial wealth held across three discretionary trusts. Those trusts were established by the husband’s father, with the stated purpose of benefiting the lineal descendants of the family — not spouses who married into it. Around 30 years into the marriage, and the same year the parties separated, the husband’s father passed away and the husband acquired significant powers over the trusts, including the ability to remove and replace appointors and trustees. His sons were also appointors and directors of the trustee companies, and there was no suggestion the husband had ever drawn a personal benefit from the trusts.

The wife sought a declaration under section 79 of the Family Law Act 1975 (Cth) that the trust assets formed part of the property of the marriage, available for division.

Round one: the trusts were safe

At first instance, the primary judge found in the husband’s favour. The reasoning leaned on several familiar “asset protection” features: the wealth had been accumulated over generations by people other than the spouses; the trust deeds confined benefit to lineal descendants and expressly excluded spouses; the husband had never actually received distributions; and, perhaps most persuasively, he wasn’t the sole controller — his sons held parallel powers as appointors and directors, even though he could have removed them.

On that reasoning, the trusts and their assets were not “property” of the marriage at all and were therefore outside the asset pool altogether.

Round two: the Full Court takes a very different view

On appeal, the Full Court took issue with the trial judge’s approach — not so much with the facts found, but with how those facts were used. The primary judge, the Full Court held, had blurred two distinct questions: first, whether the trust assets were “property” of one of the parties at all; and second, whether it would be fair to redistribute those assets in the wife’s favour. By weighing fairness considerations into the first question, the trial judge had effectively let the back end of the analysis contaminate the front end.

Properly separated out, the threshold question is narrower and more mechanical: does this person have the legal and practical capacity to control the trust and apply its assets for their own benefit? The Full Court found that the husband did. He could remove the co-appointors. He could influence or determine who acted as trustee. And because of that, he could, if he chose to, cause the trust property to be applied for his own benefit. Critically, the majority held it didn’t matter that he had never actually exercised those powers, that his sons held competing powers, or that the trust deed nominally excluded spouses from benefit. What mattered was capability, not history.

On that basis, the trusts were found to be the husband’s “property” for the purposes of section 79 — overturning the position reached below.

Why “property” doesn’t mean “you’re losing it”

This is the point that’s easy to misread, and the one most worth understanding clearly. A finding that the trust assets are “property” of the husband does not mean the wife automatically gets a share of them, or that the trust is dismantled. It means the trust assets are now correctly counted into the matrimonial pool that the Court has the power to redistribute — which is a different question from whether redistribution will actually happen, and if so, how much.

The same factors the trial judge had used to protect the trust — its multi-generational purpose, the source of its wealth being independent of the marriage, the absence of any historical benefit to the husband, the exclusion of spouses under the deed — haven’t disappeared from the case. They’re still very much in play. They simply belong to the second stage of the inquiry: what’s a just and equitable division, given everyone’s contributions and future needs? It’s entirely possible the wife ends up with no greater share of the trust assets than she would have under the first decision. What’s changed is that the door to that argument is now open, where before it was closed at the threshold.

What this means for trust structuring going forward

Caldwell is a timely reminder, rather than a revolution, but it sharpens a few points that matter in practice for anyone using a discretionary trust as part of family wealth planning:

• Control on paper is what counts, not control in practice. A spouse who has simply never exercised their powers, or who shares those powers with others, may still be found to hold the trust as their property if they retain the capacity to control it — including, as in Caldwell, the power to remove a co-controller.
• Trust deed exclusions of spouses are not a complete shield. Excluding a spouse as a named beneficiary may protect against a direct entitlement claim, but it did not prevent the Court from treating the trust as the husband’s property where he retained effective control over it.

• Origin and purpose of the wealth still matters — just later in the analysis. Multi-generational, pre-marriage wealth accumulated independently of the relationship remains a powerful argument for limiting any actual redistribution. It’s simply no longer a basis for excluding the trust from the pool altogether if effective control exists.

• Genuinely shared, independent control remains protective. Where control is dispersed among multiple unrelated parties acting independently — true joint control without one party holding a unilateral power to remove the others — there’s a stronger argument the trust isn’t any one spouse’s property. The presence of a removal power, even unexercised, was decisive against the husband in Caldwell.

Practical takeaways

For business families and high-net-worth clients, this decision is a prompt to review trust structures with fresh eyes — not just for tax and succession planning, but specifically through the lens of family law exposure. Questions worth asking include who holds appointor and trustee removal powers, whether those powers are genuinely shared with independent third parties, and whether the structure would withstand scrutiny if a beneficiary’s marriage broke down.

It’s also a reminder for anyone currently negotiating a property settlement, or considering one, that the existence of a family trust in the picture is not the end of the conversation — for either side. Whether a trust ultimately affects the outcome of a settlement depends heavily on the specific powers, history, and structure involved, and that analysis benefits from early, careful legal advice rather than assumptions based on how the trust was originally described to family members.

If you have questions about how a family trust might be treated in a property settlement, or you’re reviewing succession and trust structures for your family or business, our family law and estate planning teams at Fallu McMillan Lawyers are here to help.

This article is general information only and does not constitute legal advice. The application of these principles depends on the specific facts of each case. Please contact our office to discuss your individual circumstances.