Published on 04 Aug 09
by SOUTH AUSTRALIAN DIVISION, THE TAX INSTITUTE
Note: This paper is almost identical to the paper "Trust Busting" by Arlene Macdonald delivered at the 2009 National Convention held in March 2009.
The High Court's decision in Kennon v Spry in December 2008 affirmed the Family Court's powers to notionally divide family discretionary trust assets between spouses. It also affirmed the Court's power to set aside trustee distributions of capital and income.
This paper summarises this important case and provides an analysis of the majority decisions in order to draw out the following practical implications for tax advisers with unhappily married or recently divorced clients. In addition, the paper briefly looks at what the Family Court does with the tax debts of the spouses. In particular:
- are assets of certain types of discretionary trusts (eg testamentary trusts or parent's or children's trusts) less likely to be added to the pool for division between the spouses?
- what are the tax implications for trustees and beneficiaries where the Court sets aside prior year trustee distributions of income and/or capital (as in Kennon v Spry )?
- possible strategies for clients whose marriage is heading for divorce (or has already gone there).
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