For generations, families have relied on discretionary trusts to keep assets outside the reach of the pool of assets included in a property settlement.
The Full Court’s decision in Caldwell & Caldwell [2026] FedCFamC1A 81, now final following the High Court’s refusal to grant special leave to appeal, is a timely reminder that having assets in a discretionary trust is not automatic asset protection, and that how a trust is structured matters far more than whether it’s called “discretionary” or what the intention behind it was.
In this case, three discretionary family trusts held wealth built up across four generations of the husband’s family. Neither spouse had contributed to the trusts, and the wife was expressly excluded as a beneficiary. On paper, this looked like a textbook case for keeping trust assets out of the matrimonial pool.
The trial judge initially agreed, finding the assets of the trusts were not the husband’s property. On appeal, the majority of the Full Court of the Federal Circuit and Family Court overturned that finding, ruling that the trust assets were property of the husband. The reasoning largely focused on who had “ultimate control”: the husband’s powers as appointor, including the ability to remove and appoint trustees, not on the trust’s intergenerational purpose, its stated intention, or the fact he had never personally benefited from the trust. The husband sought special leave to appeal this decision to the High Court of Australia, which was recently refused.
With the Full Court of the Federal Circuit and Family Court’s decision on appeal now standing as the final judgment, the key takeaway is this: a trust that is genuinely controlled independently of both spouses is more likely to sit outside the divisible pool, but the bar for “genuine independence” is high. Retaining powers as a sole appointor, or the ability to remove and replace trustees unilaterally, can be enough to bring a trust back into the pool, even if those powers were never exercised.
If your wealth sits in a discretionary trust, now is a good time to review who really controls it. The team at iWills Legal is here to help, with friendly, expert advice tailored to your situation.