The exclusion of a wife from a family trust is a complex intersection of trust law, equity, and Australian family law. While a trust deed can lawfully define or limit beneficiaries, the Family Court of Australia retains broad powers to scrutinise and adjust property interests where fairness demands.
This article examines, from a legal perspective, the validity, enforceability, and consequences of excluding a spouse from a family trust — and the circumstances in which courts may intervene to prevent injustice or asset concealment.
Legal Nature of Excluding a Spouse from a Family Trust
Under Australian law, a family trust is not an entity in itself but a fiduciary relationship, governed by the trust deed, equitable principles, and state-based trust statutes such as the Trusts Act 1973 (Qld) and Trusts Act 1958 (Vic). The trustee holds legal title, while beneficiaries hold equitable interests.
An exclusion clause within a trust deed — stating that a spouse or former spouse is not to benefit — is technically permissible, provided:
- The clause is clearly drafted within the deed;
- The trust is established bona fide, not for an unlawful or fraudulent purpose; and
- The trustee continues to discharge fiduciary duties properly and without bad faith.
However, even a valid trust deed cannot oust the jurisdiction of the Family Court under Part VIII of the Family Law Act 1975 (Cth). Where a marriage breaks down, the Court may treat trust property as part of the matrimonial asset pool or as a financial resource, depending on the degree of control one spouse exercises over the trust.
“A trustee’s discretion cannot be used to circumvent statutory fairness. Equity looks to substance, not form.” — LegalFinda Family Law Commentary 2025
Validity and Enforceability Under Australian Law
While a family trust deed may lawfully exclude a spouse, legality alone does not determine its effectiveness. The Australian courts assess every exclusion clause through the lens of intent, timing, and control, ensuring it complies with both equitable principles and statutory family law. The following section examines how courts evaluate the validity and enforceability of such provisions under Australian jurisprudence.
Legal Principles
A trust provision excluding a spouse is valid on its face but remains subject to judicial review. Courts assess:
- Intent of the settlor: Was the exclusion motivated by legitimate estate planning, or by an attempt to defeat potential family law claims?
- Timing of establishment: Trusts created or amended immediately before separation invite heightened scrutiny.
- Degree of control: If the spouse controlling the trust also acts as trustee or appointor, the assets may still be treated as effectively under that spouse’s ownership.
Leading Authority: Kennon v Spry (2008) 238 CLR 366
The High Court confirmed that even where a trust formally excludes one spouse, assets may still be treated as part of the marital property if the other spouse has effective control or a beneficial expectation. The case remains the principal authority establishing that equitable and family law jurisdictions overlap when assessing trust entitlements in divorce proceedings.
Rights and Remedies of an Excluded Spouse
Even where a wife is expressly excluded, Australian law provides multiple legal pathways for review and relief:
- Equitable Interest Claims: If the excluded spouse contributed financially or through labour to the accumulation of trust property, she may assert a constructive trust or resulting trust.
- Family Law Adjustment Orders: Under sections 75 and 79 of the Family Law Act 1975, the Court may adjust interests to achieve a just and equitable outcome.
- Disclosure and Sham Allegations: Where the trust appears to be a device to conceal marital assets, the Court can pierce the structure and order full disclosure.
- Succession and Estate Relief: A surviving spouse may also claim under state Succession Acts if the trust operates as part of an estate plan that unfairly excludes her.
In essence, while a spouse may be excluded on paper, the substantive reality of control, contribution, and intent determines the Court’s response.
Challenging an Exclusion Clause
An excluded spouse may initiate proceedings on several legal bases:
- Family Court proceedings – seeking inclusion of trust assets in the property pool or recognition as a financial resource.
- Equitable proceedings – alleging breach of fiduciary duty, unconscionable conduct, or improper purpose by the trustee.
- Constructive trust claims – asserting a beneficial interest due to direct or indirect contributions.
- Sham trust argument – claiming that the trust was never genuinely intended to operate as an independent fiduciary structure.
Courts will assess the purpose of the trust, the independence of the trustee, and the pattern of distributions to determine whether the exclusion was genuine or strategic.
Common Legal Rationales for Spousal Exclusion
From a legal strategy perspective, exclusions are often included to:
- Preserve bloodline control over family assets and prevent external claims.
- Shield family business interests from division upon divorce.
- Achieve creditor or tax protection, particularly for high-net-worth families.
- Maintain succession integrity by restricting entitlement to direct descendants.
However, if the primary intention is to defeat equitable or statutory rights, the exclusion may be declared void against public policy or treated as evidence of an improper purpose.
Divorce and the Family Court’s Approach
When marital breakdown occurs, the Court examines three central factors:
- Control: Which spouse effectively controls the trustee or appointor role?
- Benefit: Has either spouse historically benefited from distributions or trust assets?
- Purpose: Was the exclusion genuine estate planning or asset concealment?
Depending on findings, trust assets may be:
- Included in the property pool (if control is significant);
- Classified as a financial resource (if benefits are indirect); or
- Ignored (if genuinely independent and neither spouse exercises control).
Ultimately, the Court applies the just and equitable principle, ensuring neither spouse is disadvantaged by artificial structures.
Family Trust vs Prenuptial Agreement: Comparative Legal Tools
Both family trusts and binding financial agreements (BFAs) can serve as legal mechanisms to protect assets and define entitlements between spouses. However, they operate under different legal frameworks and are subject to distinct judicial principles.
1. Legal Foundation and Governing Law
- A family trust is governed by state-based Trusts Acts, equitable principles, and the Family Law Act 1975 (Cth) when marital disputes arise.
- A prenuptial agreement (Binding Financial Agreement) is governed solely by Part VIIIA of the Family Law Act 1975 (Cth) and must meet strict statutory formalities to be enforceable.
2. Legal Function and Purpose
- A family trust functions as a fiduciary structure, separating legal ownership (held by the trustee) from beneficial interests (held by beneficiaries).
- A prenuptial agreement functions as a contractual arrangement that pre-defines the division of property and financial resources in the event of separation.
3. Judicial Oversight and Intervention
- Family trusts remain subject to equitable review; the Family Court may include trust assets in the marital property pool if a spouse exercises effective control or receives consistent benefits.
- Prenuptial agreements are contractually binding, but courts may set them aside for fraud, duress, unconscionable conduct, or material non-disclosure under section 90K of the Family Law Act 1975 (Cth).
4. Strengths and Limitations
- A family trust offers flexibility and intergenerational asset control but can be vulnerable to family law proceedings where control overlaps with personal benefit.
- A prenuptial agreement offers legal certainty and enforceability but lacks the asset segregation and tax advantages that a trust structure provides.
5. Recommended Legal Strategy
- Australian practitioners frequently recommend a dual-layered approach — using both a properly drafted family trust and a binding financial agreement — to combine structural separation with contractual protection.
- This hybrid model provides greater resilience, ensuring compliance with trust law, equity, and family law while maintaining a defensible record of intent.
Irrevocable and Discretionary Trusts Excluding a Spouse
Even where a trust is irrevocable, it is not immune from judicial examination. Australian courts can assess whether the structure remains a sham or whether the settlor retains indirect control. Equity disregards formal labels when they obscure genuine ownership.
In contrast, discretionary trusts (the most common family trust form) provide trustees with flexibility but also expose them to allegations of control concentration if one spouse dominates trustee decisions.
Establishing a Trust for Asset Protection
Setting up a trust before marriage can be a legitimate estate-planning measure if done transparently and for genuine commercial or intergenerational reasons. Legal best practice requires:
- Drafting the trust deed independently and professionally;
- Appointing an independent corporate trustee;
- Keeping trust assets segregated from personal accounts; and
- Avoiding post-separation amendments that suggest tactical restructuring.
Timing and intent are crucial. Courts are more likely to respect trusts established well before any marital breakdown, where clear documentation supports the trust’s legitimate commercial or succession purpose.
FAQs: Legal Issues When a Family Trust Excludes a Wife
Before addressing specific scenarios, it must be emphasised that Australian courts prioritise substance over form. An exclusion clause may limit direct benefit but rarely precludes judicial scrutiny.
Is it legal to exclude a spouse from a family trust?
Yes. A settlor may define beneficiaries as they see fit. However, exclusion does not necessarily prevent the Family Court from treating the trust as part of the marital estate if one spouse retains control or benefit. For legal support on complex cases like this, individuals can begin by finding a good family lawyer familiar with both equity and family law.
Validity of a trust disinheriting a wife
A trust that excludes a wife is valid if lawfully executed and not established to avoid legal obligations. If the intent is to defeat family law claims, courts may disregard or vary its effect.
Rights of an excluded or surviving spouse
An excluded wife may claim an equitable or statutory interest under the Family Law Act 1975 or relevant Succession Acts where she can prove contribution, dependency, or financial need.
How to challenge a family trust that excludes a spouse
Legal recourse includes family law proceedings, equitable claims, or allegations of sham arrangements. Expert forensic accounting and disclosure orders often support such challenges.
What happens if exclusion arises during divorce?
The Court examines the trust’s structure, control, and purpose. If deemed intertwined with family finances, trust assets can be redistributed notwithstanding the exclusion clause.
Family trust vs prenuptial agreement
A BFA offers contractual clarity, whereas a trust offers structural separation. Each has limitations; neither fully immunises assets from judicial adjustment if fairness demands intervention.
Irrevocable trust excluding spouse implications
Even irrevocable trusts can be reviewed. Courts focus on whether the spouse exercising control continues to benefit or influence the trust, not on formal irrevocability.
What can an excluded wife do?
She may apply to the Family Court for property adjustment orders, seek equitable relief, or challenge the trustee’s conduct where discretion is exercised oppressively or in bad faith.
Conclusion
Under Australian law, excluding a spouse from a family trust is legally possible but not foolproof. Courts apply a holistic approach, examining control, contribution, intent, and equity to ensure fairness under the Family Law Act 1975.
Trusts remain powerful tools for asset management and succession planning, but their effectiveness in excluding a spouse depends on genuine independence, transparent purpose, and strict adherence to fiduciary principles. For detailed legal guidance or professional assistance in such complex cases, consult LegalFinda, a trusted Australian resource connecting individuals with experienced family and trust law specialists.
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