Trusts and Relationship Property: Are Your Assets Actually Protected?

Trusts are commonly used in asset planning, for example, to own the family home, hold investments, or support succession planning. A key feature of a trust is that assets are legally owned by the trustees, not by you personally.

That distinction matters when a relationship ends. Relationship property law is primarily focused on dividing property owned personally by the partners. Because trust assets are not owned personally, they often sit outside the “pool” of relationship property. 

However, a trust is not a guaranteed shield. In some situations, the Court can intervene to undo a transfer into a trust or to compensate a partner who has been unfairly disadvantaged.

This article explains, in practical terms, when trusts can reduce risk, and when they may not.

Trusts sit outside relationship property – but that does not make them untouchable

As a starting point, assets held by a trust are not divided between partners on separation. However, “outside the pool” does not mean the Court has no ability to intervene.

There are specific provisions in the Property (Relationships) Act 1976 (the Act) that deal with situations where a trust has been used in a way that undermines one partner’s position.

The highest-risk scenario: moving assets into a trust to keep them out of reach (section 44)

Section 44 deals with situations where a person has transferred (or “disposed of”) property in order to defeat their partner’s rights.

In practical terms, this usually means:

• transferring a home or other significant asset into a trust;
• at a time when a relationship is already underway (or clearly about to start);
• with the effect of putting that asset beyond the other partner’s reach if the relationship ends.

You do not need to have openly said “I’m doing this to protect my assets from sharing or to protect them from a relationship property claim”. The Court looks at the surrounding circumstances and can draw that conclusion itself. If section 44 applies, the Court can effectively unwind the transaction or make other orders so that the asset (or its value) is taken into account.

A simple example

A person owns a mortgage-free home. They meet a new partner and, not long afterwards, transfer the home into a trust they control.

If the relationship later ends, the other partner may argue that the transfer was done to prevent them from having a claim to the home.

If the Court agrees, section 44 can be used to reverse or compensate for that transfer.

Timing is broader than many people expect (Sutton v Bell)

It is not enough to say “we weren’t de facto yet”.

The Supreme Court has confirmed that section 44 can apply even before a formal de facto relationship begins, if:

• there was a clear and developing relationship; and
• it was reasonably apparent that the parties were likely to enter a qualifying relationship.

The Court looks at this objectively (for example, living arrangements, financial support, intentions).

A practical takeaway is that if a transfer into a trust happens at a time when a relationship is becoming serious, it may still be caught, even if the legal threshold for a de facto relationship has not technically been met.

Section 44C: compensation where trust transactions reduce a partner’s entitlement

Section 44C addresses a slightly different situation.

It applies where:

• relationship property has been transferred to a trust during the relationship; and
• that transfer has the effect of reducing what one partner would otherwise receive.

Unlike section 44, this is not about proving intention or wrongdoing. Even routine or well-intentioned transactions can create issues.

A common example

During the relationship:

• both partners’ income is used to pay down a mortgage;
• the property is owned by a trust; or
• equity from a jointly owned asset is moved into a trust structure.

On separation, one partner may say: “I helped build that value, but it now sits in a trust and I have no access to it.”

Section 44C allows the Court to address that imbalance.

What the Court can do under section 44C

The Court cannot usually rewrite the trust itself under section 44C, but it can:

• order one partner to compensate the other (including from their separate property); and
• in more limited cases, require trust income to be paid to the affected partner.

A practical takeaway is that even if the trust remains intact, you may still be required to compensate your former partner.

How trust money is used matters just as much as the structure

Even where the trust itself is not challenged, disputes often arise about how trust money was treated during the relationship.

Common issues include:

• distributions being paid into joint accounts;
• trust funds being used to pay down a shared mortgage;
• trust money funding renovations to a home used by both partners.

Over time, this can blur the line between “trust property” and “property used for the relationship”.

A practical takeaway is that if the intention is to keep trust assets separate, that separation needs to be reflected in how the money is actually used not just in the paperwork.

Marriage or civil union: the Court has an additional power (section 182)

If the parties are (or were) married or in a civil union, section 182 of the Family Proceedings Act adds another layer. This provision allows the Court, following divorce, to review arrangements made during the relationship, including trusts.

Importantly, section 182 only applies to marriages and civil unions, it does not apply to de facto relationships. That said, if you are in (or were in) a de facto relationship, it is still worth taking advice, as there may be other avenues available (for example, constructive trust arguments) depending on your circumstances.

The legislation refers to “nuptial settlements”. In simple terms, this means arrangements made as part of, or in connection with, the relationship that are intended to provide for one or both partners.

In practice, this can include family trusts, particularly where:

• the trust was set up during the relationship; or
• it has been used to hold or manage assets for the benefit of the couple or their family (for example, the family home or shared investments).

A common example is a family home held in a trust during the marriage, where both partners live in the property and treat it as their home, even though it is legally owned by the trustees. In that situation, the trust may be treated as a nuptial settlement.

In recent years, the Courts have increasingly used section 182 as a way to address outcomes that would otherwise be unfair where significant assets are held in trust.

What the Court looks at

The focus is on fairness rather than strict ownership.

The Court compares:

• what each party actually receives on separation; with
• what they were likely to have received if the relationship had continued.

It can then make orders affecting how the trust operates or how its assets are applied.

The practical takeaway is that even if the trust is technically separate, it can still be adjusted as part of a fair outcome following divorce, and this is an area where the Courts are becoming more willing to intervene.

The most reliable protection is usually clarity between partners (contracting out agreements)

For clients wanting certainty, a well drafted contracting out agreement (often called a “pre-nup”) remains the most effective tool.

Trusts can help manage risk, but on their own they do not guarantee a particular outcome, particularly where:

• assets have been moved into a trust during the relationship;
• both partners have contributed; or
• trust property has been used for shared purposes.

A contracting out agreement allows you to clearly record:

• how assets (including those held in trust) will be treated; and
• what is to happen if the relationship ends.

Each party must receive independent legal advice for the agreement to be valid.

How we can help

We regularly assist clients who:

1. Want to understand whether their trust structure is likely to withstand a relationship property challenge.
2. Need a contracting-out agreement that properly addresses trust arrangements and future dealings.
3. Are separating and need advice on whether trust transactions or compensation claims may apply.