Companies, Trusts and Third Parties in Family Law
Whilst a company is a separate legal entity, parties in contested proceedings before the Family Court often make the mistake of assuming that matrimonial assets owned by a private company, or trust, are protected and quarantined from the property settlement between the parties. However, there are various ways for the Family Law Courts to exercise its jurisdiction over companies and trusts in which parties to a marriage or de facto relationship have an interest.
Firstly, the Court may make Orders against a party personally for the purposes of preventing that party from exercising his or her control over a company or trust to the detriment of the other spouse. For example, the Court may Order that a spouse party transfer shares in a company to the other spouse, or that a party resign as a director, or that assets of a company or trust be transferred to the other party. The resulting tax consequences need to be considered.
Secondly, if there is a real threat or possibility that one party to a marriage may dispose of, or transfer assets of the marriage that are held by a trust or owned by a company, then the Court has powers to make any Orders to protect the matrimonial asset(s) in question, such as an injunctive Order restraining a party from doing certain things.
Thirdly, if the disposal or transfer of assets has already occurred, the Court may set aside a transaction that has the effect of defeating an anticipated Order to be made by the Court. In such applications, consideration will be given to the interests of a bona fide innocent third party who obtained an interest in the asset which prevents the other party of the marriage from receiving a benefit.
The Court’s power enables it to make Orders which are binding on third parties. The third parties typically affected by these Orders include directors and shareholders of companies who are not a party to the marriage or de facto relationship, creditors of the parties, or family members of the parties to whom assets have been transferred or to whom debts are owed by the parties. Such Orders will be more readily made if the third party was aiding a party to the marriage or de facto relationship to disadvantage the other spouse. A third party whose interest will be affected by a proposed Order or injunction will, however, be provided with notice and may apply to be joined in the proceedings.
Consideration should always be given to the tax consequences of entering into to any Orders that are made against third parties, or dealing with assets held by Trust(s) or companies
If you would like more advice on this topic or any other Family Law issues, please contact Edwards Family Lawyers to arrange an initial consultation.