When couples enter a binding financial agreement, they tend to focus on the obvious: the house, superannuation, savings, and business interests. Trusts are frequently overlooked, and that oversight can be costly. If you or your partner holds assets inside a trust structure, a prenup in Australia can address those interests, but only within specific legal limits and with careful drafting.
What kinds of trusts come up in prenup discussions?
Australian family law encounters several types of trusts in the context of property settlements and binding financial agreements. The most common are discretionary family trusts, unit trusts, testamentary trusts (created by a will), and bare trusts. Each sits differently under the law.
A discretionary family trust is the structure most couples grapple with. The trustee holds legal title to the assets, and the beneficiaries have no fixed entitlement. Courts have treated a beneficiary's interest as a financial resource rather than a direct asset, but that distinction doesn't make it untouchable. Judges have wide discretion to take trust interests into account when assessing what's fair.
Unit trusts are cleaner. Each unit represents a fixed, quantifiable interest, more like a share than a vague expectation. Those units can be valued and, depending on the circumstances, can be dealt with directly in a binding financial agreement.
Can a prenup directly cover trust assets?
This is where precision matters. A binding financial agreement operates between the parties to the agreement, not the trust itself. The trustee is a third party. If the trust deed doesn't permit a beneficiary to deal with their interest in a certain way, the prenup can't override that restriction.
What a prenup can do is address the party's beneficial interest, their right to receive distributions, their power as a trustee or appointor, and any assets they might receive from the trust in the future. It can also specify that one partner's entitlements under a family trust established by their parents will not form part of the shared asset pool in the event of separation.
What it can't do is bind a trustee who hasn't signed the agreement, compel distributions, or override trust deed restrictions. Courts have occasionally looked past a trust structure where a party effectively controls the trust and treats it as their own piggy bank, a concept sometimes called the "alter ego" principle. Good legal drafting tries to minimise that exposure.
Protecting a family trust you're a beneficiary of
Being a beneficiary of a family trust set up by parents or grandparents is common in Australia, particularly in farming families and established business families. The concern is real: will a future partner be entitled to a share of distributions or the underlying trust assets if the relationship breaks down?
The honest answer is: possibly, if the relationship is long and the distributions have been substantial. Courts look at whether that income has built up the couple's joint wealth. A well-drafted prenup won't stop a court from treating regular trust income as a financial resource, but it can establish clear expectations and reduce the scope of a dispute.
As with protecting assets you haven't yet acquired, the difficulty is anticipating what the trust will hold and distribute over the years ahead. Static drafting rarely ages well. A prenup covering a trust should be reviewed whenever the trust structure changes significantly.
Trusts established during the relationship
Trusts set up during the relationship, particularly those funded with joint money or used to run a jointly operated business, are treated far less sympathetically by courts. The other partner can credibly argue they contributed to the trust's assets through income, labour, or foregone opportunities. That contribution is real and will be assessed.
If a couple sets up a discretionary trust together and one partner later tries to argue the trust is entirely theirs, courts will look at who funded it, who controlled it, and whose money flowed into it. A prenup drafted before the trust was established can help define each party's intended ownership, but it needs to match what actually happens during the relationship. Inconsistency between the agreement and conduct weakens the document considerably.
The same principle applies to business-related trusts. A prenup can protect a business in Australia, but only if the drafting is specific about how the business structure, including any trust vehicle, is treated if the relationship ends.
What to include in a prenup that covers a trust
If you want a binding financial agreement to meaningfully address a trust, the drafting should cover the following:
- A description of the trust, including the trust deed date, the trustee, and the appointor
- The nature of your interest (beneficiary, trustee, appointor, or unit holder)
- How distributions received during the relationship will be treated, as joint income, your separate property, or something else
- What happens to trust units or a fixed interest if the relationship ends
- Whether any assets transferred into the trust after signing will be covered by the agreement
The trust deed itself should be reviewed alongside the prenup. If the deed restricts the beneficiary's ability to deal with their interest, that restriction needs to be understood before any agreement is signed. Your solicitor and the trust's legal adviser may need to coordinate.
Independent legal advice is non-negotiable
Under the Family Law Act 1975 (Cth), both parties to a binding financial agreement must receive independent legal advice before signing. That requirement exists for every BFA, but it carries extra weight when a trust is involved. The lawyer advising you needs to understand trust law, not just family law, to explain what protection the agreement actually provides and where the gaps are.
Trust-related prenups are among the more technically demanding agreements to draft. Generic templates won't cut it. If the trust is a significant part of your wealth, the legal fees for proper drafting are a fraction of what a contested settlement could cost. Rockwell Family Law Services works with clients across these arrangements and can help you understand what a prenup can realistically achieve for your specific trust structure.
What if no prenup is in place?
Without a prenup, trust assets and interests are assessed under the standard property settlement framework. Courts have the power to look inside a trust when a party controls it or benefits substantially from it. Distributions received during the relationship are frequently treated as joint income and factored into contributions. The longer the relationship, the more weight those contributions carry.
If your trust interests are significant and you're approaching a new relationship, now is the right time to act. Waiting until after the wedding is still possible under Australian law, though it carries its own considerations worth discussing with a solicitor.