The “Bank of Mum and Dad”, Trusts and Property Settlements: What You Need to Know

With more Australians relying on the “Bank of Mum and Dad” to enter the property market, disputes are increasingly arising when relationships break down.

A common question for separating couples and their parents is this:

Was the money provided as a gift, a loan, or as part of an arrangement intended to confer an interest in the property?

The answer can significantly affect how property is divided in family law proceedings.

Gifts, Loans and Resulting Trusts in Australia

Under Australian law, where two or more parties hold a legal interest in land, but their financial contributions are unequal, the law may recognise a resulting trust in favour of the party who contributed more unless evidence shows contrary intention. In simple terms, equity may recognise a beneficial interest that reflects the actual financial contributions, even if the title does not.

However, when money is advanced from a parent to a child, the situation is different.

There is a long-standing legal principle known as the presumption of advancement. This presumption provides that money or property given by a parent to a child is presumed to be a gift, unless there is evidence to the contrary. That can make it difficult for parents to later argue that funds were intended to be repaid or that they were to receive a proportional interest in the property.

To avoid uncertainty, many families establish discretionary trusts to facilitate intergenerational wealth transfers and to provide asset protection.

But how are these trusts treated if a marriage or de facto relationship breaks down?

Trusts and Property Settlements under the Family Law Act

The Federal Circuit and Family Court of Australia (FCFCOA) has broad powers to alter property interests between parties to a marriage or de facto relationship.

Under section 4 of the Family Law Act 1975 (Cth), “property” is defined as:

“Property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”

This definition is critically important when dealing with trusts in family law proceedings.

When a trust is involved, the Court must determine how it should be characterised. Broadly, a trust may fall into one of three categories:

Property of the marriage/relationship — forming part of the asset pool available for division;
A financial resource of one party — not directly divisible, but relevant when assessing future needs; or
Excluded entirely from the matrimonial pool.

Only once the trust is properly characterised can the Court determine how it should be treated in the overall property settlement.

In making this assessment, the Court typically considers:

The terms of the trust deed
The purpose of the trust
The identity and powers of trustees and appointors
The conduct of the parties
The history and origin of the trust assets
Whether either party has effective control

A Recent Example: Caldwell & Caldwell [2025] FedCFamC1F 506

The decision in Caldwell & Caldwell provides a recent illustration of how the Court approaches discretionary trusts.

Background

In this matter, the wife sought a declaration that certain discretionary trusts and/or their assets were property of the parties under section 79 of the Family Law Act.

The trusts in question were connected to a longstanding family business established by the husband’s great-grandfather in the early 1900s. Over time, the business operated through various discretionary and unit trusts.

The husband worked in the family business throughout his adult life and was well remunerated. Following his father’s death in 2022, control of the business and associated trusts passed to the husband and other family members.

The wife argued that:

The husband effectively controlled the trusts and could exercise that control for his own benefit; and
Therefore, the trusts (or their assets) should be treated as his property for the purposes of section 79.

The husband contended that:

The trusts were established by his father, not him;
Any control he held arose only after his father’s death;
The purpose of the trusts was to preserve the family business for future generations; and
His powers as trustee or appointor were subject to fiduciary duties and the “proper purpose” rule, preventing him from exercising those powers for an improper purpose (such as funding a property settlement).

The Court’s Findings

The Court ultimately held that the trusts and their assets were not property of the husband for the purposes of section 79.

Key reasons included:

The trusts were established by the husband’s father, not by the husband;
There was no evidence that the father acted as the husband’s alter ego;
The husband did not control the trusts during the marriage in a way that suggested personal ownership;
The purpose of the trusts was intergenerational management of the family business;
Neither party had received distributions during the marriage;
The trust assets did not represent the joint efforts of the husband and wife; and
The parties had accumulated substantial wealth outside the trusts, from which a just and equitable settlement could be achieved.

Importantly, the Court recognised that compelling the husband to exercise his powers to distribute trust capital to himself for the purpose of satisfying a property settlement could conflict with the trusts’ purpose and the husband’s fiduciary obligations.

This case reinforces that control alone does not automatically convert a trust into property available for division between parties in family law proceedings. The Court will closely examine purpose, structure, history and conduct.

How Can Families Reduce the Risk of Disputes?

While every situation is fact-specific, careful planning can significantly reduce the risk of complex and costly litigation:

Keep finances clearly separated where appropriate.
Retain detailed financial records of contributions and intentions.
Document loans formally, with written loan agreements and clear repayment terms.
Comply with the terms of any formal loan agreement as if it is later disputed a Court will consider repayment history, whether demands have been made and the prospect of enforcement of the loan.
Avoid informal arrangements when transferring funds between generations.
Consider trust governance carefully — including multiple appointors or independent trustees.
Clearly document the purpose and intention behind any trust structure at the time it is established.
Keep trust distributions separate from relationship assets where possible.
Enter into a Binding Financial Agreement to proactively seek to prevent or reduce future dispute regarding any trusts, businesses, or inheritances from future claim.