Introduction
Q1: If my family trust has a puppet trustee, can the court split the trust assets in a divorce?
A: The court can look past the trust structure and treat the assets as yours if the trustee does nothing without your direction. Reference: Ashton v Ashton [1986] FamCA 20
Q2: Do I need to be the trustee myself to be seen as controlling the trust?
A: You do not need the legal title. You can be found to control the trust through family members who hold positions in name only but follow your instructions. Reference: Romano & June [2013] FamCA 344
Q3: My parent is the trustee. Will the court assume they act independently?
A: Being a parent does not prove independence. The court checks whether your parent makes real decisions on their own or just holds the title to shield your assets. Reference: Harris & Dewell and Anor [2018] FamCAFC 94
How do courts apply the puppet test in a family trust divorce?
The puppet test asks one question: does the trustee ever do anything without your direction? It comes from corporate law. The High Court created it in Ascot Investments Pty Ltd v Harper [1981] HCA 1, and the Family Court later applied it to family trusts in Ashton v Ashton [1986] FamCA 20.
Under section 79 of the Family Law Act 1975, the court has broad discretion to alter property interests. But to exercise that power over a trust, the court must first decide whether the trust assets count as property of one spouse. That comes down to whether one party controls the trustee so completely that the trustee is just their alter ego.
"Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it."
The Family Court normally treats trusts and companies as separate entities. The puppet exception is narrow. The party claiming puppet status carries the burden of proof. As the following case shows, that burden is hard to meet.
The husband operated a large business through a company, N Pty Ltd, established in 1973. He held A Class shares carrying exclusive management control. Shortly before a re-trial for property settlement, the husband transferred the majority of these shares to three of his adult children for a nominal price of $100 per share.
The wife argued the company was the husband's alter ego and mere puppet, and that its full value should be attributed to him. She pointed to the fact that the husband and his son (a director) failed to provide evidence of any meetings or resolutions associated with the share transfer, arguing this allowed the court to draw an adverse inference.
Outcome: The Full Court dismissed the wife's appeal on the puppet argument, holding that something more than mere control is required to treat a company and its controller as one entity. While the husband wielded significant control, the wife failed to prove the directors lacked any independent existence or direction. However, the share transfers were separately set aside under section 106B as an attempt to defeat the wife's anticipated property claim.
The Atkins decision illustrates two practical points: first, proving puppet status requires direct evidence of the controller's dominion over the trustee's independent will. Mere control is not enough. Second, even when the puppet argument fails, asset transfers designed to defeat claims can still be reversed under section 106B.
What evidence reveals a parent as a puppet trustee in a discretionary trust?
The most litigated puppet trustee scenario involves a party's parent serving as trustee, appointor, or unit holder. Courts must determine whether the parent exercises genuinely independent judgment or whether they merely hold the position as a figurehead to shield their child's assets. This distinction separates property (included in the divisible pool) from financial resource (considered only as an adjustment factor).
The key principle was articulated in Stephens & Stephens and Ors [2007] FamCA 680:
"I accept that no earlier authority in this court has gone so far as to hold that control alone without some lawful right to benefit from the assets of the trust, is sufficient to permit the assets of the trust to be treated as property of the party who has that control."
This control-plus-benefit requirement means the court looks for two things: (1) whether the party controls the trustee, and (2) whether the party has a lawful right to direct trust assets to themselves. When a parent holds the legal title or unit ownership, the second element is often missing. The child may manage the trust day-to-day but cannot legally force a distribution without the parent's consent.
During a 24-year marriage, the husband managed a unit trust (the EUT) whose units were owned by his 99-year-old father. The husband was a director of the corporate trustee and its sole manager, frequently treating the trust's assets as his own. He even told banks on loan applications that he personally owned the units.
The wife argued it was a puppet-and-puppet-master arrangement. The elderly father, she said, was a mere figurehead. But she did not put this directly to the father during cross-examination.
Outcome: The Full Court upheld the finding that the trust was a significant financial resource, not property. The court emphasised that the puppet metaphor requires the person with legal control (the father) to do nothing without the party's direction. The wife had not proven this. The father's continued legal and beneficial ownership was respected, and the trust assets were not added to the divisible pool.
The contrast with Romano & June [2013] FamCA 344 is instructive. In Romano, the husband's mother and sister served as appointors for the family trust. However, the evidence showed the husband received all trust documents at his home, used trust assets as security for personal loans, and provided a luxurious lifestyle for his family through the trust. The court found the mother and sister were mere figureheads who would act on the husband's direction. The trust assets were therefore classified as property.
| Comparison | Harris & Dewell [2018] | Romano & June [2013] |
|---|---|---|
| Legal structure | Father was sole unit holder with power to remove trustee | Mother and sister were nominal appointors |
| Origin of trust assets | Father's assets, pre-dating the marriage | Assets acquired through husband's own efforts |
| Day-to-day behaviour | Husband ran the trust day-to-day but father maintained legal ownership | Husband controlled all trust operations; appointors were figureheads |
| Right to benefit | Husband had no lawful right to units without father's consent | Husband was primary beneficiary and could direct distributions |
| Outcome | Financial resource: trust assets excluded from property pool | Property: trust net assets included in divisible pool |
Decisive factor: In Harris & Dewell, the father's genuine ownership and the husband's lack of a lawful right to benefit meant the puppet test was not met. In Romano, the mother and sister held their positions solely because the husband was confident they would follow his instructions. They were figureheads in every sense. The deciding question is not who manages the trust, but who truly decides.
Is control alone sufficient for a discretionary trust property settlement?
Even where a party holds wide powers over a trust, the proper purpose rule and fiduciary duties may prevent the court from classifying trust assets as property. This matters most for intergenerational trusts. These are trusts set up by a parent or grandparent for long-term family wealth, where the party simply inherited a management role.
The recent decision in Caldwell & Caldwell [2025] FedCFamC1F 506 directly addressed this issue:
"In my view, while the husband has very wide powers, and in that sense may be said to control the trusts, his primary duties are to act in good faith and in accordance with the purposes of the trusts and to give real and genuine consideration to the interests of all potential beneficiaries. If the husband exercised his powers for the purpose of benefiting the wife whether directly or indirectly, even if not the dominant purpose, he would be in breach of the proper purpose rule."
This creates an important limit. Even if you technically have the power to take over a trust, using that power to pay for a divorce settlement is itself a breach of trust. The trust's purpose constrains how that control can be used. The court will not call assets property if the only way to reach them involves breaking a fiduciary duty.
Following the death of the husband's father, the husband became joint appointor and director of three discretionary trusts that held a century-old family business. His two adult sons served alongside him. The husband had the absolute legal power to remove his sons as appointors and directors without giving any reason, which would have given him sole control.
The wife sought a declaration that the trust assets were the husband's property. She argued his power to remove his sons at will gave him effective control. The husband countered that he was bound by fiduciary duties and the trust deeds. The deeds said the trusts were for the exclusive benefit of direct lineal descendants, and the wife was an excluded beneficiary.
Outcome: The court dismissed the wife's application. Even though the husband held very wide powers, those powers could only be validly exercised in pursuit of the trust's purpose. That purpose was facilitating intergenerational management of the family business. The husband had never contributed the trust assets himself, had never received distributions, and would breach the proper purpose rule if he attempted to access the assets for a divorce settlement. The trusts were treated as a financial resource, not property.
Caldwell represents a significant development for trust structuring. It confirms that genuinely intergenerational trusts receive stronger protection. Where the trust purpose is clear, the beneficiary class is defined, and the controller inherited their role rather than creating it, the court is less likely to reclassify trust assets as property.
Summary
The outcome of a puppet trustee dispute depends not on legal titles, but on how the trust actually operates.
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Control alone does not make someone a puppet. You must prove the trustee does nothing without direction. In Atkins & Hunt, the wife could not show the directors lacked independent judgment, so the puppet argument failed.
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A parent as trustee is not automatically a puppet. But their independence is not assumed either. In Harris & Dewell, the court respected the 99-year-old father's ownership because the wife never proved he just followed his son's orders.
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You need control plus a right to benefit. Under Stephens and Harris & Dewell, managing the trust every day is not enough. You must also have a legal right to direct trust assets to yourself.
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Intergenerational trusts get stronger protection. Caldwell confirmed that the proper purpose rule limits even someone with very broad powers. If accessing trust assets would break a fiduciary duty, the court will not call them property.
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Actions speak louder than trust deeds. In Romano & June, the husband's mother and sister held the titles. But the husband used trust assets as personal collateral, received all trust documents, and funded his lifestyle through the trust. That proved the trust was his alter ego.
Correct approach：
- Keep formal trustee meeting minutes with genuine deliberation
- Document all loans between the trust and beneficiaries with commercial terms
- Ensure the trustee considers all beneficiaries' interests and records their reasoning
- If parents are trustees, ensure they actively manage trust decisions and keep independent records
- Represent the trust as a separate entity to banks and third parties
Risky approach：
- Hold no meetings, or produce minutes that rubber-stamp one person's decisions
- Intermingle personal and trust funds without documentation
- Distribute only to one beneficiary over many years
- Appoint parents as figureheads who sign documents only when directed
- Tell banks you personally own the trust assets
