What is the two‑stage characterisation test for trust assets in Queensland family law?

What is the two‑stage characterisation test for trust assets in Queensland family law?

Queensland family law applies a two‑stage characterisation test when deciding whether assets held in a discretionary family trust are part of the matrimonial property pool and, if so, how they should be treated in the overall settlement.

Stage 1 – Is the trust property of a party?

The court first determines whether the trust assets constitute property of either spouse. To be characterised as property, the party must satisfy both of the following:

• Effective control – the party must have the ability to control the trust, most commonly demonstrated by holding the power of appointment (the right to remove/appoint trustees or direct distributions) or occupying a position such as trustee or director of a corporate trustee.
• Capacity to benefit – the party must be able to obtain a benefit from the trust, e.g., by directing income or capital to themselves or being a permissible beneficiary with a realistic prospect of receiving distributions.

If both elements are present, the trust assets are deemed property of that party and are included in the pool available for division. If either element is missing, the assets are treated merely as a financial resource (relevant only to future needs, not divisible as property).

Stage 2 – How should the property be adjusted?

Only after the trust is classified as property does the court proceed to the second stage, where it decides whether any adjustment is required to achieve a just and equitable outcome. The court considers:

• The purpose for which the trust was established (e.g., inter‑generational business protection, tax planning).
• The origin of the trust assets (inheritance, settled property, etc.).
• Each party’s contributions to building up the trust (financial, non‑financial, homemaker/parenting).
• Each party’s future needs (age, health, earning capacity, care of children).
• The overarching requirement that any adjustment be just and equitable under section 79 of the Family Law Act 1975 (Cth).

Key authorities

• Nicholes Law explains that the majority approach in Caldwell & Caldwell [2026] FedCFamC1A 81 confines the property characterisation to control and capacity to benefit, leaving purpose and origin for the adjustment stage^[1].
• Bartier & Associates describe the two‑step process: first identify existing legal/equitable interests in property; second decide whether to redistribute those assets^[2].
• Dorter Family Lawyers outline the four‑step property‑settlement process (identify/value → contributions → future needs → just & equitable), which aligns with the identification‑adjustment framework of the two‑stage test^[3].

Practical takeaway

The test cleanly separates the threshold question (“Is this trust property?”) from the substantive question (“How should we divide it?”). This prevents the court from conflating control considerations with fairness arguments and ensures that only trusts over which a party truly holds control and can benefit are split as part of the pool.

Related topics

• Power of appointment and trust property – /faq/family/power-of-appointment-trust-property/
• Property pool and add‑backs – /faq/family/property-pool-and-addbacks/
• Family law property settlement process – /faq/family/property-settlement-process-basics/
• Caldwell & Casey trust case treatment of trusts – /faq/family/property-pool-and-addbacks/