How Testamentary Trusts Can Protect Family Wealth At Separation

When families think about estate planning, they usually focus on “who gets what.” But what happens if your child or grandchild later divorces? Will the wealth you worked hard to build stay in the family — or could it end up divided with an ex-spouse?

The recent case of Caldwell & Caldwell (Federal Circuit and Family Court of Australia, July 2025) shows just how powerful testamentary trusts can be in protecting family assets across generations.

The Story of the Caldwells

After a 30-year marriage, Mr and Mrs Caldwell separated in 2022 and divorced in 2023.

The wife asked the Court to treat the family trusts as part of the marital property pool — meaning she wanted a share of those assets.

But here’s where it gets interesting:

• The trusts weren’t created by the husband or wife. They came from four generations of family wealth, going all the way back to the husband’s great-grandfather’s business in the early 1900s.
• The husband only gained partial control of the trusts after his father died in 2022 — around the same time the marriage broke down.
• The wife had already been excluded as a beneficiary before separation, as part of the father’s succession plan.A testamentary trust is a trust created under the terms of your will. Unlike a family trust you set up during your lifetime, a testamentary trust only comes into effect when you pass away.

What the Court Looked At

In family law, trusts can sometimes be treated as property if one spouse effectively controls them or has used them for the family’s benefit. The Court asked questions like:

• Were the trusts ever used to support the husband and wife during their marriage?
• Who really controlled the trusts?
• Who could benefit from them?
• Where did the assets come from?

What the Court Decided

The Court refused to treat the trust assets as divisible property.

Why? Because:

1. The assets weren’t created during the marriage. They were built by earlier generations.
2. The wife had no right to benefit. She was excluded as a beneficiary long before separation.
3. The husband hadn’t personally gained. He’d never received distributions during the marriage.
4. Control only passed after separation. His father had been in charge the whole time.

In short, the trusts were protected.

Why This Matters for Everyday Families

You don’t need $20 million in assets like the Caldwells for this to matter. The principle applies to anyone who wants their estate to stay in the family.

👉 Imagine this: You leave your estate to your daughter outright. Ten years later, she goes through a divorce. Half of what you left her could be on the table in her property settlement.

Now compare that to leaving your estate in a testamentary trust. Your daughter can still benefit, but the trust creates a legal structure that shields the assets. If she divorces, her ex is far less likely to get a share.

Lessons From Caldwell

If you’re thinking about how to protect your assets for your children and grandchildren, here are the lessons from Caldwell:

• Use testamentary trusts in your will. They provide strong protection and flexibility.
• Be clear about the purpose. Stating that the trust is for the benefit of future generations helps guide decisions.
• Exclude spouses of descendants. This avoids messy disputes if a marriage breaks down.
• Get the structure right from the start. Once separation happens, it’s too late to re-arrange things.

Protecting Your Family’s Legacy

At Klarion Law Group, we often see clients who worry about “what ifs”:

• “What if my son divorces?”
• “What if my daughter re-marries and her new partner gets everything?”
• “What if my grandchildren don’t see the benefit of the wealth I’ve worked for?”

A well-drafted testamentary trust can answer those fears. It ensures your wealth is a gift for future generations, not a bargaining chip in their divorce.

Final Thoughts

The Caldwell case reinforces what many estate and family lawyers have long known: testamentary trusts are one of the strongest tools for protecting family wealth.

At Klarion Law Group, we understand that wealth is more than numbers on a balance sheet — it represents years of effort, family history, and a legacy you want to protect. Whether you are dealing with complex trust structures, corporate interests, or planning how best to safeguard your estate for future generations, our team can provide clear strategies tailored to your circumstances. If you are considering a testamentary trust or want to review your current asset protection plan, reach out to us. With fixed fee Estate Planning with Testamentary Trust Wills, we are here to help you protect what matters most, today and for the generations to come.

Book an initial consultation with Klarion Law Group – available in-office, at your home, or via Teams.

Disclaimer: The information in this article is general in nature and does not constitute legal advice. The laws and processes discussed apply to New South Wales at the time of writing the article and may change over time. Your circumstances may be different, and outcomes can vary depending on your specific situation. You should seek independent legal advice before making any decisions regarding your estate or legal matters.