Divorce Has a Way of Resetting Just About Everything
Your routines. Your weekends. Your Netflix password and of course, your finances.
Once the dust settles and the lawyers stop sending emails, many people find themselves holding a lump sum and wondering what on earth to do with it. Buy a place? Invest it? Leave it in the bank until your brain stops spinning?
Let’s take an example. (Name and scenario details changed for privacy.) Jane walks away from her divorce with $500,000. She’s smart, resourceful, and finally has some money in her own name. The problem? She lives in Sydney, which means half a million dollars buys a decent front fence and maybe a car space. She could take out a huge mortgage to buy a home, but that means proving she can service the debt, paying a mountain of tax on her income just to qualify, and then spending the next 30 years stressing over interest rates. Not exactly freedom.
Instead, Jane takes a different path. She speaks with me and starts exploring a family trust, with the goal of investing in the share market.
Before we go any further, this article is for general education purposes only and should not be taken as financial advice. It outlines a credible alternative worth exploring and encourages readers to seek personalised advice before making major investment decisions.
What a Family Trust Really Does
Think of a family trust as a safe that holds your investments. The key difference is that the safe isn’t sitting in your personal name. The trust owns the assets, not you. You control it through a trustee, ideally a corporate trustee (that’s a company you set up to run the trust). This structure creates a layer of protection around your money that your future self will thank you for.
Here’s the reality: if you ever meet someone new, fall in love, and decide to share your life again, the assets held inside the trust aren’t considered yours in the same way. That can make a world of difference if things go sideways later. A trust doesn’t just grow your money, it protects it from potential future relationship drama. It quietly keeps your assets safe while you rebuild your life and focus on better things.
When You’d Rather Invest Than Buy a House
For many newly single people, the idea of buying property feels like a badge of independence. It’s important to remember though, that the process can be gruelling. Open homes, long hours with brokers arguing about borrowing capacity, all to end up with a mortgage so big you need a side hustle and a strong coffee just to log into your banking app.
Investing in the share market through a trust can be a calmer, more flexible option. You’re not locking yourself into a 30-year loan, you’re not spending every cent on stamp duty and legal fees, and you’re not stuck waiting months to sell if life changes again.
The beauty of a trust structure is liquidity. If you meet someone new and want to buy a home together later, your trust investments can be converted to cash quickly and cleanly. No pre-approval process. No tenants. Just options.
The Tax Side (And Why Accountants Get Excited About It)
Trusts offer serious tax flexibility. Each year, the trustee can decide who receives the trust’s income: for example, you, your adult children, or even a company.
There has been a lot of discussion recently about what accountants call “bucket companies.” The Bendel case made headlines because it questioned whether unpaid trust distributions to companies could be treated as loans under Division 7A. The Full Federal Court ruled that they are not automatically loans. This was a positive outcome for many trust structures. However, the ATO has sought special leave to appeal the decision to the High Court and has indicated that it will continue to apply its previous position while the appeal is underway.
In practical terms, this means bucket companies can still be effective, but they are not a casual DIY project. You need proper financial statements, compliant documentation, and an accountant who understands the current legal and administrative position. Until the appeal is finalised, this area remains one to handle with care.
The Power of Reinvesting Inside the Trust
One of the simplest yet most powerful wealth-building tools is reinvestment. When you leave money inside your trust rather than withdrawing it all, you give it the opportunity to compound. That means next year’s earnings start generating their own earnings. Over time, this creates exponential growth.
A well-managed trust is like a silent business partner that never complains, never takes time off and quietly works to build your future wealth.
A present entitlement (which is what accountants call a beneficiary’s share of income) should always appear on the trust’s balance sheet. This ensures you can see where the money really sits. Good records not only keep you compliant but also make the structure more effective.
Debt Recycling in a Trust
Another option some people explore is debt recycling within a trust. In simple terms, it involves using income or equity from one investment (for example, your home) to pay down non-deductible debt and then re-borrowing those funds to invest through your trust in income-producing assets. The goal is to gradually convert non-deductible debt, such as a home loan, into deductible debt linked to investments that can generate income and potentially attract tax deductions.
This strategy is not suitable for everyone and should always be reviewed by both an accountant and a licensed financial planner before being implemented. For some, it can be an effective way to make existing resources work harder without necessarily increasing income or personal risk. The focus is on smarter structuring and long-term financial efficiency, not additional complexity or stress.
Buying Property in a Trust
Trusts aren’t just for shares, ETFs or crypto portfolios. You can also buy property through them. For many investors, this can be a smart way to protect assets, manage estate planning, and control how income or capital gains are distributed among family members.
A few key rules apply. The trust must be established before the purchase, and the trustee (not you personally) will appear as the legal owner on the title. Finance can be more complex, as lenders often require personal guarantees or apply stricter lending criteria.
From a tax perspective, a discretionary (family) trust can generally access the 50% Capital Gains Tax discount when a property is held for more than 12 months. However, a trust cannot claim the main residence exemption, even if someone lives in the property. Another key consideration is that rental losses cannot be distributed to beneficiaries; these remain within the trust until future profits can absorb them.
For this reason, buying property through a trust is often more effective when the property is positively geared or expected to generate steady income and long-term capital growth. With the right planning, it can provide asset protection, income flexibility and intergenerational control that’s hard to achieve in your personal name.
Building Wealth, Not Stress
Money after divorce shouldn’t just be about recovery. It should be about creating a foundation that allows you to grow again. For some people, a family trust becomes the tool that makes that possible. It’s flexible, protective, and designed for the long game.
If you’re at this crossroads, talk to someone who works with these structures every day. At Freshwater Taxation, we help clients set up trusts properly: with the right deed, the right corporate trustee, and the right ongoing support to ensure it works exactly as it should.
We also collaborate with trusted financial planners who can model investment options within your trust, so you’re not just protecting your wealth but helping it grow stronger over time.
When life changes, the best gift you can give yourself is clarity. A well-structured plan doesn’t just protect what you’ve built — it helps you build the next chapter with confidence.
Disclaimer: This article contains general information only and does not take into account your personal circumstances. It is not financial advice. You should obtain independent financial advice before making any investment or structural decisions.
