What happens to trust property when you separate in New Zealand?

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According to the Ministry of Justice, there are currently between 300,000 and 500,000 trusts in Aotearoa / New Zealand. If you are a trust property owner and you’re facing a relationship separation there are a few things you should know first.  

Here we explain what happens when you separate if a trust property is involved and assess a few different trust property scenarios. 

Property and separation in New Zealand 

The circumstances of each separation, divorce and division of property in New Zealand are different, but all must be resolved under the Property (Relationships) Act 1976 (‘the Act’). If your property situation involves a trust, your situation will be more complicated than determining and valuing relationship property and separate property. Having property in a trust doesn’t automatically mean it’s protected from being part of the relationship property pool. 

What is ‘the relationship property pool’? 

Under the Act, each partner in a marriage, civil union partnership or de facto relationship are presumed to have contributed equally to the relationship. This means that on separation (or death) there should be an equal division of assets in the relationship property pool.  

Relationship property includes the couple’s shared assets and could include: 

  • The family home 
  • Furniture, household equipment and appliances 
  • Vehicles and boats 
  • Income earned during the relationship 
  • The financial value added to superannuation and any life insurance policy during the relationship 
  • Property purchased during the relationship (and sometimes before the relationship if it was jointly used)  

Protecting your assets on separation 

You may have created a family trust in NZ believing you could protect assets when entering a relationship. Or maybe your family home or business is owned by a trust established by your former spouse. When property is in a trust (and there is not a a contracting out agreement) and your relationship has broken down, the situation can be emotionally difficult and complex to resolve.  

Can a family trust be contested in New Zealand? 

Most family trusts are ‘discretionary trusts’ and involve three key roles: 

  • The person or people who set it up (legally called the ‘settlor’ or ‘settlors’) 
  • The person or entity who benefit from the trust (called the ‘beneficiaries’) 
  • The people or entity who manage the trust and hold onto its assets as legal owners (the ‘trustees’). The trustees decide, subject to the terms of the trust,  when a beneficiary receives trust assets or income. 

Under New Zealand law, trust property in a discretionary trust isn’t relationship property or separate property. The Act only applies to trust property in very limited circumstances.  

If your family home is held in a discretionary trust – what happens to it when your relationship breaks down?  

If you and your former partner can’t reach an agreement of assets to be divided in a separation agreement in NZ, we can help. There are several possible scenarios regarding trust property in New Zealand, and it can help to get the guidance of experienced relationship property solicitors to access relationship property you’re entitled to. 

Family trusts in NZ 

In New Zealand, the trustees of a family trust are usually the spouses (or de facto partners) and one or more independent trustees. Independent trustees may not be truly ‘independent,’ if they are family members, friends or even a professional colleague more closely aligned to one of the spouses. 

Each trust and relationship situation is different. The legal requirement is that trustees act impartially and in the interests of the beneficiaries. If you’re separating and believe your spouse has trust assets that should form part of the relationship property pool, get in touch with us. Our experienced team can assess your family trust in NZ and help you to navigate a path to the end goal of bringing trust assets into the relationship property pool. 

Let’s look at a few trust scenarios, which may be similar to yours.  

The family home belonged (in a trust) to one spouse, before the relationship 

If your spouse owned what became your family home (in a trust) prior to your relationship, it may be possible for you to claim it back into the relationship property pool if, for example: 

  • Your spouse used income earned during your relationship (such as their wages) to pay the mortgage or other expenses for a trust property 

Your spouse has assets in a trust 

If your spouse has all the assets of your relationship in a trust, but you’ve made contributions (in money or services) to acquiring, preserving or enhancing the trust property, you could make a constructive trust claim.  

Your contributions must exceed the benefits received, for example: 

  • Paying for the painting of a trust-owned family home probably wouldn’t be sufficient to make a constructive trust claim, as your contribution wouldn’t exceed the benefit you’ve received from having lived in the home 
  • Investing money into a trust-owned family business and working for that business without receiving a wage, probably would be sufficient to make a constructive trust claim 

Your spouse transferred an asset into a trust during your relationship 

If the asset is relationship property (such as the family home) it would be brought back into the relationship property pool and you may be able to make a claim against the trust.  

You believe the trustees have failed to act impartially or have a conflict of interest 

In a situation where you believe the trustees (who may be your spouse, their family member or friend) are not acting in the best interests of the beneficiaries, we can help. There may be grounds to apply to the High Court to remove one or more trustee and appoint an independent trustee. 

The neutral, independent trustee would then manage the trust, which could include distribution of its assets as relationship property. 

How Shine can help 

As you can see from these few scenarios, when relationships end, it can be difficult to determine what happens with trust property. We are experienced litigators and can help you navigate a path to the end goal of accessing the assets of the trust. 

Contact Shine Lawyers 

Shine Lawyers New Zealand has a wealth of experience in representing clients going through relationship separations. Our depth of experience ensures we can achieve the best result possible for our clients, helping them get the outcome they need so they can move forward with their lives. 

Contact us today, to discuss your situation or make an appointment to come in to meet us, so that we can start helping you with a solution for your situation. 

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