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What are trusts and how do they apply to relationship property?

Firstly, even if you established the Trust, but your partner contributed to the assets, the Trust will not necessarily be separate property. This is true even if a third party established the Trust.

To clarify, this means that Trusts are not an absolute protection against relationship property. This will be determined using the standard test in relationship property laws.

Certainly a partner will have no interest in a trust unless you are a beneficiary of the trust or the trustees have given you a legal interest in the trust.

In other words, if you and or your partner have a vested or contingent interest in a trust, that interest will be sufficient to qualify as property under relationship property laws.

Relationship property laws make provision for some possible claims by the non-owning partner against these interests. So even if a distribution is classified as being your separate property, this may not necessarily protect you from claims.

If you are unsure whether you or your partner has a legal interest in the trust, talk to a lawyer. Alternatively, contact CODR and we may be able to help.

How does the current law deal with trusts?

At the moment, it is clear that simply owning assets in a trust is not an absolute bar from claims. However, if a trust is involved the Family Court has limited jurisdiction, and can refer matters to the High Court. But this can be an expensive and time-consuming process.

The law expressly allows for the trust-owned house to be included in some situations, such as:

  • If the house was transferred to the trust when the couple were in a relationship;
  • Even if the property was already in a family trust before the relationship commenced, if a loan is secured over the property and a partner made repayments;
  • If one party contributed to the “improvement” of the home, then they may have an ability to claim against the trust.

In addition, there may be other situations in which a Trust does not separate your property from relationship property.

What is changing?

In 2019, the Law Commission will suggest reforms to the relationship property laws in New Zealand which have not changed for over 40 years. In terms of trust, this may include allowing the Court to have wider powers with regard to the sharing of trust property.

Therefore, before entering into a relationship, entering into a relationship property agreement recording the manner in which you seek to have your property divided in the event of separation, will be important.