In New Zealand once you have been in a relationship for 3 years or more there is a starting point of 50:50 if you split up.
So let’s say you come into the relationship with lots of “stuff” and your partner comes in with not much. You don’t sign a relationship property agreement. Then you split up 3 years later. You will each walk away with half each.
That’s the general rule. Apart from some things never make it into the relationship property pool. Family gifts you receive, estate and trust distributions that are made to you as beneficiary are still classed as separate property even if they arise during the course of your relationship.
So they’re still yours unless you go and mingle them up with relationship property. Which is easy to do.
What if you had a Trust in place before the relationship started?
People have generally thought they are safe if everything is in a Trust because Trust property is neither relationship property nor separate property.
That’s largely true but like everything with law, its not that straightforward.
For example lets say you have a Trust in place that owns a house. Then you meet your partner and you live in the house together. Something happens and you split up just after the three year mark. You get to walk away with your Trust and your house, right?
Maybe maybe not. Your partner can claim a “constructive trust” over the house. In other words, even though the house is owned by your Trust, your partner can make a claim on the grounds that he/she has contributed to the property (and any increased value of the property) during the course of the relationship.
So. Your partner can attack your Trust after all.
What if you form a Trust after your relationship has started and try to say that everything in that Trust is outside the relationship property pool and is your separate property?
Well you’re probably dreaming unless you specify as much in a Relationship Property Agreement. And your partner doesn’t have to sign. He/she has to be independently advised on the agreement before it is signed otherwise it won’t stack up. The lawyer providing the independent advice is not going to say you should sign it if its not fair. Why would he? He’d only be leaving himself wide open to a negligence claim.
So forming a Trust after your relationship has started thinking you will squirrel away lots of stuff for yourself is far from failsafe.
Especially if you have a high degree of control over the new Trust. Maybe you have discretion to be sole trustee, discretion to remove other beneficiaries, and so on.
That was the situation in the well known case of Clayton v Clayton. Mr Clayton indeed reserved for himself the discretion to be sole trustee and the discretion to remove beneficiaries.
The court found that the rights and powers that Clayton reserved for himself amounted to “property” for the purposes of the relationship property dispute. That meant that while he thought he should keep it all, the court decided that it should be shared.
That case caused quite a stir when it first emerged in 2016.
Some of the wind has gone out of Clayton v Clayton now because of another relationship property dispute in Cooper v Pinney, decided last year.
Similar dispute. In Cooper v Pinney a trust was formed after their relationship had commenced. Here it was formed to hold assets received from a Trust formed by his father.
Where it differed is that Pinney formed the Trust along with 3 others. There were a number of beneficiaries. He had the power to appoint and remove trustees but wasn’t actually a trustee of the Trust at the time the dispute went to court.
The court found that Pinney’s powers under the Trust were not relationship property. Whereas Clayton had the power to act alone, Pinney could not – the Trust Deed required at least two trustees and they had to act unanimously. Furthermore Pinney (and his fellow trustees) were obliged to consider all beneficiaries.
So what does Cooper v Pinney do? It stresses how important it is to draft the Trust Deed carefully. Anyone out there who is a sole trustee or has the sole right to add and remove beneficiaries should check their position. Particularly if they have just entered a new relationship and think all their assets from first time around are safely locked away for their kids.
Think again!
Call Queenstown Law on 03-4500000 or email russell@queenstownlaw.co.nz for a thorough review of your Trust and everything else related to it – particularly your Will, Memorandum of Wishes, Enduring Powers of Attorney, Relationship Property Agreement.
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