Trusts are pretty common in New Zealand. They are popular for all sorts of purposes, from minimising income tax, to making sure your family doesn’t lose a roof over its head if your business fails.
One purpose that continues to be popular in NZ is to move property out of the personal ownership of a person, so that if they enter into a marriage or de facto relationship and subsequently come out of that relationship, that property isn’t theirs and so it isn’t subject to legal claims by the other party to the relationship.
That’s fine in terms of the property they already had before they met the other person, including further property generated – i.e., they already owned rental properties, and the rental income adds up to purchase further properties from time to time.
Where it is not so great, and where relationship property issues pop up, is when relationship property is moved into the trust, or used to support the trust.
Sometimes it is intentional. Sometimes, it is not. Either way, if relationship property has gone into a trust in which only one party has any chance of benefiting from, then there may well be a problem.
And, this is a common problem for the following two reasons:
- the most common relationship property is each party’s income from their work, whether as an employee or for themselves
- a lot of assets in trust, and most commonly real estate of one kind or another, still have debt attached to them, which is often serviced or paid off by a party to the relationship out of their income from their work.
The law has ways to address that if you come to a point where you have to deal with relationship property issues (separation is the most common, and there are others as well).
How adequate they are, depends on your particular set of circumstances.
For now, the point is this:
- if you have assets in a trust, or anticipate using your income to pay off debt on assets in a trust, it is worth getting advice early to try to maximise your position, and if you’re separating, you should get some very frank advice about what your exposure to a claim against the trust is.
- if you are a person on the other side of this situation, early advice can help you understand what your position could be over time, and how things could be set up to ensure that if things go wrong you come out of the relationship okay, and if you’re separating, you should definitely seek a lawyer’s help to find out if relationship property has gone into a trust from which you should be getting a share in.
If you require any advice or further information on the matters dealt with in this publication, please contact the lawyer at Farry Law who normally advises you, or alternatively contact:
Wallace Revell
WRevell@farry.co.nz
09 353 6672
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry Law does not accept liability for any errors it may contain.