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Are You Entitled To Value From Your (Soon-to-Be) Ex-Spouse's or Ex-Partner's Trust?

Monday, March 13, 2017

What happens if your relationship ends and your spouse/partner has previously settled property in a trust?  If the trust is valid, and there have been no dispositions to which the Property (Relationships) Act 1976 applies, there are two ways you may make a claim against that property.

The first way is under Section 182 of the Family Proceedings Act 1980, which applies when there is a marriage.  This has received recent attention in the Supreme Court case of Clayton v Clayton [2016] NZSC 30.  The second, most recent and developing way, is to make the claim of a constructive trust over property of the express trust.  There does not necessarily need to be a marriage for a constructive trust claim to be made.

Section 182 allows for the Court to resettle/redistribute a trust if it is a "nuptial settlement" to reflect the expectations of the parties.  This section was based on the former common practice of a trust being set up for the husband and wife, but after a divorce, the trustees (who are usually the husband and others) would refuse to distribute any trust property to the ex-wife.  Clayton v Clayton appears to have extended the concept of such nuptial settlements to include trusts which reference any spouse of a partner who is a named beneficiary, even if the reference is general (ie, does not say "Jane Smith" is a beneficiary but says "a spouse of John Smith" is a beneficiary).

The Court can take property out of the trust and resettle it to ensure that expectations are met.  Common practice is to create two new trusts, one for the husband and one for the wife.  In Clayton v Clayton, the Court suggested that the proper way to analyse expectations is to analyse what a spouse may have received during the life of the trust, not what they may have expected to receive during the course of the (now ended) marriage.

The modern genesis of the constructive trust argument is from Lankow v Rose [1995] 1 NZLR 277 (CA).  A constructive trust entitles you to the part of the property that is subject to the constructive trust.  Lankow v Rose requires that there be a direct or indirect contribution to the property, that the claimant expected an interest in the property, that such expectation was reasonable and that the owner of the property should reasonably be expected to give the interest.

Under Murrell v Hamilton [2014] NZCA 377, it is possible to impose a constructive trust over the assets of an express trust if there is only one trustee and the Lankow v Rose factors are present, or if the other trustees have delegated/abdicated their control to one trustee and the Lankow v Rose factors are present.

In the recent case of Hawke's Bay Trustee Company Ltd v Judd [2016] NZCA 397 an ex-wife was awarded $65,000.00 in trust property, despite the value of the property actually decreasing during the marriage.  She had worked 20-40 hours a week on the garden and housekeeping, and the corporate trustee had delegated its decision making power to the husband.  The Court declined the appeal and the judgment of the High Court that awarded the wife $65,000.00 under Lankow v Rose was upheld.

While you may have rights under the Property (Relationships) Act 1976, there are other avenues.  With the great number of trusts in New Zealand, it is important to know your rights and what you are entitled to.  If you have any questions about trusts or relationship property, feel free to contact Peter Fuscic on (09) 306 6746 (pfuscic@mcveaghfleming.co.nz) from our Auckland City Office.

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