Relationship Property Developments

By | March 24, 2014

When relationships break down, numerous issues arise around the division of property. One spouse or partner may be left significantly worse off than the other, assets are often ‘protected’ by trust structures and it can be unclear what property makes up the ‘pool’ to be divided. Two recent cases provide insight into how the courts are approaching relationship property matters.

Economic disparity

The Property (Relationships) Act 1976 provides a presumption of equal sharing of relationship property at the end of a marriage or de facto relationship if it has lasted at least three years. It also allows the court, however, to adjust the division of relationship property in one party’s favour where the court is satisfied that the income and living standards of one party is likely to be significantly higher than the other party, because of the division of functions within the relationship. In August 2013, the Family Court made its most significant adjustment to date, awarding a 70/30 division. (Carpenter v Carpenter [2013] NZFC 8396).

When Mr and Mrs C met Mr C was a registrar and Mrs C a theatre nurse working in the same hospital. They married and had two children. During the course of their 24 year marriage, Mr C qualified as a specialist surgeon, and his career took the family all over the world, ultimately returning to Wellington to live. Mrs C didn’t work and took primary responsibility for the family and home. When they separated the pool of relationship property was worth approximately $1.8 million. Mr C continued earning around $1 million a year from his private surgery practice, while Mrs C had taken a job at a beauty salon earning $30,000 a year.

The court was satisfied that due to the division of functions within the marriage Mrs C was left with a significantly lower income and living standards than Mr C whose career and earning prospects had prospered under the family arrangement, while Mrs C’s had deteriorated. The court awarded approximately $360,000 more to Mrs C, which resulted in a 70/30 division of property – the most significant departure from the equal sharing presumption yet. This case has been appealed to the High Court by Mr C.

Survival of trusts

If you have a trust in place you probably think this will give you sufficient protection for your assets if you have a relationship breakdown. A recent case in the High Court (Clayton v McGloskey Nominees Ltd [2013] NZHC 301) illustrates the importance of ensuring a proper trust structure.

Mr Clayton was a successful businessman, whose business assets were held in trust. Mr Clayton was the settlor, sole trustee and discretionary beneficiary. He had the power to appoint and remove trustees and beneficiaries, and he could act without considering the interests of the other beneficiaries, and for his self-benefit. The High Court found that because Mr Clayton had ‘unfettered discretion’ to deal with the trust property, the trust deed showed no intention of creating a trust at all. It was an ‘illusory trust’, under which Mr Clayton retained all of the powers of ownership over the property. On the breakdown of his marriage, his wife was therefore entitled to half of the trust assets as part of the division of relationship property. Mr Clayton has appealed this decision.

Mr Clayton’s predicament serves as an important reminder to ensure your trust deed is well considered and drafted. If you retain too much control over the trust assets you risk ending up with a trust that is deemed to be ‘illusory’ and of no protection at all. The best protection is to have an independent trustee and to sign a contracting out agreement protecting your interests in trusts.