Are assets in a trust protected from claims by a former spouse?

Many people believe that because assets are held in a trust, rather than owned by a spouse or de facto partner personally, they are protected from claims when the relationship ends. This may not be the case.

There a number of ways trust property can become subject to Court orders in favour of a former spouse or partner.

In a decision of the Court of Appeal trust assets were divided between ex-spouses, despite the trust being set up before the relationship began.

Before the relationship began the wife created a trust and transferred her house into it. After the relationship began the house was sold, and the proceeds were used by the trust to purchase a replacement property, which the husband and wife used as their family home.

The wife had also acquired shares from her employer during the marriage, which she then transferred to the trust. The husband who also owned shares transferred them to the trust.

After proceedings in both the Family Court and the High Court the husband appealed to the Court of Appeal under the Family Proceedings Act. Under this Act the Court can change or vary “post-nuptial settlements”, including those involving a trust.

The husband wished to set aside orders in relation to the family home and the shares owned by the trust. The Court had the power to divide the trust property and resettle a share of the trust property in favour of a former spouse after the marriage has been dissolved.

The Court had to determine whether the transfer of the home and the wife’s shares to the trust were “post-nuptial settlements” and therefore subject to Court orders.  

The Court decided that given the family home had been transferred to the trust after the marriage began, that transaction should be considered a “post-nuptial settlement”. The same reasoning was used to determine that the transfer of shares should also be considered a “post nuptial settlement”.

However, even though the test for a “nuptial settlement” had been met, the Court decided not to make orders in favour of the husband. The Court was not satisfied that the husband would be in any better position in relation to the trust assets, if the marriage had continued on.

The Court also discussed whether the wife had transferred her assets into the trust to defeat a future claim by the husband under the Property (Relationships) Act. The Court decided that it would be enough if the wife knew that the transfer may defeat the husband’s claim and transferred the property anyway.

Evidence provided to the Court showed that the wife knew the transfer may defeat her husband’s claim, and therefore the Court decided that the wife had the necessary intent.

The Court ordered the wife to transfer 50% of the increase in value of the shares to the husband, as well as half of the parties’ Current Account in the trust.

These awards were valued at over $50,000.

When setting up a trust, or if you already have a trust and are entering into a new relationship, it is important to seek advice from a professional with experience in this area to ensure the trust property is protected from future claims by the new partner or spouse if the relationship were to end.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Gianna Menzies and Hunter Flanagan-Connors