Can my interest in a family Trust be considered “property” for the purposes of a relationship property dispute?

The Supreme Court has recently confirmed that there are circumstances in which a person’s powers under a Trust may be considered “property” for the purposes of a relationship property dispute.

Whether a person’s powers should be considered property depends on the extent of the powers under the Trust deed.

Trusts often protect property against claims from a former partner or spouse. However, there are times when the courts will step in to provide a fair remedy to a former spouse, even where a Trust is involved.

In one case [1] the husband was a settlor, sole trustee, principal family member, and a beneficiary of the Trust. A settlor is a person that settles trust property onto the trust for the benefit of the beneficiaries, while a trustee is a person that legally holds the trust assets for the benefit of the beneficiaries.

The Trust deed conferred extensive powers onto the husband, including the ability to appoint all the Trust income to himself, to the exclusion of other beneficiaries.

The Trust deed also stated that the husband did not have to consider the interests of the beneficiaries, and could exercise his powers whether or not his role as trustee conflicted with the interests of the beneficiaries. The husband could also remove beneficiaries and make himself the sole beneficiary.

The Supreme Court decided that a contextual approach must be taken, and the Trust deed is not the only relevant evidence. If, viewed practically, the beneficiaries have no enforceable rights, powers will be too extensive.

The Court concluded that the husband’s powers were so extensive he could essentially appoint all the Trust income to himself. He could do this without being held accountable by the beneficiaries, given that the Trust deed expressly allowed him to exercise his powers in his own favour.

These powers allowed the husband to deal with the Trust property as if it were his own. The powers were therefore “property” for the purposes of relationship property, and thus should be shared equally between the partners.

It should be noted that these cases are not easily argued before the Court. The Court noted that the Trust in the example above was on the extreme end of “discretionary” Trusts, and it was unlikely that less extensive powers would be considered property.

That scenario was seen in another recent case, in which the Court held a husband’s powers were not so extensive they could be considered property. Where a trustee is constrained by their obligation to act for the benefit of the beneficiaries, their power will not be considered “property”.

It is important to be aware of the claims that may be made against Trust property. If you are confused about how to properly set up a Trust, or if you think you may have a claim against a Trust, it pays to seek advice from a professional with experience in the area.

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.

Shaun Cousins and Hunter Flanagan-Connors

[1] Clayton v Clayton [2016] NZSC 29.