By Fiona McGeorge - 12 Jul 2018
New Zealand has one of the highest rates of Family Trusts
per capita in the world. But a lot of these Trusts are not being
managed correctly which then impacts on the protection a Trust can
provide, particularly in the event of a relationship break
down/separation.
Often when a couple establish a Trust they may lend money to the
Trust (usually to enable the Trust to purchase a house) which means
the Trust is then recorded as having a debt owed back to each of
the partners. This debt is sometimes gradually forgiven during the
relationship or other times it remains owing as a way of trying to
protect separate money which each partner has contributed.
Even though these debts owed by the Trust are recorded in each
partner's separate names, does that protect the money as separate
property?
In a recent case we successfully argued in the Family Court, the
Court confirmed that debts owed by a Family Trust to each of the
partners was not their separate property if the
money was lent to the Trust during the parties' relationship.
Instead, the total debt owed to both parties was combined and
classified as a relationship asset which was to be shared equally.
For some people this will be the outcome they intended, but for
others it could be a shock.
If you have lent money to a Family Trust and you are in a
relationship and you want to keep the money you lent to the Trust
as your separate property, then you should enter into a Contracting
Out Agreement with your partner to record this money as your
separate property. Relying on the structure of a Trust in this
circumstance will not protect you if your relationship ends.
If you would like to discuss a Contracting Out Agreement or
other issues in relation to protecting your assets in the event of
a separation, contact our specialist relationship property lawyer,
Fiona
McGeorge.