By Tara Grant - 14 Jul 2020
It is generally well understood that if your relationship comes
to an end your relationship property must be shared 50/50 pursuant
to the Property (Relationships) Act 1976 (PRA).
But, some people believe that if they transfer their assets to a
Trust, then those assets will be protected. This is rarely
true.
There are a number of provisions available under the PRA and at
common law, which would allow a Trust owned home, for example, to
be included in the pool for division. Particularly where the house
was transferred to a Trust when the couple were already in a
relationship (even if at the time the couple were only boyfriend
and girlfriend / girlfriend and girlfriend / boyfriend and
boyfriend or whatever applies). If contributions have been made
from relationship property to the family trust, or contributions
from the other party whether financial or non financial, or if the
Trust has provided benefit to the parties in some manner during
their relationship, then the trust assets can be fair game.
Put simply, you can not rely upon a Trust to provide protection
of trust assets from relationship property claims, in all cases.
There are plenty of grey areas and grey areas can provide ample
opportunity for litigation.
The key to protecting your personal and trust assets is to enter
into a section 21 PRA agreement. This allows a couple to contract
out of the PRA and bring certainty around issues of property
sharing and division. The terms of a section 21 agreement should
include what will happen in the event of separation but also
explore what will happen if one party dies.
Where a trust is involved, there is an inevitable overlap. As
part of the section 21 PRA agreement negotiation, trustees might be
asked to make provision for a surviving partner to remain in
occupation of Trust property for such period as a couple agree is
fair and reasonable, taking into account the circumstances and
needs of other beneficiaries of the Trust.
A section 21 agreement can be entered into by those in a
marriage, civil union or de-facto relationship or two persons
contemplating entering into such a relationship. Ideally, a couple
will enter into an agreement in the early stages of their
relationship, before acquiring rights under the PRA but that is not
strictly necessary and in many cases we prepare agreements for
those who are already in a qualifying relationship.
When considering the appropriate time to raise the possibility
of entering in to a section 21 agreement, it is important to
understand that a de-facto relationship will begin at the point in
which (generally speaking) you and your partner begin living
together. Rights under the PRA then crystallise after three years
or earlier if a partner has made contributions to your separate
property or to trust property. So don't leave it until the
last minute!
Our team are experts in the areas of relationship property and
trust law. We would be delighted to talk you through the section 21
process and advise on your overall trust structure and estate plan.
We know these matters go hand in hand and how important it is to
get these things right - for all involved - so that you and your
partner can enjoy the romance without the shadow of the PRA.
Contact
Tara
Grant