(file image) Photo: 123RF
A man who claimed his home was his "life's work" placed it in a family trust when his marriage ended.
He thought that would protect it from any claim by a future partner.
Now, his equity in the home, already reduced by the divvying up of relationship property when his marriage ended, could be whittled away further.
The woman with whom he had a relationship after his marriage has successfully challenged her right to a claim on the property when they separated after 10 years together.
The Family Court found that when Roy Webster* placed the property in a trust at around the time his friendship with Joanna Pocock* bloomed into a relationship, he deliberately prevented any claim by her.
Barrister and family lawyer Jeremy Sutton told NZME it was a timely reminder to others that on their own, family trusts do not always protect people, and that often, a prenuptial agreement is needed as well.
"Just having a family trust, when someone moves in (to a home owned by the other partner), is not enough to fully protect you," Sutton said.
"A prenuptial agreement as well will protect you for a time, but that agreement needs to be reviewed to reflect changed circumstances, just like a will needs to be reviewed as well."
According to the Family Court decision, Pocock and Webster met in 2009.
Their relationship developed and by the following year, or early 2011, they were in a de facto relationship. It was not until June 2020 that the relationship ended.
Webster's 26-year marriage had ended in early 2010 and he moved out of the home. But he later returned when his former wife moved out of the property. Pocock and her five children eventually moved in with him.
By then, Webster and his former wife had agreed on the division of their relationship property.
Placing the home in a trust
Webster described the home he'd had since he was 23 as his life's work.
He built it on a bare block of land, he then fenced and landscaped, planted trees and built hay barns.
"The home clearly has significance to him, and it had been put at risk through one relationship ending," Family Court Judge Joanne Hambleton said in her decision in April this year and publicly released this week.
When Webster told his accountant in early 2010 that his marriage had ended, he was advised to transfer the property settlement into a trust, as a way to help protect the family home in the event of any future relationship split.
"I suggested that as his equity in the property would now be significantly reduced, it might be time to consider transferring the property to a trust," the accountant said.
On further legal advice, Webster formed a family trust and transferred the property to it.
He said another reason was because he was self-employed and it would be safer to put the property into a trust so no creditors could touch it if he had issues with the business.
Judge Hambleton said Webster had been self-employed for some time but had not considered a trust to protect asset loss before.
She accepted that when Webster had the first conversation with his accountant and long-time friend in January 2010, he and Pocock were not in a serious relationship.
However, when the property was transferred to the trust's ownership in August 2010, there were signs of permanence in their relationship.
Judge Hambleton found there was a "clear and present intention" to become parties to a de facto relationship and that Webster transferred the property into the trust knowing that this would defeat Pocock's future claim under the Property Relationships Act and, therefore, that he intended to defeat that claim.
The court did not make an order as the couple said they would work to resolve the dispute once they had clarity about this issue.
However, Pocock's lawyer, Melissa Sandom told NZME there was no update on resolution.
When a trust is not enough
Sutton said there were many ways in which trusts can be challenged.
One example might be that the disadvantaged party, the person who doesn't have any benefits under the trust, may have made direct or indirect contributions to that trust during the relationship.
"That might be to do with childcare, it might be building a new deck, a kitchen, a whole range of project managing, or perhaps a big renovation."
A recent change to the law has given the courts greater powers to look into trusts and to make further inquiries, Sutton said.
The Trusts Act 2019 came into force in January 2021, which was the first major trust law reform in 70 years and applies to all current and future family trusts and charitable trusts.
In the case of family trusts, recognition was given to the need for better balancing between the interests of different beneficiaries.
"The courts are more sympathetic to people challenging trusts than they were before," Sutton said.
He said it was unfortunate they were often drafted in complicated ways that make them difficult to understand, but one of the key things about a trust was who controls it.
Neither were they as "fashionable" as they once were but they do have a place, he said.
Sutton said a family trust can protect assets, such as a family home, from creditors in the event a business goes under.
He said only a small percentage of people he knows have a prenuptial agreement and they were either older people who have already been in one relationship and lost a lot of money from that relationship, or younger people buying their first house with help from parents, who wanted to ensure the contribution was protected.
Sutton said creating a prenuptial often involved difficult, but necessary conversations between couples.
"The best way of handling it is to have a really open discussion about what your assets are, what they're likely to be in the future, and what your plans for the future are.
"It's all about people having conversations very early in a relationship about what things might look like."
Sutton said it's also important to keep updating trust documents, so they're current and in step with the law.
However, he also said the law needs to keep in touch with society.
"There are more same-sex couples, and people have more than one relationship within their lifetime. It's a lot different than what it was before."
Sutton was also critical of the time it takes to get a hearing and then resolution, and the cost to people caught up in legal action.
He said the best people can do is get a prenuptial agreement and have early conversations to set expectations.
*Automatic name suppression applies in Family Court matters. Names have been changed.
- This story first appeared in the NZ Herald