So you think your trust will save you from your ex?

People who believe putting their assets into a trust before a relationship begins will stop them having to share assets with their spouse will have a timely wake-up call from a recent decision of the Supreme Court in Preston v Preston [2021] NZSC 154.  

Mr and Mrs Preston had a 7 year relationship (and were married for 5 ½ of those).  They each had children from previous relationships (his were grown up).  Mr Preston had transferred his home and most of the shares in his business into a trust set up before the relationship.  However the parties used those assets for family purposes during the relationship, living in the house, and living off the income from the business.  Mr Preston appointed Mrs Preston a beneficiary of the trust, on the advice of his accountant.

It was a loving relationship and both parties were committed to it.  Mrs Preston made the usual non-financial contributions to support Mr Preston and the family, she used her own money (from before the relationship) to make loans to support his business, to pay for family holidays and to help his kids to buy their first cars.  

Over time the home and business increased in value.  

Around the 7 year mark things fell apart, and the parties separated.  Mr Preston was adamant that Mrs Preston would get nothing from the trust, and there was very little relationship property to share out.   

Mrs Preston was left without a home or sufficient capital to set herself and her daughter up in a home.  Mr Preston was enjoying all of the significant assets of the trust.  

Mrs Preston went to Court for a share of what the trust had built up with her support.  She lost in both the High Court and the Court of Appeal.  Others would certainly have given up – she was ordered to pay substantial costs, she had a gruelling time being cross examined by expensive lawyers about how little of any real value (meaning, monetary value) she had contributed in the course of the 7 ½ year relationship. 

QC Vanessa Brunton had been following the case, and knew it didn’t uphold the principles of equality – of the sexes and of their differing contributions – that are built into relationship property law, and section 182 of the Family Proceedings Act 1980.    

She took Mrs Preston’s s182 claim matter right to the Supreme Court and won, arguing that bringing a trust into a relationship creates obligations, and if the relationship ends, and one person is worse off, the Court will step in to remedy that under s182.   What Mrs Preston was claiming (and what she received) was $243,000 or 15% of the trust assets – and the ability to rehome herself and her daughter.  Pretty modest compared to what was left in the trust and the 100s of 1000s he would have spent fighting her claim through the Courts.

The resounding moral of this story is this: if you want the benefits of a trust arrangement AND to avoid sharing, you need to declare that openly to your spouse, ask for a ‘pre-nup’ type agreement, and let your spouse decide whether that makes you someone they want to marry or not.

If you need relationship property advice before, during or after a relationship, have a chat with one of our relationship property experts at Henderson Reeves Lawyers.