Contents

Chapter 17
Relationship property and trusts

Introduction

17.1In the previous chapter we noted that the Second Issues Paper364  discussed a variety of legislative provisions that have been enacted to “look through” the trust, so that trust assets can be considered to be the settlor’s or beneficiaries’ own assets for certain purposes, or trust assets can be accessed in order to meet certain claims. The legislative provisions considered in the Second Issues Paper included sections 44 and 44C of the Property (Relationships) Act 1976 (PRA) and section 182 of the Family Proceedings Act 1980 (FPA). These provisions apply to give relief to a disadvantaged spouse or partner on the breakdown of a relationship where property has been transferred to a trust. However, many dispositions of property to trusts fall beyond the reach of these provisions.

17.2As was discussed in the previous chapter, the Commission asked submitters whether they considered existing legislative provisions adequate for addressing the impact of trusts in this and other areas. The overall response from most submitters was that the provisions in the relationship property area are inadequate and not as effective as legislative provisions addressing trusts in other policy areas, such as insolvency. Some submitters said that the current provisions do not produce a just division of assets produced or enhanced by a relationship. Some also argued that the courts should be able to intervene in dispositions of property to trusts in a broader set of circumstances.

17.3We have included a separate chapter on relationship property because submitters identified the look-through provisions in the PRA as those most in need of review and reform. This chapter discusses the issues that have been raised around the effectiveness and reach of the current provisions. The two main issues that are considered are:

17.4After canvassing the issues that have been raised over the effectiveness of the current look-through provisions in the PRA, our conclusion is that a review of the PRA may be needed to properly address these matters. As has been discussed in the previous chapter and also in the introductory chapter to this paper, the overall approach the Commission has taken to this review of the law of trusts is to address matters of core trust law rather than problems that arise solely at the point where trust law interacts with other policy areas. In the previous chapter we proposed that any problems arising at the point where trust law interacts with other policy areas are best addressed by the legislative schemes governing those policy areas and not by provisions in trusts legislation.

17.5With these points in mind we are cautious about proposing changes to provisions in the PRA and FPA. It is beyond the scope of this review of trust law to fully analyse problems and issues arising over the use of trusts in the relationship property area. However, despite these concerns we have identified two possible amendments that might reasonably be advanced as part of our review to address some of the issues identified by submitters.

17.6Firstly, we propose amending section 182 of the FPA to address the disparity in treatment between de facto couples and other couples. Although our proposal affects all nuptial property settlements, including any that are not trusts, we consider the proposed amendment to be relatively straightforward and to address what has now become an unfair anomaly.

17.7Secondly, we put forward for comment the option of amending section 44C(2)(c) of the PRA to give the court broader powers to require the trustees of a trust to which relationship assets have been transferred to compensate the spouse or partner whose claim or right has been defeated by the disposition to the trust. We consider that this option has merit and that it would address a number of the issues with the current provision. We are therefore seeking submissions on whether it would be desirable to pursue this reform, or whether a fuller review of the PRA should instead be recommended to the Government.

364Law Commission Some Issues with the Use of Trusts in New Zealand: Review of the Law of Trusts – Second Issues Paper (NZLC IP20, 2010).