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Should a partner get a share of the trust property at the end of a relationship?

The Property (Relationships) Act 1976 might not apply when property connected to a relationship is held on a trust. This can cause problems.

The law provides remedies through which a partner can sometimes get a share of the trust property at the end of a relationship. But there are lots of remedies. They sometimes overlap and clash. They can be confusing.

We think the law needs to change. One option is to have a new remedy in the Property (Relationships) Act 1976 to deal with trusts that prevent people from sharing property fairly.

But sometimes it will not be appropriate to interfere with the trust just because the partners’ relationship has ended.

Some people create trusts for good reasons. They might genuinely intend to give the property to the beneficiaries. It might be unfair to the beneficiaries if the law allowed the partners to take back the property so they could divide it.

Sometimes a third party like a partner’s parent or grandparent may have created the trust so assets like farms stay in the family. The family might not want the property to go to a family member’s former partner.

Any new remedy must distinguish between trusts from which it is appropriate to share the property and trusts where sharing would be inappropriate.

We suggest options for new remedies in the Issues Paper (Part G).

What do you think?

We want you to tell us when the remedies should apply. What do you think should happen in these examples?

Hugh and Phil
Hugh and Phil have been in a de facto relationship for seven years. Earlier in their relationship, they bought a rental property in Hugh’s name. They used their joint savings to fund the deposit and they paid the mortgage with money from the rent and their salaries.

Hugh decides he wants to start his own business. His lawyer says that he should set up a trust to protect his property if the business fails. Hugh creates the H Trust. Hugh gifts the rental property to the trust. Hugh and his lawyer are the trustees. The beneficiaries are Hugh, Phil, their siblings and any children they may have. The trust document says that the trustees can decide how much property they give to the beneficiaries.

Hugh and Phil separate.

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Ana and Brendon
Ana and Brendon are married. They live on Brendon’s family farm. The farm is held on the Smith Family Trust. Brendon’s parents created the Smith Family Trust before Ana and Brendon started their relationship. Brendon’s parents are the trustees. Brendon and his parents and siblings are beneficiaries but only Brendon and Ana live on the farm.

During the relationship, Ana works on the farm with Brendon. The couple try their best to improve the farm. Ana does things like fencing, helping install water tanks, and planting trees. When the couple has children Ana also does most of the child care so Brendon can work longer hours on the farm. During their relationship, the value of the farm increases because of the improvements they have made to it.

After 18 years of marriage, Ana and Brendon separate.

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Talia and Sione
Talia and Sione have been in a relationship for five years. Talia and Sione have twins, Jodi and Harper. Shortly after the twins are born Sione gets a large bonus at work. Talia and Sione put the bonus to one side so Jodi and Harper can have the money when they are older. Talia and Sione’s lawyer says that one option is to create a trust for Jodi and Harper. But the lawyer explains that if Talia and Sione create a trust over the bonus money, the money will no longer be theirs to use as they like.

Talia and Sione create the J & H Trust. Talia and Sione are the trustees. Jodi and Harper are the beneficiaries, but they may only have the trust money when they turn 18. They transfer Sione’s bonus into a bank account in the name of the trust.

A year later, Talia and Sione separate. Talia has primary care of Jodi and Harper. Talia finds it hard to make ends meet. She wants to unwind the J & H Trust and get half the money right now.

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