When is Putting the Family Home in a Trust Not Enough? articles

When couples share a home, that residence often takes on a special significance as the family home, serving as a backdrop for shared experiences and memories. In many cases, these family homes are classified as “relationship property” under New Zealand law, meaning they can be sold or transferred to one partner when a couple separates. Putting the family home in a trust has historically been a popular choice in New Zealand, and when done right it can ensure your home stays in the family for future generations. However, this strategy can be put to the test when the family home becomes a point of contention after a separation. One man recently faced this reality when, after ending his first marriage, he established a trust to safeguard his assets. Unfortunately, his well-intentioned plan backfired.

A New Zealand Herald article caused a stir recently when it recounted the story of Mr Webster, who was described as ‘likely to lose family home after second relationship ends, despite legal protections.’ [1]

Shortly after the end of his first marriage Mr Webster took the advice of a friend and set up a trust to protect his remaining assets. Mr Webster then transferred his home into the trust, which he described as his ‘life’s work.’[2]

Around the same time Mr Webster began a new relationship with Ms Pocock. The relationship developed, and one month after the trust was formed Ms Pocock came to live with Mr Webster. She and her five children lived in Mr Webster’s home with him until the relationship came to an end ten years later.

On an application to divide their relationship property pool the Family Court made a declaration that section 44 of the PRA applied, meaning that the disposition to the trust could be set aside. Because of that declaration, the Court had the ability to order compensation in respect of the home’s value. In this case, the Court made a declaration only, allowing the parties to negotiate between themselves how the property would be dealt with.

For Mr Webster, the timing of his decision to transfer the home into a trust was crucial. The Family Court can make orders under s 44 of the PRA if it finds that a person has transferred property into a trust with the knowledge that it might defeat the claim or rights of another.[3] Usually, parties to a de facto relationship will only become subject to the provisions of the PRA when they have lived together for at least 3 years. However, s 44 and 44C can apply even early in a relationship, so long as there is evidence of an intention to commit to that relationship on a more long-term basis (described by the Court as ‘a clear and present intention to become parties to a de facto relationship.’[4]) At the time Mr Webster transferred the family home into the trust, he had been in an exclusive relationship with Mrs Pocock for 8 months. Both had met the other’s close friends and family and spent significant time at each other’s homes. The Court determined that their relationship had ‘signs of permanence.’[5]

It was also relevant that Mr Webster had just left a 26-year marriage and spent several months dividing the relationship property pool of that relationship. He had ‘been thinking about the trust for some time’ and had been informed that having the property in a trust would be the best way to protect it against any future relationship property claims. He was cognisant of other concerns also, such as the ability for trusts to protect an asset from creditors.[6]

Despite this, it was not necessary for Mr Webster to have set up the trust with the sole intention of defeating Ms Pocock’s potential future claim in the home. The fact that he had knowledge that transferring the home into a trust would defeat her claim was sufficient to show that he intended to defeat that claim.[7]  As a result, the Court held that s 44 applied.

Decisions like these do not mean that trusts as a whole are not an effective way to protect one’s assets. However, in order to make sure your trust is still fit for purpose, it is important to regularly review it. This is particularly the case when your circumstances change because of a new relationship or the end of a previous relationship.

Although Mr Webster thought he was protecting the home when he transferred it into a trust, his interests in the home would have been better protected by a contracting out agreement, sometimes referred to as a ‘pre-nup.’

These agreements clarify which assets will remain your separate property if you and your partner were to separate. They are useful if you both wish to keep certain assets separate, whether for yourselves or for children from outside the relationship. A contracting out agreement early into a serious relationship can help prevent disputes and legal headaches later down the road by providing a binding framework for parties to follow in the event of a separation.

The ‘pre-nup’ conversation can understandably be an awkward topic to broach, particularly in the honeymoon phase of a new relationship. However, if you are spending significant time with your new partner or you are living together, preparing a contracting out agreement could be a case of ripping the band-aid off early to save greater pain in the future.

If you want to discuss whether a contracting out agreement is suitable for you, or if you have concerns about an ex-partner using trusts to defeat your claim to relationship property, make an appointment with Aroha or Claudia from the Family Law team at Stace Hammond.

Reach out through our advice email advice@shlaw.co.nz or give us a call on 09 307 7909

[1] Tracey Neal “Man Likely to Lose More of Family Home After Second Relationships Ends Despite Legal Protections” The New Zealand Herald (online ed, New Zealand, 15 September 2024).

[2] Pocock v Webster [2024] NZFC 4027 at [24].

[3] Property (Relationships) Act 1976, s 4.

[4] Above n 2, at [6]. See also Sutton v Bell [2023] NZSC 65, [2023] 1 NZLR 169 at [64].

[5] Above at [27].

[6] Above at [25].

[7] Above at [28].