Setting up family trusts is now a common practice. It has many advantages, one of which is asset protection. Assets transferred to a trust are not relationship property as it is no longer owned by you, but by the trust, though you can allocate yourself and anyone you like as beneficiaries. However, too many people do not understand how trusts work and that they are not ‘divorce-proof’ solutions. As a result, too many people fail to plan early enough.

Courts are able to set aside a disposition (placing of property into a trust) which was intended to defeat the rights of a spouse or partner. It is not possible to place matrimonial property in trusts for the sole purpose of removing it from the relationship property pool.

Several cases bring home the importance of early asset planning and protection. It may be human nature to procrastinate a little. But hopefully these cases will illustrate why family trusts are not something to be left to the last minute. Setting up a trust requires early action and your wealth should be moved into the trust well before the start of your relationship.

In a High Court case Gray v Gray [2013] NZHC 2890, a trust was set up by Mr Gray while the parties were courting but before the de facto relationship began. However, the Court did not think this mattered at all. Instead, the Court asked whether at the time the trust was created, Mr Gray had the intention to defeat Ms Gray’s rights of claim to the family home. It was held on this occasion that there was intention to defeat the partner’s rights. Mr Gray’s trust failed to achieve what he wanted.

Obviously, the case shows that the earlier you move your property into a trust, the better. If there is no relationship at all at the time of disposition, you cannot be found to have any intention to defeat any person’s claim.

In conclusion, to protect your hard-earned wealth against ex-partner or ex-spouse requires more than just setting up a trust. It requires early action.

If you want to set up a trust or are worried about your current trust arrangement, please contact us.

Please note that this article is intended for general use. It does not constitute legal advice. If you wish to obtain further relevant information on this topic, please contact our professional team at Focus Law.

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