Should we put our family home in a trust? – The Ex-Files

Discuss the trust's purpose with your partner before making any decisions.

My partner and I have been together for 10 years but we have been having some problems recently. We have two children aged 4 and 7. I am a stay-at-home mother, having left my job permanently after my second child was born. My partner has a very successful IT company.

We have a lovely rural property and a beach house in our joint names. My partner has been to see his lawyer and wants to put the family home and the beach house in a trust. I have been reading a lot about changes to the trust laws. Is putting the family home and the beach house in a trust a good idea?

Advice

The first thing you need to do is get independent legal advice. Your interests may be different from that of your partner.

There are many reasons why families choose to transfer their homes to a trust and it is quite common in New Zealand for families to hold their assets in trust. The reasons may be to protect the property from creditors or business or professional risk, or to preserve assets for the next generation.

However, if you were to separate and had to divide the assets with your partner, you are better off having the property in your joint names than in a trust. This is because when property is owned in your personal name, it can fall under the category of relationship property and can be dealt with simply and clearly under our relationship property laws. When your property is in a trust, it cannot be classified as relationship property and this creates complications that may reduce your entitlements.

The Property (Relationships) Act 1976

For example, under Section 15 of the Property (Relationships) Act 1976, you may be entitled to compensation where there is a significant disparity in income and living standards following separation due to the division of functions in the relationship, such as you being a stay-at-home mother. Compensation of this kind can only be made from relationship property. Many worthy Section 15 claims have been left meaningless because the assets are held in a trust and not classified as relationship property.

Having your home in a trust does not prevent you from making a claim for a share in the asset, but it does make it more complex and less clear. Under the Property (Relationships) Act 1976, relationship property is generally divided equally and the family home is always relationship property. There is no presumption that trust assets will be divided equally between you and your partner if you were to separate. The trustees of the trust will have duties towards all beneficiaries of the trust, not just towards you and your partner.

One of the main claims that can be made against a trust in the context of a relationship can only be made if you are married, so that the trust is classified as a “nuptial trust”. The same exception will not apply if you are in a de facto relationship.

Further, while the property is in your joint names, you have a say in what happens. If the property was transferred to a trust and you were not a trustee, then you would lose decision-making power.

Summary

You need to question your partner about what the purpose of transferring the family home to a trust is, what the trust structure is and whether it is truly necessary. I would also advise against making big decisions regarding your assets when your relationship is not doing well. Speak to a lawyer and do not sign any document that is placed in front of you without understanding how it will impact you in the future.

Jeremy Sutton’s advice is of a general nature, and he is not responsible for any loss that any reader may suffer from following it. He does not consider your individual situation. Before you make legal decisions, should always get independent advice from a specialist lawyer.