The Ex-Files: What happens to a house in a family trust if you divorce?

Relationship property is normally split equally, but what if it is in a trust? Photo / 123RF

Q: My partner and I have been living together in his home for seven years, and we are now separating. We've been renovating the house over this time and I've contributed financially to everything — a new kitchen and bathroom, painting and landscaping. I project-managed most of it.

The home is owned by his family trust, and now we are separating my partner wants to give me $80k back as "my contribution". This hardly covers it.

The house will have shot up in value. I thought we'd be together forever. His two children stay with us every second week, and I look after them often when he is away sailing or for work. I'll miss them as well. I would at least like to be in a better position financially. Is there anything I can do?

A: The short answer is yes. On the face of it, you're entitled to more than he is currently offering.

When a couple separates, relationship property is normally split equally between them, including the home they live in. When that home is part of a trust, the property is owned by the beneficiaries, and generally cannot form part of relationship property.

But the courts will provide a remedy if they believe you have been wrongfully deprived, and your partner unjustly enriched, because of the trust.

You can make a claim for compensation, and if you're successful the court can award you either a fixed amount of money, or a percentage interest in the house.

How does the court decide? The court will look at your contributions — the money you've put towards renovation costs or the running of the home.

Also important are indirect contributions — work you've done renovating and gardening, whether it be hands-on or organising tradespeople. Looking after children is also considered a contribution, as your partner is then free to work.

If the facts in your letter are correct, it sounds like you have a good chance of receiving a much fairer settlement. You don't need to go to court to get this, in fact I would avoid court if you can, it can be stressful, costly and time-consuming. Instead, try to reach an agreement yourselves.

Make a list of all the contributions you have made, then consult a lawyer to discuss the best way forward. All the best in getting what you deserve.

Q: Can a trust offer effective protection of assets?

Given my answer above, you might be wondering if a trust can safeguard your assets. It can, but you need to take care where a third party is involved.

If they are making any contributions to property within the trust, then legally speaking, they may have a reasonable expectation of obtaining an interest in that property.

This is a common situation and can lead to a lot of grief. When setting up a trust, think about anyone else who might be affected, and discuss this with your lawyer and/or accountant.

When your annual trust review comes around, let your lawyer know about any changes in your personal life, such as a new partner or people with living arrangements.

You might need to put a Contracting Out Agreement in place, which is a legal agreement between you and your partner, outlining how you will divide things in a split.

That way, you can make sure your assets continue to be protected in the way you intended.

The Contracting Out Agreement will need to be updated to remain valid and enforceable if circumstances change.

Before you move in, you and your partner should share your expectations around living expenses, home maintenance and any renovations you might undertake.

Ideally you would draw up Contracting Out Agreement, so everyone knows where they stand.

This can be a difficult subject to bring up. Consider though how you would feel if you break up in a few years, and you can't afford to buy in the property market.

You are entitled to financial security and a fair outcome. I urge you to have a conversation as soon as possible about the need for a Contracting Out Agreement. You will not regret taking this approach.

Trusts enable assets to be kept separate from relationship property. However, they must be fair to those affected by them. It is best to discuss expectations about sharing property with your partner upfront, and both of you should consult a lawyer to make sure your financial futures are secure.

They used to say marry in haste, repent at leisure. The same rule applies to inviting those close to you into your home.

- Jeremy Sutton is a senior family lawyer, specialising in divorce cases where there are significant assets, including family trusts and complex business structures.