Let courts unlock trust stashes in marital bust-ups, says commission

At present, courts cannot order property held in trusts controlled by one party to be given to the other. Photo / Thinkstock

The Law Commission wants to address the "injustice" of current laws that allow trusts to be used to avoid having to share property equally when couples separate.

Property relationship law specialists have welcomed the proposal, but one legal academic has warned the "quick fix" will create new problems.

As part of its long-running review of trust law, the commission yesterday proposed changing the Property (Relationships) Act which deals with the division of property when married or de facto couples separate.

At present, courts cannot order property held in trusts controlled by one party to be given to the other.

The commission proposes changing the act so courts can make orders for compensation to the spouse or partner disadvantaged by assets being transferred into the trust.

It also proposes amending section 182 of the Family Proceedings Act to address the "unfair anomaly" which meant de facto and married couple were treated differently when courts dealt with couples after they separated.

Relationship property expert Deborah Hollings, QC, said the proposed changes to the Property (Relationships) Act were sensible.

"If we say that the general policy behind our divorce or death law is share the fruits of the marriage equally then why do we say that if the husband or wife races off secretly to a lawyer and transfers a whole lot of property into a trust that they control that somehow or other that avoids the general policy of the act?"

"I've had spouses in here who had no idea that 'their' property was in a trust because they haven't been told it had been transferred.

"When it's done without openness and without understanding the ramifications - and that is all too often the case - then it can lead to serious injustice in a marriage or de facto relationship breakdown."

But Otago University law professor Nicola Peart said the proposed changes were "extraordinarily far-reaching".

"What you're saying is that you can just waltz into the trust, remove the property from the trust and give it to the spouse or partner whose rights are adversely affected by disposition of relationship property."

Property and trust lawyers would have "an apoplectic fit" over the proposal which would be a particular concern for farming families who used trusts to "safeguard farms for future generations".

"This is a quick fix mechanism to a much bigger problem and I don't think this has been thought through."