Rotorua sawmill magnate's $28 million divorce wrangle: Ruling 'redraws the landscape'

Lady Deborah Chambers says the judgment is a significant win. Photo / Greg Bowker

A new judgment in a $28 million divorce wrangle between a Rotorua sawmilling magnate and his ex-wife "redraws the landscape" on trusts and relationship property, says a top lawyer who acted in the case.

Another lawyer said it should significantly reduce the comfort people might take from putting all their property into trusts.

The Court of Appeal case concerns Mark and Melanie Clayton, who separated almost a decade ago after 17 years of marriage and have already been through the Family Court and High Court.

Mark Clayton has significant sawmilling interests in the central North Island and his business and other assets are owned by a series of companies and trusts.

He considers none of the trust assets are relationship property and that his ex-wife is entitled only to their $850,000 matrimonial home and $30,000.

Melanie Clayton, however, believes she is entitled to half of the value of the business and trust assets.

Her valuer was of the view that if her approach was upheld, she could be due half of a property pool estimated at $28.83 million when the parties were in the Family Court.

The Court of Appeal, in July last year, considered nine relationship property questions that emerged from the lower courts' judgments.

In a decision released last week, Melanie Clayton was largely successful in some of the appeals but failed in others.

The issue of how much she is entitled to is not yet decided and was referred back to the High Court.

But her lawyer, Lady Deborah Chambers, called it a "significant win". The Queen's Counsel said the decision "redraws the landscape" about trusts and divorce, particularly because it found powers of appointment for trusts are property.

For one of the trusts in this particular dispute, Mark Clayton had the right to remove discretionary beneficiaries and therefore leave himself as the sole person entitled to receive income and capital from it.

After deciding such a power of appointment could be property and therefore relationship property, Justices Ellen France, Tony Randerson and Douglas White said its value was the net value of the trust's assets.

LeeSalmonLong partner Isaac Hikaka said the decision was the first with such a clear statement that this is a particular power that is an item of relationship property and that it has a specific value.

"So it's likely to have widespread effect not just on relationship property law but also the way in which trusts are framed going forward," Hikaka said.

Chambers said the Court of Appeal also found a trust "gets busted wide open" if someone put assets in it to try to avoid relationship property law.

Hikaka put it a different way: "It certainly significantly reduces the apparent comfort people would have in putting all their property into trusts and thinking that was safe."

He said the changes were of public importance because trusts "are an endemic part of New Zealand's asset-holding structures" - including for "mums and dads".

"There has been a long-held view that [a trust] protects them from creditors or from claims from their spouse and this decision means that will really need to be looked at very carefully because the courts have found it is not a shield necessarily," Hikaka said.

Chambers also said the three judges found that if a person did not disclose information, the court was entitled to reach adverse findings against them and assume they refused to reveal it because it did not help them.