Man Faces Loss of Family Home After Second Relationship, Despite Trust Ownership
The following case of Pocock v Webster [2024] NZFC 4027 illustrates that it has always been essential to have a contracting out agreement before entering into a new relationship even if you have a Trust. That is even more important today as the Court’s are “reinterpreting” relationship property legislation.
Protecting the Family Home
James, like many others, sought to protect his most valued asset - his family home - after his first marriage ended in 2010. His accountant, a long-time friend, advised him that transferring the property to a trust would help safeguard it from any future relationship claims. The accountant explained, “I suggested that as his equity in the property would now be significantly reduced after paying out his former wife’s share in the family home, it might be time to consider transferring the property to a trust.”
At that time, James was self-employed, and another reason for forming the trust was to shield the property from potential creditors if his business encountered financial difficulties.
In August 2010, James established a family trust and transferred the property to its ownership, believing this would protect his home from any future claims by a new partner. However, unbeknownst to him, the situation would soon become more complicated.
The Second Relationship
By the time James transferred the home to the trust, he had already met Christine Keller. Although their relationship had not yet become serious at the beginning of 2010, by the time the transfer of the family home to the trust took place in August 2010, signs of permanence in their relationship were apparent. In 2011 Christine and her five children moved into the home, and they started living together in a de facto relationship.
Fast forward nearly a decade, their relationship ended in 2020, leading to a legal dispute over the home. Christine successfully made a claim to a share of the home.
In the Family Court Judge Joanne Hambleton ruled that James had a “clear and present intention” to enter into a de facto relationship with Christine at the time he transferred the property into the trust. She found that James’s transfer of the property into the trust was a disposition of property to defeat the applicant's rights under s 44 of the Property (Relationships) Act, making the transfer of the home to the trust being susceptible to being set aside.
The "Clear and Present Intention" Test
This case highlights an important lesson for anyone entering a new relationship.
If assets are placed into a trust with the “clear and present intention” of entering a de facto relationship courts now have the power to look into the asset transfer and question its validity as shown in recent Court decisions, including the landmark Supreme Court decision in Sutton v Bell [2023] NZSC 65. This is discussed in our recent blog, When Trusts Meet De Facto Relationships: A Deep Dive into the Recent Supreme Court Decision in Sutton v Bell.
Lessons Learned
James’s case illustrates the complexity of managing assets before entering new relationships whether or not you have a trust.
For anyone entering a new relationship, open conversations about assets, including trust documents, are essential, and contracting our agreements are crucial. These discussions, though uncomfortable, can prevent costly disputes down the line. In Family Court, legal battles over property claims can drag on for years, draining financial resources and emotional well-being.
At Ross Holmes Virtual Lawyers Limited, we help clients navigate these challenges by offering expert legal advice tailored to their situations. Whether it’s reviewing existing trust documents, or drafting contracting out agreements, we will assist you to protect your assets, in an ever-changing legal environment.
