Trusts and Relationship Property in New Zealand
When a relationship ends, the Property (Relationships) Act 1976 governs how assets are divided. Many people create a trust specifically to protect their home, business, or other significant assets from a future relationship property claim. But a trust is not a guaranteed shield — and the law provides several ways for a former partner to access trust assets.
How well your trust protects you depends on how it was set up, how it has been administered, and the specific circumstances of your relationship. A trust that was created and run properly from the outset will be much harder to attack than one that was treated as an extension of the settlor's personal affairs.
Understanding the risks in advance — and taking steps to address them — is far better than trying to defend your trust after a claim has been made.
A common assumption
"Once the house is in the trust, it's safe from relationship property claims."
Unfortunately, it isn't that simple.
Depending on the facts, the Court may:
- treat the trust as invalid or illusory (for example, if the settlor never really gave up control or beneficial ownership) — an approach seen in cases such as Webb v Webb (Privy Council)
- treat the trust as a sham (where there was a common intention to pretend to create a trust while really keeping the property as the settlor's)
- find that moving assets into a trust was a disposition to defeat relationship property rights (for example, under ss 44 or 44C of the Property (Relationships) Act 1976)
- treat interests or powers under a trust as a "resource" of one partner, affecting the division of property or maintenance outcomes
- in rare, extreme cases, treat a partner's bundle of powers under a trust deed as "property" in its own right — as in Clayton v Clayton (Vaughan Road Property Trust)
The key questions are not just "Is there a trust deed?" but:
- Was a genuine trust actually created?
- What powers and rights does each partner have under the deed?
- How has the trust been run in practice?
- Were assets shifted into the trust to keep them away from the other partner?
How Can a Partner Access Trust Assets?
New Zealand law provides several avenues for a former partner to challenge trust assets.
Under s 44 of the Property (Relationships) Act, if one partner has contributed to an increase in the value of trust property — for example, by paying the mortgage on a trust-owned home, or contributing labour to a trust-owned business — the court may order compensation. This doesn't require the trust to be invalid; it simply recognises that the partner's contributions increased the trust's value.
Even where a partner hasn't increased the trust's value, s 44C allows a claim where one partner's actions or sacrifices have sustained or maintained the trust's value — for example, by running the household while the other partner focused on the trust business, or by foregoing their own career opportunities.
Section 182 of the Family Proceedings Act 1980 gives the court broad power to vary any "nuptial settlement" — including family trusts created during or in contemplation of a marriage or civil union. The court can rewrite trust terms, redirect income or capital, or resettle property entirely.
If a former partner can show that the trust is a sham (never genuinely intended) or an alter ego of the settlor (too much control retained), the trust may be disregarded entirely — and the assets treated as the settlor's personal property, available for division under the Property (Relationships) Act.
If the settlor holds a power of appointment — the ability to add or remove beneficiaries, or to direct distributions — a court may treat this power as a form of ownership or control over the trust assets. Similarly, if the settlor is also a trustee and has effectively controlled all trustee decisions, the independence of the trust may be called into question.
The key Court decisions show:
- Clayton v Clayton (Vaughan Road Property Trust) — in an unusual trust with exceptionally broad self-benefit powers, a husband's bundle of powers and entitlements was treated as "property" under the Property (Relationships) Act, worth the same as the net trust assets.
- Webb v Webb (Privy Council) — in a Cook Islands context, the settlor kept such extensive powers that there was, in substance, no real alienation of beneficial ownership. The trusts were held to be invalid, and the assets remained his.
- Cooper v Pinney (Supreme Court) — the Court clarified that most modern family trusts, which preserve fiduciary duties, require multiple trustees and restrict self-benefit, will not normally give one partner a "Clayton-style" property interest. Powers to appoint and remove trustees are generally fiduciary and cannot be used simply to bypass duties.
The practical takeaway is:
A well-designed, properly administered trust is far more likely to withstand scrutiny than a "home-made" or outdated structure where one person effectively controls everything.
How to Protect Your Trust
From the Start
The best protection is a trust that is properly structured from the outset — with independent trustees, clear separation between the settlor and the trust, properly documented transactions, and consistent administration. We design all our trust-based estate plans with relationship property risks in mind.
Review and Fix
If you already have a trust, a review can identify vulnerabilities and recommend changes to strengthen your position — before a claim is made. This might include varying the trust deed, changing trustee arrangements, improving administration practices, or restructuring how assets are held.
Worried about how separation might affect your trust?
Let us review your trust and advise on how to protect your home, business, and legacy. No obligation.