Trust Or Get A Trust
The team at Morrison Kent Lawyers answers your questions, this time on family law.
5 October 2021
Q. What happens to my property when I separate from my spouse or partner?
A. If you’ve been in a relationship – de facto, civil union or marriage – for three years or more and you separate, the general rule is that all your ‘relationship property’ is divided equally.
Relationship property usually includes the family home, all household chattels, and vehicles, no matter when you acquired those assets.
Even if one partner owned the family home before the relationship, after three years or more together the house could still be classed as relationship property and could be equally divided.
It can often come as a surprise to discover the number of other assets that can be classed as relationship property.
These may include any savings or investments in shares or similar that you accumulated during the relationship – including in separate bank accounts, the value of your KiwiSaver funds built up during a relationship, any income you earned during a relationship and any business you started during a relationship.
Note that these are general rules, and there are exceptions which can affect the equal sharing rules based on your unique circumstances.
To have a binding agreement about how property will be divided following a separation, both partners must have independent legal advice.
For more information, see https://www.morrisonkent.com/family/what-is-relationship-property/
Q. I own a business. How would the business be affected if my relationship ends?
A. This depends on the length of the relationship, but also when you started the business.
If you started the business during the relationship, and the relationship lasted three years or more, the business would usually be relationship property and subject to the equal sharing rules.
If you owned the business pre-relationship, any increase in the value of the business might become relationship property.
This is particularly the case if you invested income earned during the relationship into the business, or if the other partner contributed to the business in some way, for example, helping with the accounts.
If the business, or part of the business, such as the increase in its value, is subject to equal division, the business owner may need to pay the other partner a half share of the value of the business (or part of it) when they separate.
This will usually mean that the shares in the company have to be formally valued.
Each business and relationship will be different, and so will be the arrangements for division when you separate. It’s best to seek professional advice early.
Here’s more information on how to protect your business during a break-up:
Q. Will a trust protect my property during a relationship breakdown?
A. A well-designed and well-managed trust can give you substantial protection from a relationship breakdown.
The terms of the trust deed are critical to how successfully it will protect your assets. Also key is the timing of the trust set-up and of any transfer of property to a trust.
Each person’s circumstances need to be carefully considered; there should never be a one-size-fits-all approach.
Here’s a link with more information on how to protect your assets. https://www.morrisonkent.com/family/protecting-your-assets-from-a-relationship-breakdown/
Q. Is there a better form of protection than a trust available to me?
A. It depends on your circumstances. A ‘contracting-out agreement’, also known as a ‘pre-nup’, is another popular way to protect assets from a relationship breakdown, either alongside a trust or on its own.
An agreement of this kind can contract out of the equal division rules entirely, or just to the extent that you decide together.
This means that you, as a couple, have control over the ‘rules’ of the division you’d like to be held to if your relationship were to break down.
Deciding upfront what both partners consider to be fair can save you time, money, and energy down the track.
Some reasons for entering into a contracting-out agreement are:
- Protecting a partner’s home that they owned before the relationship as their separate property, so it’s not subject to equal sharing;
- Defining income earned during the relationship as separate property, including defining any savings accumulated in separate bank accounts as separate;
- Protecting a partner’s business as their separate property, regardless of contributions made by the other partner during the relationship;
- Keeping each partner’s KiwiSaver and/or superannuation separate;
- Protecting one partner’s interest in a trust.
For a contracting-out agreement to be binding, each party to the agreement must have independent legal advice, the agreement must be in writing, and each party must sign the agreement with their independent lawyer.
As with a trust, you need to carefully consider your individual circumstances, and the agreement must be designed to be fit for purpose.
If you’re considering a contracting-out agreement or a trust, you should get expert legal advice.
Here’s more information about pre-nups. https://www.morrisonkent.com/family/10-point-guide-to-contracting-out-agreements-pre-nups/
Morrison Kent’s family law expert Debbie Dunbar provides general legal information in this Q&A. This information is provided for your general understanding. We recommend you seek legal advice with respect to your individual circumstances.
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