FROM “MISERY” TO “RELIEF” – NUPTIAL TRUST ASSETS AFTER A MARRIAGE HAS ENDED

Posted by Shan Langston on July 29 2022 in News

The focus of this article is section 182 of the Family Proceedings Act 1982, as opposed to other legal avenues directed at bringing trust assets into issue after the breakdown of a relationship, section 182 of the Act enables the Court to reopen a trust if a settlement is made in contemplation of, or following, marriage.

The jurisdictional requirements for a section 182 claim are:

1. Is there a nuptial settlement? A nuptial settlement is an arrangement that makes some form of continuing provision for both or either of the parties to a marriage in their capacity as spouses (for example, a trust).
2. Were the parties married? Section 182 of the Act does not apply to de facto relationships.
3. Has an order dissolving marriage been made? An application under section 182 can only be made after the parties have divorced, but it needs to be made within a reasonable time after divorce.
4. As a result of the dissolution of marriage, is there ‘a gap’ between the position of the claiming spouse under the settlement with the marriage dissolved with what the position would have been if the marriage had continued?
5. Relief under section 182 is discretionary. The Court can make any orders it ‘thinks fit’ and consider any matter it deems relevant in the exercise of its discretion. This discretion means that there is a degree of uncertainty in any subsequent relief awarded by the Court.

That said, equal division of trust assets (generally through the resettlement of assets into a new trust) will usually (but not always) arise where the marriage is lengthy. Trust assets represent the wealth created by the parties during the marriage, and the range of beneficiaries is limited to the former spouses (or one of them) and their children.

But what about the cases where the facts do not fit these criteria?

In my previous article ‘Result: “Misery” – Not the final word’ I wrote about the Preston litigation. This was a stark example of the uncertainty that arises in these types of cases. Mrs. Preston sought (amongst other things) to challenge, under section 182, a family trust that Mr. Preston had set up before the parties had met.

After the Court of Appeal on 21st May 2021, the Preston Case was appealed to Supreme Court, and on November 9th 2021, the Supreme Court granted the appeal and awarded the relief sought by Mrs. Preston (an award of $243,000).

In granting the appeal and relief sought, the Supreme Court made several observations about the exercise of the Court’s discretion, including in circumstances where the marriage is not lengthy, the trust assets do not represent the wealth created by the parties during the marriage, and the range of beneficiaries are not limited to the former spouses and their children. In those cases, provided the jurisdictional elements are met, and the claiming spouse’s position has changed under the nuptial settlement due to the marriage ending, relief will generally be granted. But the order will be tailored to the specific factual circumstances of the case. In limited circumstances, relief may not be granted. For example, where both parties bring considerable assets to the marriage and have maintained some separation in the way those assets are utilised.

The degree of uncertainty as to the relief that will be ordered is not necessarily an impediment to making a claim. However, it does emphasise the need to obtain legal advice, the importance of carefully framing the application (including a realistic claim for relief), and the benefits (if possible) of resolving the matters without seeking the Court’s assistance.

If you would like to seek any legal advice regarding nuptial settlements or have any questions about the Act, please feel free to contact us.

Kalev Crossland | Partner | kalev.crossland@shieffangland.co.nz
Shan Langston | Special Counsel | shan.langston@shieffangland.co.nz