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Relationship Property, Trustees

Trusts and relationship property

No man is an island.  Nor is any trust.  An important, and often overlooked facet of asset and estate planning is the imposition of other legislative regimes.  The cases that comprise the Herbst v Herbst litigation are a good illustration of the result of failing to consider this adequately.

The facts of the cases are pretty simple:

  • pre-nuptial agreement entered into in South Africa providing that there would be no community of property
  • the couple emigrate to New Zealand
  • Mr Herbst buys the family home and later transfers it to a trust
  • the trustees provide a mortgage security.  However, the court is not satisfied that there were any genuine advances secured by the mortgage
  • the couple separate

Mrs Herbst then files proceedings.

The Family Court, High Court and Court of Appeal all agreed that:

  • the South African prenuptial agreement did not follow the parties to New Zealand
  • accordingly once in New Zealand they have agreed to apply the New Zealand relationship property regime
  • the trust was set up for the purpose of defeating Mrs Herbst’s claim to the property, so that s 44 of the Property (Relationships) Act 1976 applied
  • the mortgage was a sham to defeat Mrs Herbst’s claims.

The parties could have entered into a contracting our agreement in New Zealand so that the outcome desired by Mr Herbst was achievable.  Presuming of course that Mrs Herbst agreed.

However, proceeding in a fashion that aroused suspicion (the mortgage to secure non-existent debt), not only failed to achieve its object, but also aroused the suspicion of the Court.

The message is simple – do it properly on notice, or prepare to lose.

References:

  • Herbst v Herbst [2014] NZCA 430
  • Herbst v Herbst [2013] NZFC 4862
  • Herbst v Herbst [2013] NZHC 3535, [2014] NZFLR 460.

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