The New Zealand Law Commission has released its Report “Review of the Property (Relationships) Act 1976. The Report recommends wide ranging changes to the thrust of property contributions and division in the context of relationships, modernising aspects where changes in society have clearly left behind attitudes framed in the existing legislation and promoting more flexible remedy options. Of immediate relevance to this forum, of course, are proposals around the treatment of trust interests and the potential consequences of extended jurisdiction of the Family Court in trust matters.
The matter of Trusts is covered in some length in Chapter 11 of the Report, which makes a number of recommendations.
The Commission proposes that the current s 44C (Compensation for property disposed of to trust) be retained in a new Act, but “amended to provide a single comprehensive remedy that will enable a court to grant relief when a trust holds property that was produced, preserved or enhanced by the relationship.”
This is explained as meaning that the section should apply in three situations:
(a) where either or both partners disposed of property to a trust at a time when the relationship was contemplated or since it had begun and which would otherwise defeat the claim or rights of either partner – in other words what we presently refer to as a “nuptial settlement”. (The Commission recommends repeal of s182 of the Family Proceedings Act 1980).
(b) where trust property has been “sustained by the application of relationship property” or else by the “actions of either or both partners”.
(c) where any increase in value of trust property, or income or gains, is attributable to the application of relationship property or the actions of either partner.
The Commission recommends that the court have broad powers to order payment of compensation, including ordering trustees to distribute capital from the trust, to vary the terms of a trust or to resettle some or all trust property to a new trust or trusts. This would be accompanied by powers to remove, appoint or replace trustees.
A court must be satisfied that making an order is “just” in the circumstances, and therefore is part of the striking of a balance between protecting entitlements of partners “and the preservation of trusts.”
Where any claim is made under the new revised section, notice must be given to a wider range of affected parties, including not only the trustees but also beneficiaries – including discretionary beneficiaries – and other affected parties with an interest in affected property, such as creditors. Parties would be able to lodge notices of claim against trust owned land titles, clarifying the present situation.
Separately, trusts will be affected by new rules proposed with respect to disclosure of information on a partner’s property and finances.
Jurisdiction of the Courts
Of potentially significant importance is the recommendation that the jurisdiction of the Family Court will be extended to cover all matters with regard to trusts involved in relationship property disputes, subject to rights of appeal to the High Court. The intention is that this will make relief in trust situations more accessible to affected parties and much less costly than at present. The Report nevertheless also places significant stress upon enhancing arrangements for Family Dispute Resolution outside of the formal court process.
The Law Commission’s report can be accessed at: Law Commission Report 143