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Relationship Property, s. 182

Eating its head off

In Preston v Preston the Court of Appeal notes an observation of counsel that “the matter has eaten its head off.”

By way of background:

  • The Grant Preston Family Trust (the Trust) was settled in 2004 three years before Mr Preston met Mrs Preston.  The beneficiaries of the  Trust included Mr Preston’s children from a previous marriage who were named as the Final Beneficiaries
  • In 2005 the Trust purchased land in Whakatane and a home was built on that land
  • In 2008 Mr Preston sold shares he owned in a company Eastern Bay Thrusting Limited (EBTL) to the Trust.  Mr Preston retained one share in the company
  • In 2010 Mr Preston added the following classes of beneficiary to the Trust:

Any wife or widow for the time being of the Settlor;

Any person who is living or has lived with the Settlor of the opposite sex on a domestic basis in such a manner as if they were legally married to each other, although they may not be so married

  • Mr and Mrs Preston separated in 2015 and divorced in 2018

In the High Court decision, the following observations were made regarding the appointment of Mrs Preston as a beneficiary of the Trust:

“[30] Mr Preston said this was again on the advice of his accountants, and given Mrs Preston was benefitting from GPFT funds, she ought to be formally accommodated as a discretionary beneficiary. Mr Fisher, of Fisher Accountants, explained that there were tax benefits in adding Mrs Preston as a discretionary beneficiary, and given she was benefiting from trust funds (in terms of day to day living expenses and the like), it would have been inappropriate for her, as a third party to the trust, to effectively “owe” those funds to the trust. By making Mrs Preston a discretionary beneficiary, the use of trust funds for her benefit could be accommodated as a distribution to her.”

The Court of Appeal was satisfied that regardless of the motivation for Mrs Preston being appointed as a beneficiary of the Trust, the deed appointing her was a nuptial settlement for the purposes of s 182 of the Family Proceedings Act 1980.  As set out at [21] to [22]:

“[21] We do not accept either challenge to the Judge’s s 182 decision.

[22] First, the Judge was correct to find the February 2010 deed amending the GPFT deed of trust was a nuptial settlement for the purposes of s 182. It was an arrangement made in contemplation of marriage, which made some form of continuing provision for Mrs Preston in her capacity as a spouse. It is unnecessary for s 182 to be triggered for the settlement to involve any vesting of property on the spouse: the Supreme Court in Clayton was clear that discretionary family trusts, creating mere expectations on the part of discretionary beneficiaries, can be nuptial settlements for s 182 purposes.23 Indeed the majority of s 182 cases now seem to involve discretionary trusts entered into in contemplation of, or following, marriage. In this case, had the GPFT itself been settled on February 2010 it would have been a nuptial settlement for s 182 purposes; the enlargement of the objects of that trust by the February 2010 deed likewise was a nuptial settlement. We reject the cross-appeal.”

At [23] the Court of Appeal sets out a useful reminder as to the purposes of s 182.

“[23] Secondly, we do not think the Judge erred in exercising her discretion under s 182. That provision has a relatively modest remit. It is not a mechanism to equalise property interests overall; as the Supreme Court said, it is:

 … not underpinned by any entitlement to or presumption of equal sharing. The court’s task is not to produce the outcome that would have applied if the relationship property had not gone into a trust.

Certainly s 182 does not authorise a grand march into the respondents’ separate property or third party trust property to achieve economic equalisation in the name of contemporary family values. If property has been diverted into trusts, defeating relationship property interests, ss 44 and 44C of the PRA are available. The focus of those provisions is to ensure equal shares in relationship property. That is not s 182’s remit. If economic disparity results from the division of functions in a failed marriage, ss 15 and 15A provide a response.

[24] The role of s 182, as the Supreme Court said in Clayton, is to review a nuptial settlement and make orders to remedy the consequences of a failure of the premise on which the settlement was made. Historically, that might have been found in a settlement made for the benefit of a spouse who had then left the marriage; that settlement might then be reviewed and revised against that spouse. In contemporary circumstances, it is typically applied to a nuptial settlement in the form of a family trust where the applicant spouse is (or is at risk of) exclusion in a manner that is unfair having regard to the circumstances in which the settlement was made and the trust property acquired. Most typically that will occur where relationship property is vested in a trust without intent to defeat (so that ss 44 of the PRA will not assist), s 44C does not apply, but one spouse is left in effective control.

[25] For instance, in both Clayton and Ward, both parties to the marriage had contributed to the composition of the property now held by trusts. In Clayton, Mr Clayton was co-trustee with his business associate; he had the power to remove trustees. Mrs Clayton remained as a discretionary beneficiary, but Mr Clayton had the power to remove her. Whether or not she was removed, she was unlikely to receive further benefits from the trust. Significantly, the assets of the trust acquired during their marriage were not shown to be sourced from Mr Clayton’s separate property, a position entirely unlike the present one. The trust assets in Clayton were the product of the parties’ joint efforts. As the Supreme Court observed, had the Clayton case not settled, it would have made orders similar to those in Ward to split the trust equally into two separate trusts. In Ward the parties had made equal contributions to the trust, expected to gain equal benefits from the trust during marriage, and fairness required that similar arrangements continued thereafter. In that case that was achieved by resettlement of the trust assets on two separate, independent trusts.

[26] As the Supreme Court noted in Ward:

[A] nuptial settlement, whether it be ante or post-nuptial, is premised on the continuation of the marriage. When the court is addressing an application under s 182, it must assess whether an order is necessary and, if so, in what terms, to reflect the fact that this fundamental premise no longer applies. The expectations of the parties when the settlement was made may often have been defeated, at least in part, by the dissolution of their marriage. One of the purposes of s 182 is to prevent one party from benefiting unfairly from the settlement at the expense of the other in the changed circumstances. In that situation the order should be directed at eliminating the unfair benefit.

[27] We are not persuaded that the Judge erred in the exercise of her discretion. We agree with her that this is not a case where an order under s 182 is appropriate, given the original objects of the GPFT (Mr Preston’s children) remain the fundamental raison d’être for the GPFT, all the GPFT assets were acquired by Mr Preston well ahead of the relationship, were vested in the GPFT by Mr Preston before the de facto relationship with Mrs Preston began, and were not contributed by, or to by, her. It is therefore a case altogether unlike Ward or Clayton where relationship property shifted after marriage into a trust. Mrs Preston was added as a discretionary beneficiary before marriage, but for the reasons given by the Judge at [167] of her judgment — summarised above at [18] — we are unpersuaded that there is injustice in the state of affairs after dissolution remaining unaltered. To put it another way, reflecting the passage from Ward quoted in the preceding paragraph, Mr Preston gains no unfair benefit here.

Section 182 accords a wide discretion.  However, the manner in which this should be exercised can be difficult to determine given the range of outcomes in the reported cases.  Reflecting on the Supreme Court observation in Clayton as noted at [24], specifically “The role of s 182, as the Supreme Court said in Clayton, is to review a nuptial settlement and make orders to remedy the consequences of a failure of the premise on which the settlement was made” is perhaps the most apposite guidance.   In this regard it is noted that the Court of Appeal recognised the appointment of Mrs Preston as a beneficiary as a settlement onto the Trust, but then reverted to the view of the primacy of the earlier named beneficiaries; but regrettably with no explanation as to why this was the case.  The judgment and that of the High Court noted the tax benefits of appointing Mrs Preston, which suggests that she was intended to benefit in the present (rather than on the final vesting, which is the only certain position of a final beneficiary (contingent as that is)) and in fact she did benefit through the provision of the enjoyment of the capital distribution of accommodation in trust property.

References:

  • Preston v Preston [2020] NZCA 679
  • Preston v Preston [2019] NZHC 3389

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