Talking trusts: Paul & Julia

Paul met Julia on an internet dating site. He had been single since he separated from his wife four years ago and while various friends had match made him with their friends, he decided it was time to take matters into his own hands.

After a few hesitant dates, he realised that he and Julia were very compatible and after a few months, she moved into his house. Having been burnt once before, Paul suggested to Julia that they sign a contracting out or pre-nuptial agreement. Julia was highly offended and was adamant that she wasn’t in the relationship for money. Things got so emotional that Paul agreed that they didn’t need an agreement.

Nevertheless, he had heard about how a trust can protect your assets in the event of a relationship break up, so without telling Julia, he went to his lawyer (an old rugby mate of his), set up a trust and transferred his house and some investments he had in managed funds, to the trust.

Things went well for nearly seven years and then Julia told Paul that she was leaving him to “find herself”. She said that she hadn’t been happy for some time and was going to move to a remote coastal town in North Otago. Paul wasn’t all that unhappy about Julia’s decision, as for some time he too hadn’t been convinced that the relationship was going to be a long term one.

Paul was very surprised however, when about a month after Julia left, he received a letter from her lawyer. The letter stated that Paul’s house, as well as the savings in his personal bank account were relationship property and that as such Julia was entitled to half. The letter said that even though Paul had set up a trust and transferred the house to the trust, under the law, that transfer of property was made with the effect of defeating Julia’s rights and could in effect be clawed back.

Paul was astonished as his understanding was that because he had set the trust up before he had been in the relationship for three years, it protected his property. However, this time he decided to get advice from a lawyer who specialised in the area who told him that any property transferred to a trust during a relationship is vulnerable and that it was likely that Julia’s claims could be substantiated.

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