Trusts are often thought of as a bulletproof way to protect assets in a relationship — but that’s not always the case.
Paul’s story is a clear example of how trust structures can fail if used without proper legal advice or timing. Even with a trust in place, relationship property laws may override what you thought was protected. Understanding the legal risks early is key to avoiding nasty surprises down the line.
A New Relationship Brings Hope.
Paul met Julia on an internet dating site. He had been single since he separated from his wife four years ago. 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. 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.
Avoiding A Prenup Leads To Secret Planning.
Nevertheless, he had heard about how a trust can protect your assets in the event of a relationship break up. Without telling Julia, he went to his lawyer (an old rugby mate of his) and set up a trust. He transferred his house and some investments he had in managed funds, to the trust.
The Relationship Ends — And The Letter Arrives.
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.
Trusts Don’t Always Guarantee Protection.
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.
Expert Advice Reveals The Legal Reality.
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.
If you feel you could use some specialist advice, don’t hesitate to contact the Trusts & Wealth Protection Team.