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If in doubt, contract out!

2 February 2024

A recent Supreme Court case, Sutton v Bell [2023] NZSC 65, is another example of Trusts not being enough to prevent a claim by a de facto partner. 

Mr Sutton had transferred assets into a Trust a few days before he and Ms Bell commenced a de facto relationship.  Ms Bell in fact suggested that he put his separate property into a Trust, so that he could ‘have it separate for the rest of his life’. 8 years and two children later, Ms Bell made a claim for half of the Trust property.

This case looked at whether section 44 of the Property (Relationships) Act, which enables of property disposed of to a Trust to be set aside if carried out to defeat the claim or rights of any person, was limited to dispositions made after the beginning of a de facto relationship.  The Supreme Court held that it was not so limited. 

The Supreme Court held that, if a de facto partner can show that at the time of the disposition there was a “clear and present intention to become parties to a de facto relationship”, the disposition will be set aside.  As such, the Court ordered that the Trust property was to be transferred to both parties as tenants in common in equal shares and that the Trust was to be wound up.

Whether or not a de facto partner in Ms Bell’s position can show that there was a “clear and present intention to enter into a de facto relationship” at the time property is transferred to a Trust will vary on a case by case basis.  However, unfortunately it could be difficult to argue the opposite if a de facto relationship in fact develops.

The moral of this story is that Trusts don’t substitute section 21 or contracting out agreements (otherwise known as pre-nups).  So, if in doubt, contract out!

Need to know more? Contact Leone Farquhar on 07 926 6027


Disclaimer: This article is general in nature and should not be treated as professional advice. It is recommended that you consult your advisor.  No liability is assumed by Harris Tate Limited for any losses suffered by any person relying directly or indirectly upon the article above.

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