With the wisdom of Solomon, the courts have split a family trust in two to accommodate a marriage split and to settle disputes between a former married couple over how the trust should operate.
The court was told the family trust was established well into an 11 year marriage. This arose after the husband gained full ownership of a family farm trading as Lang Park Ltd. The husband made use of matrimonial property legislation to gift a half interest in the farm to his wife tax free. The farm, together with other assets, were then put into a family trust with themselves as trustees and members of the family as beneficiaries.
Nearly three years later, the marriage broke up. The trust assets then had a net value of some $1.8 million. The wife shifted off the farm, while the husband remained living on the farm and received a management fee based on the annual after-tax profit for running the farming business. This left the wife with no financial support out of trust assets. Husband and wife, as trustees, were deadlocked as to how the trust should operate.
While the spouses controlled the trust assets as trustees, the assets were no longer matrimonial property to be divided 50/50 under matrimonial property legislation. Courts have very limited powers under the legislation to bust open family trusts and treat them as matrimonial assets.
But the Family Proceedings Act 1980 allows trust assets to be rearranged where required to protect the interests of any children.
The husband argued that any rearrangement should take into account that he had originally provided the lion’s share of the assets – half of which he had gifted to his wife prior to setting up the family trust.
The Supreme Court ruled that the gift could not be taken into account. The earlier matrimonial property deal was separate from the subsequent creation of the family trust. When looking at rearranging trust assets, the starting point was that each spouse had contributed half of the trust assets. Having contributed equally, the wife had every expectation that she would share equally with her spouse in the benefits, said the Court. Circumstances had changed with the marriage breakup.
Equal division of the trust was held to be the best way out of the impasse. The Court ordered that two separate trusts be established, with the trust assets divided equally between the two and each spouse being a trustee of a separate trust.
Ward v. Ward - Supreme Court (8.12.09)
04.10.004