Setting
up a family trust often seems a good idea at the time, but unscrambling these
arrangements can prove very difficult when spouses fall out as a Tauranga
couple found.
The High Court was told Mark Duffy and Teri
Potter separated in 2007 after living together for 28 years. They had transferred their Pyes Pa kiwifruit
orchard into a family trust in 2002.
Each of them are a trustee of the trust together with an independent
trust company : Le Pine Trustees Ltd. Ms
Potter wants her money; Mr Duffy is in no mood to wind up the trust.
Ms Potter went to court to have the Trust
assets sold and the net proceeds of sale divided between them.
Associate Judge Bell said trust law applies;
not the Property (Relationships) Act.
The orchard is owned by a trust.
Trust law does not deal easily with the circumstances of their trust.
Their trust was described as a conventional
discretionary family trust. The final
beneficiaries are their two children, both now in their twenties. The discretionary beneficiaries are Mr Duffy,
Ms Potter and the two children.
The Trustee Act does not help. Judge Bell said the Act can be used to split
off trust assets where all trustees are in agreement but lack power in the
trust deed to complete the transaction.
Here the trustees are not in agreement.
The Act could not be used.
Ms Potter asked the court to order a division of
assets under rules in Part six of the Property Law Act: rules which enable
division of property amongst co-owners.
But the trustees in this case are not co-owners; they are collectively
owners of the trust assets. A
court-ordered division of the trust assets would still leave the three trustees
as collective owners of all the trust assets and obliged to confer and agree
unanimously on any sale, said Judge Bell.
Terms of their trust deed enables the trustees
to agree to resettlement of the trust: new trusts being set up and assets of
the existing trust split between two new trusts. But this procedure requires consent of all
the trustees.
Judeg Bell said the court could assist with
division of assets after the trustees had agreed on a resettlement, but in the
interim the court could not help.
As an alternative, Ms Potter asked the court to
remove Mr Duffy as a trustee. If this
were to happen, she said she would resign as a trustee leaving Le Pine Trustees
as the sole trustee. A later court
hearing is needed to pursue this possibility.
Potter
v. Duffy – High Court (24.03.15)
15.022