The
Court of Appeal has warned alter ego family
trusts are at risk in relationship property disputes. Treat family trust assets as personal assets
and they might be viewed as relationship property.
Use of over forty separate family trusts by a Christchurch
businessman to control property investments led to allegations they did not
operate as arms-length trusts but were simply a tax dodge. This when his spouse asked the Court of
Appeal to block his alleged attempts to defeat her claims to a share of
relationship property.
Separated after a 23 year marriage, Susan
Heazlewood alleges her husband Graeme is manipulating transactions to cut her
out as beneficiary of family trusts. Mrs
Heazlewood argued that all the trusts are shams; Mr Heazlewood intended only to
create the appearance of trusts so that he could deal with the properties as
his own while avoiding liability for tax and, initially, the attention of the
Official Assignee. The court was told Mr
Heazlewood was bankrupt for the first three years of their marriage.
The Court of Appeal signalled it is sympathetic
to legal arguments that where a particular family trust operates as the alter ego of the person who controls it,
then the court may “look through” the trust and treat all the trust assets as
relationship property.
In a preliminary legal skirmish, the Court of
Appeal was asked to rule on the validity of claims registered against land
titles of Heazlewood developments. The
effect of registration is to warn any person dealing with the land that it is
disputed relationship property.
One investment in Russley Road, Christchurch,
is spread across two addresses and two titles.
Initially, the ultimate beneficiary was the Robinsons Bay Trust with Mrs
Heazlewood as a discretionary beneficiary.
Evidence was given that Mr Heazlewood transferred ownership to a new
trust, the Boulder Trust, within months of their separation. Mrs Heazlewood is not a beneficiary of the Boulder
Trust. The Court of Appeal ruled her claim registered against the Russley Road
titles remain. She has an arguable claim
of a constructive trust in her favour, said the court. There was evidence Mrs
Heazlewood actively contributed to the development of earlier investment
properties which had been sold and funded the Russley Road purchase.
Heazlewood
v. Joie de Vivre Canterbury Ltd – Court of Appeal (5.06.15)
15.061