Whilst married, Craig and Maria Johnson enjoyed funding running to millions of dollars from what amounted to a private bank: the Abel Trust; a family trust controlled by Craig’s father. On divorce, legal argument whether various Trust transactions were gifts or loans led to further argument whether Trust loans Maria was never aware of were relationship debts.
After a 25 year marriage, the two had acquired a substantial portfolio of assets beyond their family home including an apartment at a Fiji resort, a chain of pre-schools, an interest in a kiwifruit operation in China and units in a hedge fund called the Carpe Diem Absolute Return Fund managed by Craig, formerly a banker with National Bank.
Argument over what assets were or were not relationship property was eventually sorted by agreement. Responsibility for debts was the next sticking point.
When determining value of relationship property, funds from Abel Trust identified as relationship debts could be deducted from relationship assets. This would see Maria notionally liable for a half share of any Abel Trust funding considered relationship debt.
Maria argued funds advanced to Craig from Abel Trust were not loans, they were gifts. The High Court was told of a two-tier arrangement: interest was charged on Trust funding advanced for commercial operations; funding for personal expenditure by Craig and Maria was interest free, repayable on demand. There was no expectation that demand would ever be made, Maria said. They were de facto gifts, she said.
Both the High Court and the Court of Appeal ruled that even if there were a possibility on demand loans might later be forgiven, wording was critical. In their relationship property dispute, any advance in the form of a loan, on demand or not, was to be treated as a loan, not a gift.
Maria then argued there was no clear paper trail for $3.6 million of Trust lending such that she didn’t know what lending was being used for what purposes. Craig and the Trust were arbitrarily allocating funding to such purposes as house renovations counting this funding as a relationship debt, she alleged.
Forensic analysis of Trust accounting records managed to track most payments.
The source of some $550,000 spent on renovations to their family home including installation of a swimming pool, much of the work done decades previously, proved particularly contentious. The Court of Appeal allowed only half this cost as a relationship debt owed Abel Trust. The passage of time, the lack of records and the context justified this arbitrary result, the court ruled.
In addition, the court ruled some $600,000 advanced by Abel Trust for investment in offshore kiwifruit operations in China known as Global Hort was a relationship debt. The two had agreed this investment was a relationship asset, albeit considered by both as being of little value. Trust records clearly identified the flow of funds used to buy into Global Hort. Since this asset was agreed to be a relationship asset, financing its purchase was a relationship debt, the court ruled.
Johnson v. Johnson – Court of Appeal (15.11.23)
24.011