Family trust assets are not sacrosanct when a relationship ends. The Supreme Court set out guidelines: for a marriage of short duration with no dependent children, family trust assets are divided according to financial contributions each made; otherwise, there is a wider discretion as to how assets might be split.
Equal sharing rules in the Property (Relationships) Act led to wholesale adoption of family trusts to supposedly block one spouse from claiming a half share of assets should their relationship fail.
‘Trust-busting’ litigation followed, with many family trusts then treated as nuptial settlements, having the courts order payouts to a former spouse using the Family Proceedings Act.
Family Proceedings Act has no simple 50/50 rule. Courts may order any payout from trust assets ‘it sees fit’ where changed circumstances mean the purpose of a nuptial settlement is no longer being achieved.
This requires hypothetical speculation about what was the purpose of a family trust when founded, and then ‘looking forward’ at what future benefits were expected to flow from the trust should the relationship have continued.
Wording of a trust deed is relevant.
Naming a spouse and children as discretionary beneficiaries supports later claims to a share of family trust assets when a relationship ends, with a court order dividing trust assets.
To circumvent this result, instances now surface of spouses not being named as a beneficiary in family trust deeds.
The Supreme Court decision concerned a couple who set up a family trust within three months of marriage, purchasing three Auckland properties funded primarily with bank debt coupled with cash contributions from each.
Named as beneficiaries were themselves, plus close relatives.
The court was told their family trust was established to provide a home for them to live in and also to accumulate assets to support them on retirement.
Their marriage foundered within three years.
Family Proceedings Act litigation followed on how trust assets should be divided.
It was agreed the principal purpose of the trust was to benefit the two of them. They each have children from earlier relationships, but no dependent children.
The court ruled trust assets were best divided according to financial contributions each made: 80/20.
The Supreme Court cautioned that if it were not a marriage of short duration then non-financial contributions would be relevant, with adjustments in trust asset division necessary ‘to reflect a failure of the [family trust’s] fundamental premise of a continued marriage.’
Lassnig v. Zhou – Supreme Court (15.09.25)
25.205