Whether a trust will provide you with protection in this situation will depend largely on timing. A trust is an ideal structure to protect assets acquired before or in the early stages of a relationship.
This has been reinforced by recent legislative change. Whilst there are some provisions in the Property (Relationships) Act that enable the court to compensate a spouse or partner, for example where the transfer of property to a trust has the effect of defeating their rights under the PRA, compensation can only be awarded from assets outside of the trust.
When gift duty is abolished on 1 October this year most people who have trusts will take the opportunity to transfer assets to their trusts without the need for a gifting programme and forgive all debts owing to them by their trust. There will then be no assets outside the trust to make compensation from, making this provision all but redundant.
The government was well aware that one of the consequences when they made the decision to abolish gift duty, was that relationship property rights would be further undermined by trusts. Despite the lobbying of some they have made no move to address it. We can only assume this was a deliberate policy decision by Parliament that they wanted to preserve Trusts because of the important role they play in New Zealand.
Having said that, there is a tension between property lawyers and family lawyers in this area. Property lawyers view trusts on the whole as sacrosanct. Family lawyers are continually pushing the boundaries trying to look for ways to break through the trusts protection. The courts are still grappling with this issue. Trusts are currently under review by the Law Commission. As it stands however, they remain a valid and fairly secure way of protecting your property in the event of a relationship breakdown.
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