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MARCH 2014

Salutary lessons from the coalface
of family disputes over assets

Recent Cases & Commentary

There have been a number of recent interesting cases in the area of Family Disputes over assets. The cases are a salutary reminder to make sure arrangements over the ownership and interests in property are set out clearly and recorded in writing.

Transfer of Assets to a Trust

A case has recently gone all the way to the Supreme Court that raises the issue as to whether a former de facto spouse (M) had a caveatable interest in property owned by a family trust, which was basically operated for the benefit of the other spouse (B).

The facts were that M & B co-funded development properties while in a de facto relationship. B established a family trust and transferred one of the properties to the trust. The parties separated and M applied unsuccessfully to the Family Court under the Property (Relationships) Act 1976 to set aside the transfer to the trust. The Family Court found the de facto relationship ended before the PRA came into force.

The High Court upheld the Family Court decision as did the Court of Appeal. However, the Court of Appeal suggested that M seek an equitable remedy for insufficient recognition of M’s contributions to the trust property. (ie, what the law refers to as a “Constructive Trust”) M lodged a caveat (which is basically a notice registered on the property title claiming an interest in it) on the trust property.

The Court of Appeal has now upheld the caveat. It found M had made qualifying contributions to the trust property and had a reasonable expectation of an interest. The Court said there were issues as to why B agreed to transfer the property to the trust and the basis on which B abandoned any claim to an interest in it. The parties had not adequately documented their arrangements concerning the property as to what was intended.

The Court said there was no reason why any expectation of an interest in assets transferred to a trust should be extinguished by the transfer to the trust.

The Supreme Court declined B’s application for leave to appeal the Court of Appeal decision. It found that there was no abuse of process in M now bringing the claim by the Constructive trust method given the PRA proceedings did not succeed.

This case illustrates that the Courts will use constructive trusts to give ‘deserving’ parties access to relationship wealth.

Family transactions need to be in writing

Another example of inadequately documented arrangements arose in a recent High Court case. The facts were straightforward. A father (via his son using a Power of Attorney) claimed $400,000 repayment from his daughter for loans made to her from 2004 to 2007 (the loans were documented in a Loan Agreement). The daughter said that the father had told her from time to time that he would not require repayment while he was alive, and the loans would be offset against her share in his estate. The Court dealt with the issue fairly quickly, and said the daughter’s assertions flew in the face of the express clauses of the Loan Agreement. The daughter’s assertions of a later agreement with her father were not supported at all by any documentary evidence.

The written Loan Agreement was given paramountcy. If the father and daughter had made other arrangements, this should have been put in writing.