Trusts and Separation: What Happens When a Relationship Ends?

Trusts are everywhere in New Zealand. They are so common that many people barely think twice about them. Your family home might be owned by a trust. A business you run, a farm, an investment portfolio or even your bach could be sitting inside one.

For many couples, the trust was set up years ago – sometimes long before the relationship began – and usually for sensible reasons. Asset protection. Succession planning. Tax efficiency. Helping children in the future.

What rarely happens is this conversation: “What happens to the trust if we separate?”

At Clean Break, we see the consequences of that missing conversation every day. Trusts can add a whole extra layer of complexity to separation. They can create confusion, delay, extra cost, and deep feelings of unfairness.

But a trust is not an automatic dead end.

While trust property is not divided in the same way as relationship property, the law does provide ways to deal with trust assets when a relationship ends and you cannot agree on how things should be sorted. You just need to know where to look and how to approach it.

This article explains:

• why trusts complicate separation;
• the most common misunderstandings we see; and
• the five main legal pathways the Courts use to deal with trust property.

You don’t need to understand every legal detail. What matters is knowing which pathway might apply to your situation and who to talk to for more information.

Why trusts complicate separation

Trusts tend to make separation harder for a few key reasons:

More paperwork
Even when all trustees agree on how the trust-owned property should be resolved, dealing with trust-owned property involves significantly more paperwork (and legal fees) than when all property is owned in personal names.

Different rules
Some claims that apply easily to personally owned property don’t translate neatly when a trust is involved.

Control and power
Often one person has significantly more control over the trust than the other, for example, as a sole trustee or appointor.

Expectations
During the relationship, both partners may have expected to benefit from trust property, such as living in a trust-owned home.

Contributions
One partner may have contributed money, labour, or unpaid work that increased the value of trust assets they don’t legally own.

Timing
Trusts are often set up, changed, or funded at sensitive times, sometimes close to a relationship starting or ending.

Because of this, trust cases can be more stressful, slower to resolve, and harder to predict. The best way to manage this is by ensuring you and your partner both have lawyers who are experienced in resolving trust property at separation.

The five main ways claims involving trust property can be made

There are a number of different legal pathways to resolve trust property, each with its own rules and limits. In many cases, more than one pathway is explored at the same time by your lawyer. Depending on the structure of the trust, one person may end up  “attacking” the trust, and the other may end up working closely with lawyers acting for the trust to “defend” it.

Below is a high-level overview of the five most common claims involving trust property can be made, with links to more detailed explanations of each.

1. Section 182 of the Family Proceedings Act

(Changing trust arrangements after divorce)

This is one of the important parts of legislation to be aware of when resolving trust property. However, a section 182 claim can only be made if you were married, but a divorce has been granted.

Section 182 allows the Court to review trust arrangements made during a marriage and ask whether the outcome after divorce is fair, compared with what was expected while the marriage continued.

The Court does not simply divide trust assets in half. Instead, it compares:

• what each person would likely have received if the marriage had continued; and
• what they actually receive now the marriage has ended.

If there is a significant difference, the Court can order compensation or adjustments.

2. Constructive Trusts

(When old property fairness rules step in)

Constructive trust claims are based on fairness. They are used where one partner has made real and meaningful contributions to trust property and reasonably believed those contributions would be recognised.

The Court asks a question that essentially boils down to:

Is it fair for the trust to keep the benefit of someone’s time, money, or effort without giving them anything back?

Constructive trust claims are fact-specific and evidence-heavy, but they can be powerful where trust structures would otherwise produce an unfair result.

3. Section 44 of the Property (Relationships) Act

(Deliberately moving property into a trust)

Section 44 is aimed at deliberate attempts to put property beyond the reach of a partner.

It can apply where:

• property is transferred into a trust; and
• the person transferring it knew the effect would be to defeat the other partner’s relationship property rights.

Importantly, section 44 can apply even if the transfer happened before the relationship formally began, depending on intention and timing.

4. Section 44C

(When the effect is unfair, even if the intention wasn’t)

Section 44C deals with situations where property ends up in a trust in a way that reduces one partner’s entitlements, even though there was no deliberate attempt to hide assets.

These cases often turn on fine factual distinctions:

• whether relationship property was actually removed,
• whether market value was paid, and
• whether the end result was genuinely unfair.

5. Trust powers treated as relationship property

(When control matters more than ownership)

Trust Deeds often give people powerful rights: such as deciding who benefits or appointing and removing trustees. In extreme cases, those powers can be treated as relationship property and valued.

Whether this claim is available will depend on the extent of the powers held. Your lawyer will need to look at the Trust Deed (and any subsequent variations to that Deed) carefully to advise on whether this claim might be available.

Why trust cases are so fact-specific

Trust cases are rarely simple. Outcomes depend on:

• when the trust was established;
• who contributed assets and when;
• how the trust operated in practice;
• who really controlled decisions; and
• what both partners reasonably expected.

Two cases that look similar on the surface can produce very different outcomes.