Family Asset Protection: Divorce, Finance and the Media
This chapter concerns relationship property, trusts and asset protection in the legal jurisdiction of Aotearoa New Zealand.
This area of law is governed by statute, namely the Property (Relationships) Act 1976 (PRA) and the Family Proceedings Act 1980 (FPA).
The PRA is the primary legislation governing division of property following separation. It applies to married couples, couples in a civil union and couples who have been living in a de facto relationship. The general scheme of the Act is that following separation all personally owned assets are classified as either relationship property or separate property. Relationship property is divided equally while all separate property assets remain the separate property of their owner. The Act provides limited remedies for parties whose rights under the Act have been defeated by the transfer of personally owned assets to a trust.
The FPA provides the courts with a broad discretion to provide a separated party with a remedy in respect of nuptial trusts after the marriage or civil union has been dissolved. Such remedy is not available to de facto couples.
1 . Divorce and trusts
Trusts have long been part of New Zealand law, with the High Court exercising jurisdiction over trusts both in an inherent capacity and pursuant (now) to the Trusts Act 2019. As stated, the courts have limited jurisdiction to address trust issues after relationship breakdown.
In New Zealand, divorce (known as a dissolution of marriage) is distinct from separation. To apply, an applicant must swear evidence that the parties have been living apart for at least two years. Conversely, the end of a de facto relationship is standardly deemed to take place on the date of separation, though a de facto relationship must typically have lasted at least three years before statute-based relief in respect of relationship property is available.
When a party applies for a relationship property division where there are trust interests, the court has limited power under sections 44 and 44C of the PRA either to order that compensation be paid to one party from the trust, or to claw back assets into the relationship property pool. However, the court does not have power under the PRA to divide trust property per se.
Another Act, the FPA, contains a discretionary provision – section 182 – empowering the court to enquire into property settled into trust provided that the trust is nuptial in nature. The FPA however does not apply to de facto relationships. Section 182 does not mandate an automatic equal division of trust property. Rather, the court has discretion to make orders with reference to the application of the whole or any part of trust property, or vary the terms of a settlement, either for the benefit of children of the marriage or civil union or of one or both parties.
In recent decades, the courts have shown themselves willing to declare constructive trusts in relation to certain trust property even though that property seems to fall outside the relationship property pool. Such scenarios are however heavily fact-dependent.
Where a divorce has been filed overseas, any order for division of relationship property will only have force if the parties consent to it having application in New Zealand, or if rules of recognition apply. If the parties do not agree and there are no applicable rules of recognition, new proceedings will need to be filed.
1.1. Financial disclosure
In proceedings, a party’s financial disclosure obligations standardly entail the production of affidavits of assets and liabilities. Discovery is a feature of most civil proceedings (and a court may order pre-proceedings discovery or discovery from a third party).
For completeness, section 44B of the PRA permits the court to make an order requiring a party to disclose specified information relating to the disposition of relationship property to a trust. This can be on the application of either party or on the court’s own initiative.
If a trust is nuptial, the trustee will be obliged to disclose some, but not all, information associated with the trust and its property. That information may include core trust documents and information concerning the nature of trust property. However, confidential documents – such as deeds of distribution, memoranda of wishes or even sensitive commercial information – may remain outside the scope of discovery. Whether information is confidential must be assessed on a case-by-case basis.
The core criterion for discovery is relevance to the proceeding. While the court of Appeal has in the past held that ordering an unequal division of relationship property on the basis of immovable offshore assets would constitute an unjust interference with another country’s sovereignty (where those immovable assets were located), there is no simple answer to the question of what must be disclosed.
Offshore trust interests may or may not have relevance to a proceeding subject to the applicability of the New Zealand jurisdiction (see section 7 PRA; section 4 FPA), any rules of recognition, and whether the parties consent to the New Zealand jurisdiction in respect of those interests.
There is no obligation in New Zealand law for a trustee to disclose information for the purpose of divorce proceedings filed overseas, unless those proceedings have been transferred into the New Zealand jurisdiction, or the parties have consented to New Zealand law applying.
However, if one party to the proceedings has any standing under the New Zealand trust, they may be able to obtain the information sought pursuant to Part 4 of the Trusts Act 2019. Importantly, these statutory provisions apply irrespective of whether proceedings have been issued.
1.2. Financial orders
The starting point is that a spouse/partner beneficiary cannot be ordered to make either income or capital payments from trust property which they do not control. Only a trustee can be ordered to pay from trust property.
Both sections 44 and 44C of the PRA contain mechanisms addressing the alienation of property into trust to defeat another party’s claims. Section 44 permits a court to set such a disposition aside. However, relief may be denied if the property or interest was received in good faith and the recipient has so altered their position in reliance on the settlement that it would be inequitable to grant relief. Section 44C(2) grants the court power to make compensatory orders, including:
- an order requiring one spouse or partner to pay to the other spouse or partner a sum of money, whether out of relationship property or separate property;
- an order requiring one spouse or partner to transfer to the other spouse or partner any property, whether the property is relationship property or separate property;
- an order requiring the trustees of the trust to pay to one spouse or partner the whole or part of the income of the trust, either for a specified period or until a specified amount has been paid.
It should be noted that “separate property” under section 10 of the PRA includes “property that a spouse or partner acquires from a third person—[…] because the spouse or partner is a beneficiary under a trust settled by a third person”. Separate property is not relationship property, and cannot be treated in a relationship property division except in accordance with selected provisions such as section 44C(2)(a) and (b) above (along with others elsewhere in the Act).
Importantly, the remedies under section 44C(2) are only available once the court is satisfied there has been an alienation of relationship property into trust with the consequence of defeating the claims or rights of one party. Moreover, the remedies in section 44(C)(2) are only available when the clawback mechanisms in section 44 are unavailable.
An order under section 44C(2)(c) is an order of last resort:
“The court must not make an order under subsection (2)(c) if—
(a) an order under subsection(2)(a) or (b) would compensate the spouse or partner; or
(b) a third person has in good faith altered that person’s position—
(i) in reliance on the ability of the trustees to distribute the income of the trust in terms of the instrument creating the trust; and
(ii) in such a way that it would be unjust to make the order.”
Orders under section 44C(2) are enforceable pursuant to either the court’s procedural rules, the Contempt of Court Act 2019 or section 121 of the District Court Act 2016 (which grants the High Court overarching jurisdiction to enforce orders made by the lower courts where those courts lack the ability to do so themselves).
An order from a foreign jurisdiction requiring a trust beneficiary to pay income or capital to a spouse or partner will only be enforceable in New Zealand if the parties consent to that order having application, or if rules of recognition apply. Otherwise, fresh proceedings may be required.
As discussed, the court retains jurisdiction to compel the trustees of a nuptial trust in limited circumstances to make an income-based distribution to a beneficiary’s spouse or partner (PRA section 44C(2)(c)), or order payment from the trust capital to a beneficiary’s spouse or partner (or their children) (FPA section 182(1)), or vary the terms of the trust settlement in favour of a beneficiary’s spouse or partner (or their children) (also FPA section 182(1)).
While a beneficiary cannot be obliged to pay compensation from trust property which they do not control, the Supreme Court has identified in Clayton v. Clayton  1 NZLR 551 that certain residual powers in a nuptial discretionary trust can themselves constitute an interest. If such powers were acquired during the relationship, they are properly classified as relationship property even though the discretionary beneficiary may appear to have “only a hope” to receiving the trust property itself (i.e., no vested interest).
Regarding the Vaughan Road Property Trust, the Clayton court asked itself, what was the correct value of the residual powers? Its conclusion was that, in that case, the powers were “equal to the value of the net assets of the VRPT”. The implication was that, even if neither the capital nor the income of the trust could be accessed by the other party, the value of the trust itself nevertheless needed to be factored into the relationship property pool.
Where trustees are subject to a court order, they must comply or face the penalties arising from contempt of court. While the court may not have jurisdiction to address offshore property directly, it retains power to compel a person to undertake certain actions or face a personal sanction. Thus, even though the New Zealand Court may have limited or no power over offshore assets, the Contempt of Court Act 2019 grants it various powers of enforcement over people situated in New Zealand including imprisonment, fines, sentences of community work and, in the case of the High Court, sequestration orders.
No order made offshore will be enforceable either against a party personally or against the assets of a trust (whether or not the assets are located here) unless the order has been resealed or the court has assumed jurisdiction because of the parties’ agreement.
As a matter of general law, no person shall be arrested or imprisoned for default in payment unless the default triggers the exceptions in section 3(2) of the Imprisonment for Debt Limitation Act 1908. Those exceptions include:
- default in payment of a penalty or sum in the nature of a penalty other than a penalty in respect of any contract;
- default in payment of any sum recoverable before the District Court under the Summary Proceedings Act 1957 or otherwise than under the District Court Act 2016;
- default by a trustee or person acting in a fiduciary capacity, and ordered to pay by a court having jurisdiction in the matter any sum in his possession or control.
Section 16 of the Contempt of Court Act 2019 creates a general power of enforcement of certain orders or any undertaking given to the court if, on the faith of the undertaking, the court has sanctioned a particular course of action or inaction. However, this power remains subject to section 17 of that Act.
Section 17 states that section 16 only applies if the case in question falls into the exceptions in section 3(2) of the Imprisonment for Debt Limitation Act 1908 (see above) “or the order applies to money held by a person, trust, or entity other than the defaulter”. Section 17 further provides that only the High Court may take action under section 16 to enforce a court order for recovery of land.
Under section 16(4)(a)(i), a court may issue a warrant committing a person to imprisonment not exceeding 6 months. However, it must not do so unless satisfied that other methods of enforcement have been considered and are inappropriate or have been unsuccessful (section 16(3)(a)). If so satisfied, the court must make a finding under section 16(3)(b) as to whether it is proved beyond reasonable doubt that:
- the court order or undertaking being enforced has been made in clear and unambiguous terms and is clearly binding on the person; and
- the person had knowledge or proper notice of the terms of the court order or undertaking being enforced; and
- the person has, without reasonable excuse, knowingly failed to comply with the court order or undertaking being enforced.
Any enforcement order does not operate to extinguish the liability of the person to comply with the court order or undertaking.
2 . Prenuptial and postnuptial agreements (PNAs)
PNAs are enforceable in New Zealand under Part 6 of the PRA.
PNAs executed in an offshore jurisdiction may be enforceable here provided certain formal requirements are satisfied.
Section 2 of the PRA specifies, for Part 6 of that Act, that the “lawyer” witnessing a party’s signature (and certifying that that party has had the effect and implications of the agreement explained to them) must be:
- in the case of a document signed in a Commonwealth country outside New Zealand, […] a lawyer (as defined in section 6 of the Lawyers and Conveyancers Act 2006), or a solicitor entitled to practise in that country, or a notary public;
- in the case of a document signed in a country that is not a Commonwealth country, […] a lawyer (as defined in section 6 of the Lawyers and Conveyancers Act 2006), or a notary public.
Section 6 of the Lawyers and Conveyancers Act 2006 defines “lawyer” to mean “a person who holds a current practising certificate as a barrister or as a barrister and solicitor.”
2.1. Procedural requirements
Section 21F of the PRA states that a PNA is void unless it complies with four statutory requirements. First, the agreement must be in writing and signed by both parties. Second, each party must have independent legal advice before signing. Third, the signature of each party must be witnessed by a lawyer. And fourth, the lawyer who witnesses the signature must certify that, before that party signed the agreement, the lawyer explained the effect and implications of the agreement.
Importantly, those four statutory requirements do not limit or affect any enactment or rule of law or equity that makes a contract void, voidable, or unenforceable on any other ground (section 21G). Moreover, the court has jurisdiction under section 21H to give effect to an agreement, whether wholly or in part or for any particular purpose, even though it may not comply with section 21F. The court’s statutory jurisdiction also extends to setting a PNA aside if it is satisfied that giving effect to the agreement would cause serious injustice (section 21J), though there are certain mandatory considerations.
2.2. Spouse’s financial claims
Section 21A(1) of the PRA permits the parties to make any agreement they think fit with respect to the status, ownership, and division of property owned by either or both of them. “Property” is expansively defined in the PRA to include real property, personal property, any estate or interest in any real property or personal property, any debt or any thing in action, or any other right or interest. As such, a PNA may address trust property even though that property is not per se relationship property.
2.3. Children’s financial claims
PNAs can deal with financial arrangements regarding children notwithstanding that the Inland Revenue has jurisdiction over child support pursuant the Child Support Act 1991, and can override a PNA if its terms do not meet default minimum standards.
3 . The media and divorce/family law proceedings
Subject to any judicial direction to the contrary, accredited news media reporters can attend both the Family Court and the High Court, and report on proceedings. However, a judge has authority to direct reporters to leave the courtroom (or not attend remotely) where sensitive matters or vulnerable persons (especially children) are involved. A judge must grant permission before a reporter can film, take photographs or make sound recordings in court.
Section 11B(1) of the Family Court Act 1980 permits “any person” to publish a report of proceedings in the Family Court. Importantly, this is subject to subsection 3, which requires leave from the court to publish a report on proceedings that includes identifying information in respect of either a person under the age of 18 or a “vulnerable person” (as defined in section 11D). Subsection 3 does not apply to reports that are genuinely of a professional or technical nature and which do not include the names of any person under the age of 18, “vulnerable persons” or schools. Subsection 3 also does not apply to publication of purely statistical information.
3.1. Reporting restrictions
Any person can apply for reporting restrictions. However, the application’s success will depend on whether the applicant can show that identifying information will arise in respect of a “vulnerable person” (as defined in section 11D of the Family Court Act 1980) or a person under the age of 18.
“Identifying information” is defined to include any name or particulars likely to lead to the identification of any of the following persons:
- a party to the proceedings;
- an applicant in the proceedings;
- a person who is the subject of the proceedings;
- a person who is related to, or associated with, a person referred to in paragraphs (a) to (c) or who is, or may be, in any other way concerned in the matter to which the proceedings relate (for example, a support person for a party).
For completeness, where proceedings have been initiated under the Oranga Tamariki Act 1989 (formerly known as the Children, Young Persons and Their Families Act 1989), “identifying information” also includes “the name or particulars likely to lead to the identification of any school that a person the subject of the proceedings is or was attending”.
As stated above, any person – including reporters – may publish a report of Family Court proceedings, but leave is required where the report includes identifying information in respect of a person under the age of 18 or a “vulnerable person”. The Ministry of Justice publishes an application for media to apply for permission from the judge to film, record or take photographs in court, which form must be filed within a specified timeframe.