Can a Trust Shield Your Property on Separation?
This is general information, not legal advice. For guidance on your situation, contact us directly.
For decades New Zealanders have used family trusts to try to shield assets from relationship property claims. It feels safe: if the property isn’t in your name, your partner can’t claim it.
The reality is more complicated. The Property (Relationships) Act 1976 (“PRA”) sets a default rule: once you’ve been in a qualifying relationship (usually three years, sometimes less), relationship property is divided equally if you separate or one partner dies. The family home, household chattels, and assets acquired during the relationship normally fall into that pool.
So the key question is: if assets are held in a trust, are they safe? The answer is sometimes. Trusts can help, but they are not bulletproof. What matters is how the trust is structured, when it was created, how it is managed — and whether you also have a Contracting Out Agreement in place.
Case Law: How the Courts Approach Trusts
Clayton v Clayton (2016) NZSC 29: Control Is Ownership
Mr Clayton’s trust looked conventional, but the deed gave him sweeping powers. He was sole trustee, could distribute assets to himself, appoint himself sole beneficiary, and was free of fiduciary duties. The Supreme Court held those powers were effectively relationship property. The trust assets were accordingly brought into the relationship property pool and divided.
This case sent shockwaves through trust law: the Court would not hesitate to treat trust powers as “property” under the PRA if they gave one partner effective control.
Cooper v Pinney (2024) NZSC 181: Fiduciary Duties Provide a Shield
The Supreme Court later drew a contrast. Mr Pinney was a trustee of a family trust holding farmland. Unlike Mr Clayton, his trust required at least two trustees acting unanimously, and fiduciary duties remained intact. The Court held these constraints meant Mr Pinney did not control the trust as if it were his own. The trust assets were not divided.
The message is clear: a trust deed that imposes genuine fiduciary duties and prevents one person’s dominance is far stronger.
Sutton v Bell (2023) NZSC 65: Transfers Made to Defeat Claims Can Be Unwound
Mr Sutton placed his Auckland property into a trust while his relationship with Ms Bell still qualified as a de facto relationship of short duration; but shortly before the three-year threshold elapsed. The Court found the timing was deliberate, designed to defeat her future claim. The transfer was set aside, and the property treated as relationship property.
This shows that moving assets into a trust “just in time” is risky. Courts can reverse such transfers if they consider that the purpose is to avoid a claim.
Johnstone v Easterbrook [2015] NZHC : Contributions Create Claims
Ms Johnstone contributed more than $50,000 from her own funds, plus ongoing labour, to reduce debts and build a family home on trust property. The Court ordered compensation — awarding her 35% of the property’s value.
When Trusts Can Help Protect Assets
These cases illustrate the limitations of trusts, but also point to what works. Trusts still play a role in asset protection if used properly. The key factors are:
Early Establishment
Trusts settled well before a relationship begins are less vulnerable. Transfers made once a relationship is on foot, or in contemplation of one, are easily attacked.
Robust Deeds and Trustee Structures
A deed that prevents one person having sole power, and preserves fiduciary duties, is much stronger. Independent trustees matter.
Separation of Finances
Avoid mixing relationship income with trust assets. If relationship funds pay trust debts or improve trust property, that opens the door to claims.
Clarity Around Contributions
Where contributions are made by a partner, ensure expectations are documented. Otherwise the Court may impose remedies such as constructive trusts or compensation.
Awareness of Support Obligations
If both partners benefit from a trust during the relationship, but one loses that support on separation, the Court may intervene.
In short: a carefully designed and managed trust can still provide meaningful protection — but only if it avoids the red flags that have sunk others.
The Missing Piece: A Contracting Out Agreement
Even the best trust is vulnerable without one thing: a Contracting Out Agreement (often called a “Property Agreement” or “prenup”).
Under the PRA, couples can agree to contract out of the default 50:50 division and record how their property — including trust interests — will be treated. Properly executed (with independent legal advice), such agreements are typically binding.
A Contracting Out Agreement can:
Confirm one partner has no claim against the other’s trust;
Provide for limited claims in specific circumstances; or
Reflect whatever arrangement the couple agree is fair.
Contracting Out Agreements are not infallible either. They can be set aside if provisions are found to be invalid or if the agreement is found to cause serious injustice. However in many cases they offer more robust protection than a Trust would.
The Best Strategy: Trust + Agreement + Discipline
The most effective asset protection strategy combines three elements:
A properly structured trust — multiple/independent trustees, real fiduciary duties, and clear separation of roles.
Disciplined management — no casual mixing of relationship funds, no blurred lines around contributions.
A binding Contracting Out Agreement — certainty around what happens if you separate.
Relying on a trust alone is wishful thinking. Using it as part of a coordinated legal strategy gives you real protection.
Conclusion
Trusts still matter. They protect against creditors, estate challenges, and can help manage assets across generations. But when it comes to relationship property, they are not impenetrable.
The strongest protection comes from combining a properly structured trust with a binding Contracting Out Agreement. That’s how you avoid years of litigation — and how you ensure your assets are truly protected.
At Gordian Legal, we help you make sure your trust actually does what it’s meant to: protect your assets. If you have a trust, or are considering one, now is the time to review its terms and put in place clear agreements so your property is safeguarded from future relationship claims to the full extent possible. Contact us today.