Recessions bring about all sorts of changes. For example, in the legal beagle world, frequently people stop purchasing houses, so lawyers run out of conveyancing work. Conversely, money starts to get tight so people start to sue each other. This of course means extra litigation work for the lawyers.
Recessions can also bring about some pretty dramatic personal life changes.
For instance, people can be made redundant, which in turn creates financial pressure. Frequently, this pressure spills over into their personal relationships.
Sometimes, facing financial pressure can bring a couple closer as they bury down in the trenches together. But often, the strain can lead to a couple’s relationship breaking down. When this occurs, people separate. We know this because in ordinary times about 42% of Kiwis do just that – separate.
In this first of two articles, I will discuss the various possible questions couples can come face to face with in such circumstances, and their solutions.
When a couple separate they usually divide up their assets. If their assets have been placed in a Trust the inevitable question arises: What happens to the assets in the Trust? This question is of great importance because when a relationship breaks down, there can be a lot of fighting happening and frequently the only thing left standing is ‘The Trust’.
An ounce of prevention is worth a pound of cure
Let’s start at the beginning.
First, before assets are placed in a Trust, all individuals should obtain good legal advice. This is absolutely essential in my view because when assets are moved from an individual to a Trust, an individual’s property rights are affected.
Secondly, the legal advice obtained by the parties will usually include a very strong recommendation for the parties to enter into a legal Property Relationship Agreement. Again, in my view, this is essential because it will set out the basis for future reference.
Should a relationship breakdown after the assets have been transferred through to the Trust, this Agreement will become invaluable. The individuals will be saved a huge legal bill as they will not have to go to Court to argue over the assets. Additionally, and most importantly, those same individuals will not have to suffer the enormous emotional burden going to Court places on a person.
Thirdly, an actual Agreement should be entered into between the parties. This seems almost a moot point considering we have just discussed the absolute need for the Agreement but you would be surprised how many people talk about getting an Agreement but never actually do it.
The Agreement, if prepared and executed, is likely to set out a variety of matters including an acknowledgment of what assets belong to each of the parties before those assets are transferred to a Trust. It may also set out what will happen to those assets when they are transferred through to a Trust should the parties ever separate.
Lastly, if an Agreement has been entered into by the parties and assets have subsequently been transferred to the Trust then the issue is pretty easy. This is of course providing the Agreement stated what was to occur should the parties ever separate. The Agreement is just placed before the Lawyers and hopefully everyone can agree to implement what the Agreement says.
In the normal course of events what this means is the assets of the Trust are sold, loans are repaid and the balance of the sale proceeds are put into the Trust’s bank account, ready for division between the parties.
Often at this point in time the existing Trust is made into one of the individual’s own Trust and another Trust is set up for the other remaining party. So in effect, each of the parties ends up with their own Trust.
Then half the sale proceeds are sent to the new Trust and the other half of the sale proceeds simply remains in the existing Trust (which was previously turned into one of the individual’s Trust).
We will continue with this topic in the next column and look at more answers.
© Gilligan Rowe & Associates Ltd
Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
