Common Misconception

A trust alone may not protect you.

Many New Zealanders believe putting assets into a trust will protect them from relationship property claims. Courts have increasingly shown they will look behind trust structures.

When trusts work Better protection

The Common Belief

Why people assume trusts protect them

The basic idea behind a trust is that you transfer ownership of assets to trustees, who hold them for beneficiaries. Because you no longer "own" the assets personally, the thinking goes, they cannot be claimed as your relationship property.

This reasoning made sense historically, and many trusts were established with asset protection in mind. However, the law has evolved significantly.

The Assumption

"I transferred my house to a trust, so my partner can't claim half of it."

The Reality

Courts can "look through" the trust structure if it has been used to defeat your partner's relationship property rights.

Section 44C

How courts "look through" trusts

Under section 44C of the Property (Relationships) Act, courts have the power to look through trust arrangements where they have been used to defeat a partner's relationship property rights.

When created

Before or during the relationship

Who contributed

Who put the assets into the trust

Primary purpose

Was it set up to defeat property claims?

Degree of control

How much control does one partner have?

"Family bank"

Has the trust been used during the relationship?

Other beneficiaries

The interests of children and others

In essence, courts look at substance over form. If a trust is really just a way to hold assets while still using them as your own, the legal structure may not provide the protection you expected.

When trusts help - and when they don't.

Not all trusts are created equal. Here is how different scenarios usually play out.

More likely to be protected

A trust set up by your parents or grandparents

If the trust was established by your family before your relationship and you have no control over it, it is more likely to be protected. The assets were never yours to contribute to the relationship.

A well-structured trust with genuine independence

Trusts with truly independent trustees, clear documentation, and proper governance are more likely to be respected. The key is that the trust operates independently, not at your direction.

Unlikely to be protected

A trust you control and use like your own assets

If you treat trust assets as your own - living in the trust property rent-free, using trust funds for personal expenses, or directing trustees how to act - courts are likely to look through the structure.

A trust set up during the relationship to protect assets

Transferring assets into a trust once you are already in a relationship, especially if done to protect them from your partner, is exactly what section 44C is designed to address.

A trust where you are the main beneficiary and have control

Being the settlor, a trustee, and the primary beneficiary is a common structure, but it significantly weakens asset protection claims.

Recent Changes

The Trusts Act 2019

The Trusts Act 2019 brought significant changes to how trusts operate in New Zealand. While not directly about relationship property, it affects the overall landscape.

Better documentation and transparency requirements mean courts have more information to work with when deciding whether to look through a trust.

Increased transparency

Beneficiaries now have more rights to information about trusts, making it harder to hide assets.

Trustee obligations

Clearer duties on trustees may make it harder to maintain the fiction of independent control when it doesn't exist.

Review provisions

Courts have broader powers to review trust arrangements and remedy problems.

Record keeping

Better documentation requirements mean there's often a clearer paper trail of how a trust has actually operated.

Stronger Approach

Trust plus agreement: stronger protection.

If you want to protect assets from relationship property claims, the most reliable approach is usually a contracting-out agreement that specifically addresses the trust.

Why this works better

Your partner agrees
A contracting-out agreement is a voluntary agreement between you and your partner. It is not a unilateral attempt to exclude them.
Full disclosure
Both parties get independent legal advice and understand what they are agreeing to, making the arrangement harder to challenge.
Clarity
The agreement can specifically address trust assets, income from the trust, and how they should be treated if the relationship ends.
Complementary tools
The trust and agreement work together, with the trust providing structure and the agreement providing legal protection.

Getting the structure right from the start

If you have existing trust assets or are considering a trust, the best time to think about relationship property is now - before problems arise.

Whether your current trust structure provides genuine protection or just the appearance of it
Whether a contracting-out agreement would complement your trust
How your trust interacts with your will and broader estate plan
Whether the trust is being administered in a way that supports its protective purpose

Key Takeaways

Courts can and do "look through" trusts when determining relationship property
A trust alone is often not sufficient protection - especially if you control it
Trusts set up by third parties (like parents) before your relationship are more protected
A contracting-out agreement that addresses trust assets provides stronger protection
The Trusts Act 2019 has increased transparency and trustee obligations
Getting advice before problems arise is much better than trying to fix things later

Related Guide

Understand how relationship property law applies to your situation, including trusts and other complications.

Read the Where Do I Stand? Guide