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• Published date: 31 July 2021

It’s referred to in law journals, by lawyers battling to get a fair relationship settlement for their clients and by the Law Commission, charged with sorting out the hopelessly out-of-date Property (Relationships) Act 1976.

It was a case in which Rotorua businessman Mark Clayton tried his darndest to stop his ex-wife Melanie from getting her share of $30 million worth of assets, including companies, snuggled away in trusts, and for years Melanie Clayton tried just as hard to access those trusts. She was successful in the end, but not before a long, bitter and expensive battle involving multiple appeals that ended in 2016.

Leading the charge behind that historic win was Auckland QC and divorce guru Lady Deborah Chambers. She took a closer look at “this funny old section 182” of the Family Proceedings Act, which she describes as a cut and paste from English law. In the UK it was a major “trust-busting” provision but in New Zealand it was sitting idly outside the Property (Relationships) Act and largely ignored — until Chambers had a go at it.

“Clayton really blew some fire on its embers and it’s now a major remedy for when property’s been put into a trust during a marriage.”

It’s a case that has been quoted in courts overseas, including Australia, the UK, Hong Kong and Singapore. And it sparked the interest of the New Zealand legal fraternity, many of whom are involved with family trusts. The Ministry of Justice estimates there are 300,000-500,000 such trusts in this country.

Statistics New Zealand 2017-18 data shows that 19per cent of 336,000 households have involvement with a trust, meaning at least one member of the household is a settlor, beneficiary or trustee.

Too much powerThe main issue that caused the failure of Mark Clayton’s appeals boiled down to him having too much power over the trusts, a warning for those who consider trust property their own.

Chambers: “If a husband has put everything in trust and he can legitimately open the trust cupboard and take the assets out for himself, then we will treat his powers under the trust deed as property.”

People want to have control over the trust and their property for most purposes, she says, but not to own it for other purposes like relationship property disputes, tax and – before the new Trusts Act came into effect in January this year – to access rest-home subsidies. “That’s what trusts are all about. They’re all about this cloak over the true position and using that cloak when you want to, but pulling it back when you don’t.”

But Section 182, which allows for a “nuptial settlement” where a trust has been settled during a marriage, won’t work in many cases. That section doesn’t...