Dam v Prm

 
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IN THE FAMILY COURT AT MASTERTON

FAM-2008-035-512

Between
DAM
Applicant
and
PRM
First Respondent

and

LJC, PRM and DAM as Trustees of the YT
Second Respondent
Appearances:

Mr K McClure for the Applicant

Mr G Allan with Ms B Inglis for the First Respondent

Ms J Hunt for the Second Respondents

Applications for income and capital distributions under s44C(2) Property (Relationships) Act 1976 (compensation for property disposed of to trust) and s182 Family Proceedings Act 1980 (Court may make orders as to settled property) by applicant — application for occupation order by respondent for homestead under s27 Property (Relationships) Act 1976 (occupation orders) currently occupied by the wife — parties married since 1968 — farming assets placed in trust — farm had been in husband's family since the 1920s.

Held: Although the homestead was not necessarily essential to the operation of the farm, it was very much part of the farm both historically and in the estimation of the current family members. Mrs M had conceded she could be adequately housed elsewhere. The other beneficiaries of the trust (the adult children) supported Mr M remaining on the property, particularly given the high level of stress experienced by S as a result of his mother's comments about his running of the farm and some extreme allegations she had made to the police. Mr M should have occupation of the homestead, which was the most logical and desirable place for him to live while continuing to support the running of the farm.

On the evidence the trust should pay Mrs M $2000 per month from its income to meet her reasonable living needs. After she became entitled to superannuation the amount would be reduced to $500 per month. Mrs M could not have had a reasonable expectation of receiving a half share of the value of the farm. A fair measure of her reasonable expectation for a capital sum under s182 FPA was an amount to secure accommodation of comparable quality to the homestead. Given the current housing market in the area, $300,000 was appropriate. As the Trust was unlikely to be able to pay Mr M a comparable income until 2013, there was no reason why Mr M could not become a discretionary beneficiary as to income.

The relationship between the parties was clearly dysfunctional and unworkable. In addition to Mr M, all of the children agreed it would be better if their mother did not continue as a trustee. There was jurisdiction under s182 FPA to make orders in relation to the status, appointment or removal of trustees. In the circumstances it was no longer appropriate for Mrs M to continue as a trustee and an order was therefore made to remove her as a trustee. The order was to be effective from the date of release of the judgment to allow the trustees to proceed with the decisions and arrangements necessary to give effect to the other orders in the judgment.

Order granting distribution of income to Mrs M. Order granting occupancy of homestead to Mr M. Order for removal of Mrs M as trustee.

RESERVED JUDGMENT OF Judge G F Ellis

[Relationship Property: Farming Trust]

1

These are proceedings under the Property (Relationships) Act 1976 (“PRA”) and the Family Proceedings Act 1980 (“FPA”). The parties were married in July 1968. They have lived apart since 2006 and their marriage was dissolved on 8 December 2008. For their privacy (and to avoid a confusing proliferation of initials) I will refer to them as Mr M and Mrs M.

2

The parties have three adult children: K (39) who is married, has three children and is currently living and working in France with her husband; S (36) who is married, has one child, and lives on the family farm which he is working as lessee; and B (31) who with his partner lives and works in Wellington and has no children yet.

3

At the centre of the case is a family property known as Y Station situated in P, Wairarapa. The farm has been in the M family since the 1920's when it was acquired by Mr M's grandfather. Mr M became sole proprietor of the farm in 1975 and then transferred it into a Trust settled by Mr M in September 1975 and known as the Y Trust. Mr and Mrs M are trustees of the Y Trust. A third professional trustee has resigned and no other trustee has yet been appointed.

4

There are three substantial dwellings on Y Station, the homestead, a ‘farm manager's’ house, and a cottage. These dwellings are currently occupied respectively by Mrs M, their son S and his family, and Mr M. Relations between the parties have been and are seriously strained, interfering with the work of the farm and the administration of the Trust.

5

The issues raised by the parties include primarily:

  • — Occupation of the homestead; and

  • — Provision of income from the Trust; and

  • — Review of the settlement of the Trust.

The Law
6

Counsel for both parties ask the Court to consider and apply the provisions of s 44C PRA and s 182 FPA. Counsel agree that the facts of the case do give rise to jurisdiction under both provisions and they were largely in agreement as to the scope of orders that could be made by this Court with regard to the Trust.

7

Differences between counsel on the law went to issues regarding the possibility of the sale of trust property and interference with the rights of the lessee. Neither party is pressing for such outcomes and since I am satisfied that neither is necessary nor justifiable on the facts I will not go into those aspects.

Section 44C PRA
8

It is not necessary to set out the provision in full. Counsel agree and I am satisfied on the evidence that:

  • — Since their marriage either or both parties have disposed of relationship property to a Trust; and

  • — That the disposition of that property has had the effect of defeating the claims of one or other, and potentially both, of the parties; and

  • — That s 44 has no application to the disposition or dispositions in question.

9

Counsel also agree, with regard to s 44C(2) that the Court has jurisdiction in this case to make orders with regard to the income of the Trust under s 44C(2)(c).

10

I have considered s 44C(3) which prohibits an order with regard to trust income if orders under ss (2)(a) or (b) would compensate the claimant. On the facts of the case the relationship property held by the parties or to which they are entitled is relatively modest (in comparison to the assets of the trust). Mr M is a substantial creditor of the Trust but has limited access to capital (whether relationship property or separate property).

11

Actuarial evidence shows that the capital sum that would be required to meet the reasonable financial needs of Mrs M for the foreseeable future could exceed any capital sum presently available to Mr M.

12

I am therefore satisfied – as both counsel urge – that the Court does have jurisdiction to make orders under s 44C(2)(c) in relation to the income of the trust.

13

It is not necessary to explore the background of s 44C which is fully discussed in such cases as Nation v Nation (2005) 3 NZLR 64. There is also helpful comment on s 44C in the Supreme Court decision Ward v Ward [2010] 2 NZLR 31 (SCNZ) which is discussed further below.

14

I raised with counsel the question whether there is any order of priority or precedence between s 44C PRA and s 182 FPA where both provisions are applicable. I put the question whether the Court should first address the issue of compensation under s 44C and then only address s 182 if an outcome available under s 44C did not provide adequate relief. Counsel were not agreed on that question and on further reflection (and reading of Ward) I conclude that it is not necessary or helpful to pursue it.

15

The Supreme Court decision in Ward makes it clear that both provisions exist side by side (where they apply) and must be considered without any presumptions or limitations other than as prescribed by the sections themselves. I do note nevertheless what was said by the Court in Ward at paragraphs [18] and [19] of the judgment and the concluding comment in paragraph [19]:

There is however no necessary inconsistency in allowing the Courts to exercise a Trust varying power in these particular circumstances, while providing that, in the wider and distinct relationship property context, Trusts will prevail, subject to ss 44 and 44C, over relationship property rights.

16

Both of counsel nevertheless addressed the issue of income provision under s 44C(2)(c) first, so I have done likewise.

Section 182 FPA
17

Because both counsel agree that s 182 does apply on the facts of this case, it is not necessary to set out the provision in full. What did lead to discussion however was the scope and purpose of s 182 and the principles guiding the exercise of the Court's discretion.

18

Notwithstanding a number of questions I put to counsel about any correlation between the s 182 assessment and relationship property principles, I fully accept – as both counsel advised me – that such questions have been conclusively determined by the Supreme Court decision in Ward (above).

19

The background, history and correct interpretation of s 182 to be applied in this Court is set out in the Ward judgment and I do not need to repeat that analysis here. As to this Court's starting point and approach I note what was said at paragraph [20]:

The fundamental starting point is that under s 182 there is no entitlement to a 50/50 or any other fractional division of the Trust property. Nor is there any presumption in favour of a 50/50 or any other fractional division. As already mentioned, a nuptial settlement, whether it be ante or post-nuptial, is premised on the continuation of the marriage. When the Court is addressing an application under s 182, it must assess whether an order is necessary and, if so, in what terms, to reflect the fact that this fundamental premise no longer applies.

20

That was reinforced at paragraph [30] of the judgment where the Court, disapproving of an...

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