August 05 2010
Can have implications under the Property (Relationships) Act
The transfer of assets during a relationship does not guarantee their protection if your relationship then breaks down and your spouse or partner makes a claim. This article gives an overview of the implications of sections 44 and 44C of the Property (Relationships) Act 1976 (the PRA), and what can be done to safeguard assets when you and your partner separate.
If you transfer any of your assets to a third party during your relationship, with the intent to defeat the rights of your partner, the court can set aside the transfer. Also if you transfer a relationship property asset to a trust during your relationship that has the effect of defeating the rights of your partner, the court can make an order for compensation to your partner.
Setting aside transfers of property
Section 44 of the PRA empowers the court to set aside any transfer of property made, whether for value or not, by any person in order to defeat the claim or rights of their spouse or partner. The key point in this section is that the person making the transfer must be intending to defeat another person’s claim or rights under the PRA.
This section has been in effect for many years but it is only recently that the court has interpreted it more broadly. In a recent High Court case, Ryan v Unkovich¹, two properties were transferred into trusts that had been formed by Ms Ryan without the knowledge of Mr Unkovich. The transfers took place during the course of the relationship. When the relationship came to an end Mr Unkovich applied to the court to have the transfer of the property reversed. Justice French gave a broad interpretation to s44 and agreed that the transfer of the property should not have occurred without his agreement and that Ms Ryan’s intentions at the time should proceed to trial and be tested by the evidence.
It appears that the position is now that if two parties are in a relationship, and one party transfers assets, with the intent to defeat the claim or rights of the other party, the court will take a broad interpretation of s44 and look closely at the intentions of the party at the time the assets were transferred. If the court decides the intention was to defeat the claim or rights of the other party, the court will provide relief to the defeated party.
Compensation of dispositions of property
If s44 of the Act does not apply in your particular circumstances, s44C may be relevant. Section 44C provides that where relationship property is transferred to a trust during the relationship, and that transfer defeats the claim or rights of one of the spouses or partners, the court can make an order for compensation to the spouse or partner whose claim or rights have been defeated.
This section only allows compensation to be awarded out of relationship property. Therefore, if there is no relationship property because, for example, it is all in trust, then the only remedy available is to divert income from the trust to pay that compensation.
To protect your assets in case there is a relationship property claim, you should ensure that those assets are transferred before your relationship begins.
If you are unable to transfer the assets before your relationship begins, under s44 your assets will be vulnerable to challenge in a relationship property claim unless you can establish that you did not intend to defeat the claim or rights of your partner.
If you transfer relationship property to a trust during your relationship, under s44C the court may compensate your partner if the effect of the transfer is to defeat their claim or rights, with the proviso that the compensation may only be granted out of relationship property.
If you want to transfer what could be considered relationship property assets, we recommend you talk with us before you actually do so; it could save you a great deal of time, energy and money.
¹  1 NZLR 434