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Recessions bring about all sorts of changes. For case in point, in the legal planet, commonly people stop purchasing houses, so lawyers operate out of conveyance work. Conversely, money starts to get tight so people start to sue each further. This of course means extra litigation work for the lawyers.

Recessions can also bring about some dramatic personal life changes. For instances, people can be made redundant which in turn, creates economic stress. commonly, this stress spills over into their individual relationships. When this happens, unfortunately some couples split.

When a couple break up they generally divide up their possessions. If their possessions have been placed in a Trust the inescapable query arises: What occurs to the assets in the Trust? This problem is of immense value because when a relationship breaks down, there can be a lot of fighting happening and frequently the only thing left standing is Trust.

Prevention is Better Than Cure

Foremost, before assets are placed in a Trust, all individuals should obtain good quality legal advice. This is very fundamental because when possessions are moved from an individual to a Trust, an Individual property rights are affected.

Secondly, the legal advice obtained by the parties will as a rule include a very strong recommendation for the parties to enter into a legal Property Relationship Contract. Should a liaison break down after the material goods have been moved through to the Trust, this Promise will become invaluable. The folks will be saved a huge legal bill as they will not have to go to Court to argue over the assets.

Thirdly, an actual Arrangement should be entered into between the parties. The Arrangement, if prepared and executed, is likely to set out a range of matters including an acknowledgment of what material goods 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 moved through to a Trust should the parties ever split.

Lastly, if an Understanding has been entered into by the parties and resources have subsequently been moved to the Trust then the issue is pretty uncomplicated. This is of course providing the Understanding stated what was to occur should the parties ever break up.

In the normal course of dealings what this means is the material goods of the Trust are sold, loans are repaid and the balance of the sale profits 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 individuals 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 income are sent to the new Trust and the additional half of the sale proceeds simply remains in the existing Trust (which was earlier turned into one of the individuals Trust).

Two is Better Than One

It’s no secret that many smart people have two trusts. One each. Each Trust will hold its own material goods and frequently a half share in the descendants home. Why have two Trusts rather than one? If you have two Trusts you have the ability to deal with property that was solely your own before it went to the Trust. This could include family heirlooms.

Also, your own Trust can be the recipient of any inheritances you might be given, such as money from your own family.

In general, having your own Trust means you can deal with the assets in the Trust as you and your Trustees wish. You can do this without the consent of your spouse (assuming they are not your Co-Trustee).

When Things Go Wide of the mark

If the parties don’t ever enter into a legal Understanding and cannot agree on what is to happen with the possessions that are in the Trust, problems can occur.

When this happens only the lawyers win. The trouble is, that competition costs a lot of money if it goes on for a long period of time. I’m not advocating that an individual shouldn’t appoint lawyers when and where they are needed. All I’m saying is a little common sense needs to exist in these situations.

But if you can’t get an promise, then what occurs? Well the issue just has to go to Court. Which means the Courts look at how the Trust was setup, how the Trust has been administrate over the years, who has control of the Trust, what assets have been transferred to the Trust and what loans the Trust owes back to the folks.

Extra matters can also come under inspection but in the core, these are the points the Courts will look at. Once the Courts evaluate the matter they may make a range of Orders. These can include putting an independent individual in to organize the Trust (act as a Trustee) as well making a monetary award.

Janet Xuccoa BCom LLB, is a Family Trust specialist and accountant and partner at Gilligan Rowe & Associates Ltd (GRA). GRA is an accounting firm specialising in property and New Zealand Accountants