The law around trusts is ever-changing particularly with relationship property and matrimonial issues. The courts continue to chip away at the trust as an appropriate vehicle to protect assets against a relationship breakup.
The Clayton case
One area of this changing environment that will be of interest to the rural community is a consequence of some judicial reasoning in the Clayton v Clayton case. There will be particular interest in the comments made in relation to ‘nuptial settlements’ and s182 of the Family Proceedings Act 1980.
S182 of the Family Proceedings Act provides, amongst other things, the following:
“… the Family Court may enquire into the existence of any agreement between the parties to the marriage or civil union for the payment of maintenance or relating to the property of the parties or either of them or any anti nuptial or post nuptial settlement made on the parties [our underline] and may make such orders with reference to the application of the whole or any part of any property settled or the variation of the terms of any such agreement or settlement either for the benefit of the children of the marriage or civil union or of the parties to the marriage or civil union or either of them, as the courts then think fit.”
In the Clayton case the Supreme Court agreed with previous judgments that a nuptial settlement is “any arrangement that makes some form of continuing provision for both or either of the parties to a marriage in their capacity as spouses, with or without provision for their children.”
It is not uncommon in the farming situation for there to be several homes owned by a trust that owns the farm, and for various family members to live in those homes with their spouses and their children. Often the trust that owns the land was settled some time ago, often by either the parents or grandparents of those occupying the homes. Until recently, it wouldn’t have been contemplated that those homes could be at issue in the context of a relationship break-up.
Previously it had been fairly clear that, for example, if a farmer owned the farm in his or her own name, then got married and transferred it into a family trust of which the husband and wife, and children were beneficiaries, that would be regarded as a nuptial settlement for the purposes of s182 and therefore the court could make orders in relation to it, if the marriage broke down.
Now the Kidd case
It now appears, however, that the courts may well be prepared to go further than that, as shown in the Kidd v Van Den Brink case. There the Hilversum Trust was settled in 1990 for the benefit of Mr Van Den Brink Senior’s wife and children as well as any spouse of any of their children. In 1998 Mr Van Den Brink’s son Steven began living with Ms Kidd; they subsequently married and had a child. The Hilversum Trust provided a home for the family and paid the outgoings, provided furnishings and also assisted in the provision of a loan to help with a business for Steven and his wife. Steven and his wife separated in 2006 and Ms Kidd made an application under s182 for provision to be made out of the Hilversum Trust for her based on the ‘settlement’ made on her and Steven during their marriage, ie: the provision of the house, loan and so on.
Ms Kidd failed in the first instance but leave was given to appeal which, given the reasoning in the Clayton case, may well have been successful. The parties settled, so the appeal was never heard.
The Kidd case was a situation where the couple and their children were living in a house provided by a trust that had been established years before they had even met, by one of the parties’ parents, and the couple themselves had contributed nothing. While it’s unlikely the court would have made any orders affecting the bulk of the assets of the Hilversum Trust, commentators certainly foresee the court looking at the settlement (the house) and making some type of order requiring the trustees of the trust to provide some form of accommodation for Ms Kidd so that she could continue to receive the benefit of the settlement that had been made on her during the marriage.
Challenges for Trustees
The above facts and situation are not at all uncommon in the rural sector given the nature of land ownership, family farming operations, and so on. It illustrates how difficult and complicated relationship break-ups can be for the trustees of farming trusts. Ordinarily the way to protect assets in these matrimonial situations is by relationship property agreement (RPA). However because the assets being dealt with in this situation are not, and have never been, owned by the parties an RPA can’t be effective, as it can’t bind third parties, that is the parents’ trust.
The way to deal with this issue might be by way of contract and by putting some consideration in, so that it is more of a commercial arrangement. It would mean you could live in the house for a fixed term (that could be renewable) if you pay the outgoings, maintenance and so on and also do a certain amount of work around the farm.
As you know, there is no universal solution to one person’s problem. As always, our advice is talk with us about your particular situation.