Trust Issues

Quick Sale Of Trust Property May Be Difficult When Trustees Cannot Agree

Many family homes in New Zealand are owned by family trusts, often done that way to protect the family home from disaffected partners or business creditors. However in some cases these family trusts can be a curse especially when a spouse opposes sale of the former family home.

When the house is owned by one of the spouses or by both jointly in their own right it is a relatively simple procedure to file an application in the Family Court for an order for sale under s33 of the Property (Relationships) Act 1976 and for orders for the distribution of the proceeds between the spouses. Where appropriate this can even be done on an urgent basis and in those cases the Family Court can order that the proceeds of sale be held in trust earning interest pending final division of the assets of the relationship or the Court can order distribution of all or part of the money between the spouses. In most cases the issue before the Court is whether or not sale of the former family home is in the best interests of adolescent children still living at home. There may be other reasons also why justice might require that the sale of the former family home be delayed.

Where the home is owned by the husband and the wife in their capacity as trustees of a family trust usually along with an independent trustee as well, it may not be that simple to obtain an order for a quick sale of the property where the husband and wife cannot agree. Trust Deeds usually provide that any decision made by the trustees must be unanimous so that if one refuses to budge then there will be a deadlock. It is interesting that our Trustee Act 1956 does not contain an express power to enable the High Court to order a sale of trust property and for the distribution of the proceeds of sale.

In these cases the Trust Deed may not necessarily provide expressly for what is to happen with the home when the husband and wife who set up the trust decide they want to separate. If they agree then of course there is no problem but often, for whatever reason, they do not. There is usually no problem if the spouse who is applying for a sale order can show that relationship property has been used to purchase or maintain the family home. If that is the case then even though the house is owned by a family trust the Family Court will have power to make Court orders affecting the home and in some cases to order sale under a combination of ss25 and 33 of the Act.

However problems can arise if the spouse who has left the former home cannot prove, or struggles to prove, that the home has been acquired or maintained with relationship property. Where the home is beneficially owned by the trust then the Family Court will not have jurisdiction to make orders affecting the asset. In that case remedies available under the Trustee Act 1956 from the High Court may be the only ones available. One way to deal with the matter is to seek Court orders from the High Court for resettlement of the property into two separate trusts, one for the benefit of the wife and the other for the benefit of the husband. Court orders can then be made under the Property Law Act 2007 for partition and sale. If resettlement is not possible or too difficult then the only other option may be to apply to the Court to have the opposing trustee or trustees removed and for the appointment of somebody totally independent who will agree to put the property on the market.

The Trustee Act 1956 does provide other provisions that enable a spouse to apply for directions from a High Court Judge but unfortunately ss64 and 66 of the Act are not broad enough to enable a Court to order sale when one of the trustees objects to a sale.

Where one spouse is being obstructive and refusing to agree to a sale it can be difficult for the other spouse to force it through. However if a provision is added into the Trust Deed when it is set up requiring the trustees to arrange for the immediate sale of the property upon separation then at least that would make the process easier and hopefully less expensive.