Is there any way to make a pre-nup 100 percent certain?

RNZ News

4 days ago

RNZ's money correspondent Susan Edmunds answers your questions.
Photo:
RNZ
Send your questions to
[e-mail]
I've heard various people and sources say that there is no sure way to protect your assets from a partner after three years as a partner can claim unfairness or something similar. Is this true? Some people say a trust can sometimes be broken and pre-nups sometimes don't hold up. Is there any 100 percent certain way to protect your assets before going into a relationship over three years?
Sorry, it's probably true that there's no 100 percent way to protect your assets.
People often sign a contracting out agreement if they want their relationship property to be treated differently to the way that the law directs.
But you're right that this is open to challenge, particularly if it can be argued that the arrangement is unfair.
Bill Atkin, emeritus professor in Victoria University's faculty of law, said this was true of any contract and would depend on the circumstances.
"The test for the court to set aside an agreement is where 'giving effect to the agreement would cause serious injustice'. There are other factors taken into account including the desire for certainty. It is not common for a contract to be set aside unless, for example, there has been some improper dealings in getting a party to sign. On the other hand, a contract entered into many years ago may turn out to be unreasonable in the light of what has happened in the meantime. To allow no leeway for setting contracts aside would be unfair."
A contract must follow the formalities set out in the Property (Relationships) Act.
Atkin said the main one that must be remembered was that both parties must have independent legal advice. "Failure to do this will of course meant that the contract is on the face of it invalid."
Nicola Peart, University of Otago law professor, said a contracting out agreement was still a good way of protecting your assets, even if it was not ironclad.
"Assuming the agreement was made with full information and independent legal advice, it can still be challenged if it was seriously unjust at the time or has become seriously unjust at a later point in time."
And this is me talking - this is probably a good thing, overall. If you're living together as a couple and your circumstances change, it's reasonable that what was fair at the outset might no longer be. It's a good idea to get your own legal advice about your individual circumstances.
We are currently settling an estate. The deceased had a credit card to a third-party lender, a Q Card, not a Q MasterCard. I cannot find any mention of estate obligations should the holder die, which I have seen with other credit cards. Does this mean the estate is not obligated to pay the bill?
Michelle Pope, a principal trustee at Public Trust said generally, if a credit card account was held only in the name of the person who died, it would become a debt of the estate, to be paid from their assets.
"However, if the account was in joint names, the responsibility for the debt usually passes to the surviving account holder. We're assuming the lender has already been contacted and the terms and conditions have been reviewed. If those terms don't specify what happens when someone dies, then the debt would usually be treated as one that needs to be settled."
In 2007, I separated from my ex-husband and started a relationship with my new partner. He said to me that he had put his property and business into a trust so no other partners could get any of his property. I was OK with that because I felt going forward he would look after me if I became his wife and the mother of his children. Fast forward to 2016 I received $135,000 from my mum's inheritance and 2018/2019 $130,000 from dad. We had been renovating this beautiful 100-year-old house and property in which we used my inheritance to renovate it.
I was happy as this was our family home and it was lovely, until 2020 when he started an affair and we separated. Do you have any suggestions on how I can get my inheritances recognized in our financial settlement case?
Peart says there is a pathway ruling on general equitable principles, in particular the "constructive trust", which has been used to compensate former partners who have made substantial contributions to assets held in a trust where the court is satisfied that she had a reasonable expectation that she would share in the value of her contributions and it is reasonable for the trustees to yield an interest.
She said, if you were married, section 182 of the Family Proceedings Act could be a way to get a settlement. This covers the court making orders relating to property. But she said the opportunity for a court to intervene in nuptial settlements and do something for a spouse who was not getting anything was not available to people who were de facto.
"She may well be able to rely on general equitable principles, in particular the constructive trust, for an order that the trustees of the trust hold a share of the home on trust for her on the basis of contributions made to the property and a reasonable expectation that those contributions would result in some share of the property.
"Aside from that, I wonder whether she was advised by whoever was handling her parents' estates about the risks of losing her entitlements if she used it to renovate the family home. In this case, the risk was even greater, because the family home was in trust.
"This highlights the risks involved with commingling an
inheritance with relationship property
. As discussed last week, to be kept separate, an inheritance needs to be held apart from other property.
"An inheritance is separate property under the PRA, but once it is intermingled with relationship property or invested in the family home, it becomes relationship property and is subject to the equal sharing regime," Peart said.
"Lawyers advising on distribution of estates commonly give advice about that to the beneficiaries of the estate to make sure they realise the risks of not keeping the inheritance separate."
Atkin said any property owned by a trust would not be divided under the act.
"There are some exceptions, where the trust ownership may be factored in, for example where the trust is a sham or where one of the parties has so much control under the Act that they are treated as having an interest that can be divided.
"Also, in some situations there may be compensation where relationship property, such as the home, has been transferred to a trust during the relationship. There are other points here but, in short, the relevant law where there is a trust is complex and not consistent. The Law Commission has accepted that the law needs to be reformed but the government has shown no signs so far of implementing the Law Commission's recommendations.
"Now, what about the inheritance? There is no direct way under the Act of recognising the inheritance. Any claim would be against the trust. If the inheritance money had been packaged as a loan to the trust, then the trust would be in debt to the person who lent the money. However, most people in relationships are unlikely to think about doing this. Another possibility is that the heir can make a claim under laws that apply generally, not just to relationships. A genuine possibility is to claim what the law calls a constructive trust in relation to the formal trust. The latter would have to account for the contribution made by way of the inheritance but success here is by no means guaranteed and what the value of a constructive trust would be is subject to all the factors in the case. Legal advice would be needed and one would hope that a satisfactory negotiated settlement can be reached with the trustees. Trouble is that the ex may well be one of the trustees and may play hard to get."