Section 182(1) of the Family Proceedings Act 1980 gives the Court the power, following dissolution of a marriage, to “inquire into the existence of … any ante-nuptial or post-nuptial settlement made on the parties” and, if there is such a settlement, to vary its terms.
This power is intended to be exercised for the purpose of remedying the consequences of the failure of the underlying premise of the “nuptial settlement,” being a continuing marriage.
Over recent years, this provision has achieved greater prominence following a series of decisions by senior appellate Courts which have all firmly indicated that a wide and generous approach should be taken to interpreting what constitutes a “nuptial settlement”.
In that respect, a “nuptial settlement” is simply a settlement (e.g., the creation of a family trust) 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 children.”[1] The essential requirement then is that there is some connection or proximity between the settlement and the marriage.[2]
In determining whether there is such a connection, the Court will have regard to the background circumstances and any settlement documentation and will construe those “in accordance with ordinary principles, while remembering that a generous approach to the issue of whether a settlement is a nuptial settlement is required”.[3]
The obvious example of a nuptial settlement is where a married couple jointly settle assets on a trust during the course of their marriage or in contemplation of it. In those circumstances it is “almost inevitable” that will be a nuptial settlement.[4] However, the authorities show that the term could also encompass:
a. Appointing a spouse, shortly before marriage, as a discretionary beneficiary of a trust settled years prior to the relationship;[5]
b. The settlement of a trust in specific contemplation of marriage even where that settlement was to protect the settlor from a relationship property claim;[6]
c. the settlement of property during the course of a marriage on a pre-marriage discretionary trust where that trust refers to a future, unnamed spouse, although the Court has observed the test may be more difficult to meet in those circumstances.[7]
The scope of what might qualify as a nuptial settlement may be surprising to many people who have settled their assets into trust in part to attempt to avoid the spectre of a future relationship property claim. The cases suggest that doing so may, depending on the circumstances, be either entirely or partially ineffective.
The safest mechanism of achieving protection and certainty for both parties remains the execution of a relationship property agreement executed in compliance with the provisions of the Property (Relationships) Act 1976. However, even then, it is important that, where trusts are involved, those trusts are explicitly referred to in the relationship property agreement, which should include a clear and careful statement of who will be entitled to what in the event the marriage fails.
Should you need assistance in this area, please do not hesitate to get in touch with one of our experienced lawyers. We are only too happy to help.
[1] Clayton v Clayton [2016] 1 NZLR 590 at [32].
[2] Clayton at [34] and Booth v Booth [2020] NZFLR 509 (CA) at [54].
[3] Clayton at [38].
[4] Clayton at [34].
[5] Preston v Preston [2020] NZCA 679, [2020] NZFLR 696 at [22].
[6] Little v Little [2020] NZHC 2612 at [14]-[18]
[7] Clayton at [36].