The intersection of trust law and relationship property in New Zealand is notoriously complex. When separating couples have transferred assets into a trust, the Property (Relationships) Act 1976 (PRA) provides specific mechanisms to ensure those transfers do not unfairly defeat a partner's rights. The primary vehicles for this are sections 44 and 44C.
For family law practitioners, determining whether to plead section 44 (setting aside the disposition) or section 44C (compensation from the trust) is the critical first strategic decision.
This article outlines the legal tests for trust clawbacks. For the step-by-step procedural workflow-including joining trustees and seeking interim preservation orders-use our Relationship Property Trust Claim matter plan.
Section 44: Setting Aside Dispositions with Intent
Section 44 allows the Court to set aside a disposition of property if it was made 'in order to defeat the claim or rights' of the other partner under the PRA. This is a high threshold.
The applicant must prove actual intent to defeat their rights. While the intent need not be the sole motivation for establishing the trust, it must be a guiding factor. The evidential burden here is significant. Furthermore, there is a strict 3-year limitation: if the disposition occurred more than 3 years before the application, the court will only grant relief if the disposer knew (or ought to have known) at the time that the relationship was likely to end.
If successful under s44, the disposition is reversed, and the assets are brought back into the relationship property pool for equal division.
Section 44C: The Compensation Remedy
Introduced in 2001, section 44C provides a broader, no-fault remedy. It applies when relationship property has been disposed of to a trust during the relationship (or within 3 years prior to the application), and that disposition has the effect of defeating a partner's rights.
Crucially, section 44C does NOT require proof of intent. The focus is entirely on the effect of the transfer. However, the remedy under s44C is more limited than s44. The court cannot set aside the trust or order the transfer of specific trust assets. Instead, the court orders compensation to be paid to the disadvantaged partner. This compensation can be paid from the other partner's separate property or, if necessary, from the trust income or capital.
The Clayton v Clayton Dimension
No discussion of New Zealand trust law on separation is complete without referencing the landmark Supreme Court decision in Clayton v Clayton [2016] NZSC 29. In Clayton, the Court found that the husband's extensive powers under the trust deed (the power to appoint/remove trustees and beneficiaries) amounted to such a high degree of control that those powers themselves were classified as "property" for the purposes of the PRA.
Practitioners drafting a s44C application must always run a concurrent 'Clayton analysis'. Review the trust deed carefully. If the settlor/partner retains absolute control to the extent they can resettle the trust on themselves, the trust assets may simply be treated as relationship property directly, bypassing the need for a s44C compensation order entirely.
Procedural Imperatives: Joining the Trustees
A common and fatal error in PRA trust litigation is failing to join the trustees to the proceeding. The court has no jurisdiction to make orders affecting trust property (under s44) or ordering compensation from trust income (under s44C) unless the trustees are formal parties to the litigation.
When acting for the trustees, the primary duty is to protect the trust corpus and maintain independence from the warring spouses. For the specific steps involved in responding to a s44/44C claim, see our Trustee Respondent Defence fork.
Using the Matter Plan
Effectively litigating trust assets on separation requires meticulous discovery and tracing. Our s44C Applicant matter plan provides the structural framework to ensure all trust deeds are obtained, Clayton analyses are completed, and interim freezing orders are sought before assets can be dissipated. If you are instructed by the independent trustees, rely on the Trustee Respondent workflow to manage their fiduciary obligations during the dispute.