Relationship Property – Protecting your property
Mr Sutton and Ms Bell were in a de facto relationship for about seven and a half years. Just prior to the commencement of the de facto relationship, Mr Sutton transferred his residential property in Auckland to a trust. After the relationship ended, Ms Bell claimed that Mr Sutton had transferred the property in order to defeat Ms Bell’s rights under the Property (Relationships) Act 1976 (“PRA”).
In the High Court, Ms Bell successfully argued that the transfer (or disposition) should be set aside under s 44 of the PRA, and was awarded a half interest in the Auckland property. This ruling was later affirmed by the Supreme Court.
In reaching this decision, the Courts were influenced by the Supreme Court’s ruling in Regal Castings Ltd v Lightbody, a case which dealt with dispositions made with the intent to defraud creditors within a commercial context.
The decision in Sutton vs Bell is significant because prior to Sutton vs Bell, dispositions of this nature (i.e. transferring your chief assets to a trust) were only at risk of being set aside if they were made after the commencement of a de facto relationship.
But in Sutton vs Bell, the Court held that (following separation) dispositions of this nature will be caught by s 44 of the PRA and set aside if the parties were contemplating the commencement of a de facto relationship at the time of the disposition.
The lesson in Sutton vs Bell is this: if you want to protect your assets from a potential future relationship property claim, enter into a Contracting Out Agreement with your partner, and do so at the earliest opportunity – i.e. before you are contemplating the commencement of a de facto relationship.