How much do you know about your insurance?
Toby Gee, from national law firm Minter Ellison Rudd Watts, poses questions he would ask, and the answers he would give, about business insurance and ways to save money and hassle.
Mark Sandelin, a partner at the national law firm Minter Ellison Rudd Watts, discusses your options.
It is common for family-owned businesses to have an ownership structure which includes a family trust. If so, the legal owners of the assets of your business will be the trustees. In New Zealand the typical family trust often consists of three trustees – you, your spouse/partner and a third person such as another family member or a long-standing professional advisor. All parties must understand the complications of this ownership structure in the event of a relationship failure.
The most important consequence is that the assets of your trust may not be classed as relationship property and may not be covered by the usual equal sharing rule at the end of a relationship.
If you are a trustee, you and your fellow trustees will remain collectively responsible and must continue to manage the trust assets together irrespective of any change to your domestic circumstances. Given this state of affairs, businesses commonly 'stall' or close when the trustees' decisionmaking on key matters is paralysed.
The existence of a third 'impartial' trustee is often no answer because one spouse/partner may accuse that trustee of being conflicted and/or siding with the other trustee.
How will your assets be divided and who will control them post-breakup? There are various avenues for dealing with your family trust following the end of your relationship. For instance, you could attempt to negotiate a change to the management structure of the trust to everyone's benefit, or alternatively, when all else fails you may be able to apply to the courts to employ 'trust busting' mechanisms.
Option 1: Amicable agreement between the trustees. Obviously, this is best, but not always possible because of the terms of the trust deed or relationship dynamics. It involves sitting down with fellow trustees and working out a process for re-settling the assets of the trust or for re-organising the trust's management structure. The more thought that goes into the setting up of a trust the more likely it is that the trustees will be in a position to reach an amicable solution in its unravelling.
Option 2: Ask the courts to help. The courts are the ultimate backstop when things go wrong. In certain circumstances they make orders in respect of a family trust, including varying its terms, resettling it or vesting trust capital on one or more of the parties involved. And when trustees are at an impasse due to hostility, or when there are accusations concerning the misappropriation of trust assets or trustees not acting in the best interests of the beneficiaries, then a disaffected party can also apply to the court to appoint, remove and/or substitute trustees.
The courts will also be able to intervene when it can be shown that one party placed assets in a trust to defeat the interests of their spouse/partner. It is necessary to show that the party making the transfer knew the transfer would have this effect. Alternatively, the courts may order that one spouse/partner pay the other compensation in circumstances where a non-devious disposition of relationship property to a trust after the marriage/relationship began has the effect of depriving one spouse/partner of relationship property rights.
Whether any of these options are available to you will depend on your individual circumstances and the nature of your family trust.
About Minter Ellison Rudd Watts
Minters is a law firm with experience at the farm gate and in the commercial world. The team can help you to negotiate contracts, comply with regulations, scale your operation or divest your assets – and everything in between. Whatever your operation, your goals or situation, talk to them for practical pragmatic legal advice. www.minterellison.co.nz Tel: 0800 862 774
