In the blissful throes of a budding relationship, asset protection might be the last thing on your mind. But what happens when love goes awry, and you need to secure your assets? Here’s a look at the potential perils and ways to navigate them.

Imagine a scenario: You’ve met your perfect match, moved in together, and even co-purchased assets. However, without a prenuptial agreement, you may face challenges down the road. Perhaps, before the relationship, your parents gifted you a house, which you later transfer to a trust called the ‘Love Trust,’ with you as the settlor and two independent trustees. After the relationship sours, you transfer the ‘Love Trust’ property to a company. But your ex-partner claims a beneficial interest. Do they have a legitimate claim to the trust’s equity?

The Property (Relationships) Act 1976 (PR Act)

Under the PR Act, your ex-partner might have a claim if specific criteria are met. The court will consider whether relationship property was placed in a trust after the relationship began, whether this move defeated your ex-partner’s claim, and if a different section of the PR Act would be more suitable. If the court is convinced, it can issue various orders, including monetary compensation from either relationship or separate property.

The Family Proceedings Act (FPA)

Even if you avoid some of the above factors, the FPA allows ex-partners to claim against certain assets. The FPA empowers the court to vary nuptial settlements (like trusts) after the dissolution of a marriage or civil union, posing a threat to trusts considered nuptial settlements.

Constructive Trusts

In an altered scenario where you transferred the property into the trust before the relationship, there’s still potential liability. Common law may come into play with the possibility of a “constructive trust.” To establish this, your ex-partner would need to prove contributions, reasonable expectations, and a reasonable interest.

It’s important to note that contributions need not be purely financial; indirect contributions also count. Depending on your ex-partner’s involvement, they could have a valid claim, though its success hinges on the evidence and the court’s evaluation of those contributions.

In summary, trusts are not foolproof protection against ex-partner claims. The most secure solution is to establish a prenuptial agreement for safeguarding your assets in case of a relationship breakdown.