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Removing a trustee in a family breakup

It is increasingly common these days for families to hold their assets in family trusts. In many cases both a husband and wife are trustees, and have the joint powers over the trust assets. Because most trusts require decisions of the trustees to be unilateral serious problems can arise when husband and wife fall out.

Broadbent v Broadbent [2014] NZHC 254 is a recent example of the High Court dealing with this problem, and removing the trustees so the division of all property could be properly considered. Mr and Mrs Broadbent were trustees, settlors, and held the joint power of appointment. Because of this they were in the classic deadlock situation. The wife applied to the Court for their removal and the appointment of an independent trustee.

Section 51 of the Trustee Act 1956 gives the High Court a general power to appoint trustees either in substitution for any existing trustee or in addition to any existing trustee. The threshold is that such appointment is “expedient” and that it is inexpedient, difficult or impracticable so to do without the assistance of the Court. The focus of the Court's attention must be the management of the trusts. Are the trusts being given proper effect? Are the assets involved being managed prudently? The Court will consider the welfare of the beneficiaries – are they being prejudiced in the alleged mismanagement by the current trustees?

The Judge in the High Court found that it was “clear that the trust was not being administered properly”. He saw two reasons for this. The first is that the end of the parties' marriage has brought the end of their engagement together as trustees. The Trust was not being administered, the welfare of the beneficiaries was not being given consideration. The second reason is that both Mr and Mrs Broadbent regarded the Trust's assets as being effectively relationship property. In their minds the assets of the Trust were to be divided between them and their contention relates to how that should be done.

However the couple were not the only beneficiaries. The children were beneficiaries and their welfare and interests had to also be considered before any property division was to occur.

The Judge removed both parties and appointed an independent lawyer to act as trustee and facilitate the sale of trust assets. The husband was forced to pay legal costs to the wife. I will discuss the sale process in another article. At this stage it is important to note that while a deadlocked trust may well appear at first glance to be an impossible problem in a family breakup there is a clear way forward and one party simply needs to provide the impetus.

If you find yourself in this situation and require assistance please contact Graham Day - gad@lawnorth.co.nz or by phone (09)4077099.

• Posted By: Graham Day on Thu, 3rd Jul 2014 @ 14:11:54

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