It wasn’t quite the War of the Roses, but the War of the Prestons reached NZ’s top court and might have changed the way judges assess unfairness in marital splits involving trusts
A marital property fight that cost a small fortune in legal fees, lasted longer than the marriage and had to be resolved by the Supreme Court could mean greater fairness for spouses whose assets are held in trusts.
Court documents show the intractable emotional and legal dispute between a Bay of Plenty couple over assets in a family trust confounded lawyers and judges alike as it sprawled across four levels of the courts and soaked up hundreds of thousands in legal fees.
The final, Supreme Court judgment found that when someone seeks an order from a judge to vary a ‘nuptial settlement’ involving a family trust, the judge must calculate the monetary difference between what the financial position of the ‘poorer’ partner would be outside the marriage as against had that person stayed married.
Then, the judge must decide what action is needed to put that right financially.
While judges already have discretion to make such an order, the Supreme Court has made it clear “if there is a disparity … we expect that orders will generally be made, absent countervailing factors.”
It said greater consideration had to be given under the law to all parties’ contributions to a family and its assets, which in this case included homemaking, landscaping and other non-financial work.
“To treat as relevant only financial contributions to a marriage is to materially undervalue the other roles and functions spouses perform in support of the relationship and its economic base … Different contributions are equal in value.”
A five-judge bench of the Supreme Court said the Court of Appeal had erred in law in three ways when dealing with the case (details below). The dispute over the family trust under section 182 of the Family Proceedings Act is not the same as standard Property Relationship Act cases in which there is a starting presumption of a 50-50 split in finances.
The five-year court battle was between former Eastern Bay of Plenty couple Grant and Katharine Preston, who became a de facto couple from 2008, married in 2010 and separated in 2015. They each had two children from previous relationships.
The case saw Katharine Preston’s claim for a greater share of a trust’s assets largely dismissed by first the High Court and then the Court of Appeal, before being accepted by the Supreme Court. She ultimately succeeded in winning an additional $243,000 from her ex-husband and his trust. (Earlier, at the High Court, she had been ordered to pay her former husband $15,000 to equalise relationship property, plus costs of $137,000.)
At the heart of the case was whether assets Grant Preston built up – including a Whakatane house and shares in his drilling business – and had put into a trust before marrying Katharine and making her a beneficiary of that trust, should have been more fairly split when they divorced. The two other beneficiaries had been Grant Preston’s two adult children.
The courts had to decide if non-financial contributions Katharine had made while the couple was together, and the ongoing monies she would be denied after separation because the trustees no longer accorded her beneficiary payments, meant she had been unduly disadvantaged.
The War of the Prestons
One example of the post-separation standoff between the couple involved Grant Preston unilaterally arranging for a crane to lift a hot tub from the couple’s shared beach property at Pauanui, where his ex-wife had gone to live. He later said the hot tub was an asset of his business.
There were disputes over household chattels, including a claim from Katharine Preston that she’d been turfed out of the Fairway home with next to nothing, a claim from Grant Preston that she had used his credit cards post separation and disputes over how much work she did for their business, Eastern Bays Thrusting Ltd, and its value.
So entangled and expensive did the case become, that his lawyer labelled it in court “the matter that ate its head off”.
Court of Appeal President Justice Stephen Kos declared the case “everything relationship property litigation should not be”.
In the High Court, Justice Sally Fitzgerald finished her judgment in favour of Grant Preston by observing: “Important values reflected in the Property (Relationships) Act are the desirability of processes for resolving relationship property disputes which are simple, inexpensive and speedy, and minimise the opportunities for animosity, blaming and belittling behaviour.
“Unfortunately, the nature and progress of these proceedings have been the antithesis of such values.”
The case started in 2016 and involved both parties taking High Court action, both appealing aspects of that court’s judgment to the Court of Appeal and a final standoff before the Supreme Court last year – in which they asked the country’s top judges to make any necessary orders that would finish all aspects of the dispute once and for all.
After her resounding loss at the High Court, Katharine Preston was able to take the matter to the country’s appeal court (where she overturned one aspect of the High Court finding) and then on to the highest court after pro bono and legal aid assistance from lawyers, including barrister Vanessa Bruton QC.
The Supreme Court found in Katharine Preston’s favour before Christmas, describing its order for $243,000 as ‘modest’ and representing just 15 percent of the value of assets in the trust. It also awarded her $25,000 in costs and directed that if the parties could not agree how to resolve the High Court costs order of $137,000 and the Court of Appeal costs, that those be considered again in those courts.
Timeline: What the fight was about
2004: Grant Preston forms the GPF discretionary family trust, with his two children as final beneficiaries.
2005: GPF Trust buys a section in The Fairway, Whakatane and Preston and the Trust build a home there, completed in mid 2007.
2007: Grant and Katharine Preston meet. She is employed at the Ohope Chartered Club, which he attends
2008: Grant Preston transfers 99 of 100 shares he owned in Eastern Bays Thrusting Ltd to the Trust for $160,000, expanding the assets of the trust
2009: The couple begin a de facto relationship in March; Katharine and her younger child (3 years) move into The Fairway home
2009 on: Katharine Preston works part-time for husband’s business EBT as office administrator, loans the business $80,000 of her own funds interest-free to help cashflow, which are repaid; She also studies for a psychology degree. She funds an overseas holiday for the couple and some of their children, buys cars for Grant Preston’s children, is a homemaker and claims she helps turn the new family house from a ‘shell’ into a home.
2010: In February, Grant Preston amends GPF Trust deed, with the effect of making Katharine a discretionary beneficiary, on the advice of accountants as she was receiving benefits in contributions and day-to-day expenses. The move is said to have tax efficiencies.
2012: The couple buy a holiday property at Pauanui; Katharine contributes 6/7ths of deposit but the property is owned half-half by her trust, Huntbos, and the GPF Trust; Agreement to sell property if either trust gives notice
2015: After tensions between Katharine and Grant’s daughter, and between the couple, they separate in September. Katharine Preston’s trust, Huntbos, gives notice exercising an option to purchase Pauanui, but rejected by GPF Trust; disputes over chattels eventually require High Court consideration; a $50,000 boat provided to Katharine Preston in settlement is alleged to have been damaged before transfer;
2016: Legal action begins, from the Family Court and onto the High Court
2018: Divorce finalised
2019: High Court case – Katharine Preston seeks orders under s182 of Family Proceedings Act for a share of the assets of the GPF Trust; and an equitable interest in family home and company shares in EBT; makes claim to force sale of Pauanui property as per original agreement; High Court accepts 2010 naming of Katharine Preston as GPF Trust beneficiary makes that a ‘nuptial settlement’ but largely dismisses claims, no orders for share of assets, home, shares or on Pauanui. Justice Sally Fitzgerald prefers Grant Preston as a witness, doubts the level of contribution made by Katharine to relationship property during marriage and says her studies being paid for by GPF Trust, plus short length of marriage argue against court intervening.
2020: Court of Appeal – Katharine Preston appeals High Court result; Grant Preston appeals finding that the 2010 beneficiary move made that a ‘nuptial settlement’. He fails. Katharine’s appeal over High Court making no order to vary that settlement in her favour also fails but she wins over forcing the sale of the Pauanui property as per original agreement.
Appeal judges back High Court in declining to vary the nuptial settlement, saying the s182 order “is not a mechanism to equalise property interests overall”.
“Certainly s182 does not authorise a grand march into the respondents’ separate property or third party trust property to achieve economic equalisation in the name of contemporary family values.” Justice Stephen Kos comments “this case is everything relationship property litigation should not be.”
2021: Katharine Preston appeals to the Supreme Court, saying the Court of Appeal was wrong to reject her bid for orders to secure part of the GPF Trust assets;
Supreme Court endorses view of an earlier Supreme Court judgment (the ‘Clayton’ case) that a calculation needs to be made comparing a future financial position for the parties if still married and if separated.
“The Court made the point that it may be relevant when assessing the source and character of the assets vested in the trust… s182 had to be applied ‘in the 21st Century’ which meant … in the current social context where it is recognised that parties to a marriage contribute in sometimes different but equal ways to the marriage and to the accumulation of assets during the marriage.”
In the Preston case, the judges say the very purpose of s182 is to remedy disparity between the parties. “If the court is faced with a disparity, the usual course would be to make orders so as to provide that remedy.” Exceptions might be where the interests of a dependent child could be negatively affected or where both members of the couple had considerable assets brought to the marriage and had maintained some separation of them.
The Supreme Court found the Court of Appeal erred in law by:
– not undertaking a comparison of the financial disparity between separation and continuing marriage (when the High Court had also not done so);
– focusing on the parties’ financial contributions to such an extent that non-financial contributions had been treated as unequal in value; “The position should be looked at in a more broad-brush way.”
– treating Grant Preston as the source of the assets in the GPF Trust ‘as decisive, without considering other relevant factors and concluding he had gained ‘no unfair benefit’ from the state of affairs on dissolution. “The legal reality is that all GPF Trust property is part of the nuptial settlement.”
The Supreme Court said Katharine Preston and her dependent child had lost access to the family home, which was a trust asset, that provided them with rent-free accommodation. She no longer had access to trust funding for day-to-day living expenses. The judges noted Grant Preston “drew disproportionate dividends from the TPF Trust to support himself, Mrs Preston and other family members”. And that she could now expect no further assistance for her study.
Evidence to the High Court had estimated the value of the disparity for Katharine Preston over a three-year period to be around $500,000.
But the Supreme Court factored in the short length of the marriage, the fact the final beneficiaries of the GPF Trust were Grant Preston’s children and that EBT shares and the Fairway house were transferred to or purchased by the Trust before the couple got together, to come to a “modest sum”.
It ordered that $243,000 should be paid to her, about 15 percent of the value of the GPF Trust equity. (In evidence, the court had been told Katharine Preston had been in impecunious circumstances since separation, and had not attained her final psychology qualification.)
Noting that the GPF Trust had sold its share of the Pauanui property to Katharine’s Huntbos Trust, the Supreme Court’s final act was to remove Katharine Preston as a discretionary beneficiary of the GPF Trust.
Separation complete. Case Closed.