Part 1 of 4 – Key Benefits and Challenges of the International Relationship Property Trust Act (2021)

Here are some benefits and challenges presented by the International Relationship Property Trust Act (2021):

Benefits:

• Protection from Asset Division: The Act offers a way for couples to identify and protect parts of their assets from being divided in the event of separation or divorce, ensuring that the assets remain within the trust and are used according to the trust’s terms. This is especially important given the increasing tendency of courts to treat trust assets as matrimonial property in divorce proceedings.
• Preservation of Family Businesses: The Act recognizes the unique challenges of family businesses and includes provisions to protect them from forced sale during divorce or separation proceedings. It allows for the continuation of the business and provides for a spouse who is a key figure to continue managing the business after divorce.
• Protection of Interests of Future Generations: Matrimonial courts have the power to break up family trusts, and to force the distribution of their assets to the spouses. This has the potential to disinherit future generations of a family. The assets within an IRPT are retained intact for the benefit of the common issue of the spouses.
• Reinforcement of Trust Principles: The Act aligns with traditional trust law principles by ensuring that the settlors’ wishes, as expressed in the trust deed, are upheld even in the event of relationship breakdown. This provides certainty and discourages matrimonial courts from overriding the intention of forming the trust in the first place.
• Social Cohesion and Family Values: The Act is designed to promote social cohesion by protecting family assets and ensuring their use for the benefit of the intended beneficiaries, including future generations. This emphasis on family values aligns with traditional trust principles.
• Clarity and Security: The Act provides a clear legal framework for couples seeking to protect their assets and defines how they should be managed in the event of separation. This offers peace of mind and security for the couple and their common issue.
• Applicability to Various Relationships: The Act is not limited to married couples and can be used by couples in other forms of committed relationships who want to protect their shared assets.

Challenges:

• Potential for Abuse: Although the Act includes provisions for independent legal representation and full disclosure of assets to protect both parties, there might still be concerns about potential coercion or undue influence during the creation or operation of the trust.
• Limited Remedies: The Act restricts the right of a party to challenge the terms of an IRPT at a later date, and limits the remedies available in case of a successful challenge. This could be a concern if there is a significant change in circumstances or if the terms of the trust become unfair over time.
• Recognition by Foreign Courts: While the Act aims to provide a robust framework, it remains to be seen how consistently foreign courts, especially those in jurisdictions with different approaches to matrimonial property, will recognize and uphold the validity of these trusts as they apply to assets within their jurisdiction.

Part 2 will be published next week.

If you are considering using a Cook Islands International Relationship Trust contact us by email at info@trusteescookislands.com for our registration package and details.