Property (Relationships) Act 1976 changes proposed

For better, for worse?

The law governing the division of property when a relationship ends is, after more than 40 years, set to change following the Law Commission’s comprehensive review of the Property (Relationships) Act 1976 (the PRA).

The Law Commission has identified changes that it believes should be made to ensure the regime better reflects the reasonable expectations of New Zealanders. We set out some of the proposals that may be relevant to you or your family.

divorce

The family home

Under the current law, in a marriage, civil union or de facto relationship of more than three years, the family home is automatically considered to be relationship property and subject to equal sharing. Under the changes proposed, the family home will not necessarily be shared 50/50, particularly if one partner owned it before the start of the relationship. In that situation, it is proposed that only the increase in value would be subject to equal sharing.

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The bank of mum and dad

Helping your children – with care

Contributions by family members to the purchase of a property and how this is recorded can affect property ownership. We discuss how you can help your children and, at the same time, lessen the risks to you as parents.

mortgage

New Zealand houses have never been more unaffordable: in the 1950s to 1980s a house cost two to three times the average household income. In the 1990s it was four times the average, and by the 2000s it was up to six times the average household income. When you add in the fact that households are now far more likely to have two incomes (compared with the single income norm of the 1950s), housing looks even less affordable.

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No enduring power of attorney?

It’s a time-consuming and expensive process if you don’t have an EPA

Most people are now aware of the importance of having an enduring power of attorney (EPA). If you are unable to make decisions for yourself at any stage (either temporarily or longer term) it is important there is someone in place to act on your behalf. What happens to you, and your family situation, if you have no EPA?

epa

Ensuring you have EPAs (for property and for your health and welfare) is a very important part of keeping your personal affairs in order. An EPA can be used if you are out of the country for a long time and you need someone to keep an eye on your financial affairs, or if you become mentally incapacitated and cannot look after your property or yourself.

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Accessing the assets of a trust

What the future may hold for separating couples with a trust

When a marriage, civil union or de facto relationship breaks down, the couple will usually divide their property according to the Property (Relationships) Act 1976 (the PRA). However, these two people often hold property in a trust rather than personally.

The PRA has limited remedies to access property which has been put in a trust, and this can result in unfairness when a couple separates if there are no assets that they own personally.

The Law Commission has undertaken a review of the PRA and proposed that the legislation be changed to make it easier to access trust property when a couple separates.

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Economic disparity at the end of a relationship

How might this impact you?

As much as we like to think we are living in the modern day, there are still a large number of relationships that follow the more ‘traditional’ practice of having one party act as the ‘homemaker’, while the other acts as the ‘breadwinner’. If the relationship breaks up, economic disparity is likely to be an issue.

With the divorce rate in New Zealand sitting at around 50%, chances are you have friends and family members who have structured their relationship in this more traditional sense and have now separated. The result is often that the ‘homemaker’ is left in a worse position financially because they have been out of the workforce for a long time and will struggle to get back into their career. The breadwinner, meanwhile, who could focus on their career during the relationship, is now earning at their full potential. This is economic disparity – one party is advantaged over the other.

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Option A or Option B? That is the question!

Entitlements under your spouse or partner’s will

When your spouse or partner dies you will need to make a very important decision between your entitlements under their will and potential claims against their estate. We discuss the implications of that decision, some of the issues that it raises and the consequences of the choice that you make.

In 2002 the law in New Zealand was changed so that when one of the spouses to a marriage or one of the partners in a de facto relationship of more than three years dies, the death for most purposes is treated the same as separation. Under the Matrimonial Property Act 1976, when a married couple separated the general rule was that their matrimonial property was split 50/50.

Wills

The changes to the law in 2002 extended this division to the situation where one of the spouses or de facto couples dies leaving a surviving spouse or partner. For practical purposes, death is treated the same as a separation under the Property (Relationships) Act 1976, known as the PRA.

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Blended Families – Wills and Trusts

Can it be fair for everyone?

Making sure everyone you care about gets a fair share of your property after you die is an issue most of us grapple with. This may also have additional complications when you have a blended family.

It’s not always as easy as just writing your Will and specifying who gets what. There are several statutes that give family members and/or your new partner’s family, a right to contest your Will. The two main statutes are the Family Protection Act 1955 (FPA) and the Property (Relationships) Act 1976 (PRA).

Leaving it all to your partner?

A common way of structuring your affairs is to leave everything to your partner or spouse, knowing they will provide for your children as well as their own in their Will. These are often called ‘mirror Wills’. Unfortunately, this structure doesn’t always satisfy all the children involved, as we have seen in several recent court cases. You also run the risk of your partner or spouse changing their Will at a later date after you have died.

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‘Nuptial Settlements’

Have I made one?

The law around trusts is ever-changing particularly with relationship property and matrimonial issues. The courts continue to chip away at the trust as an appropriate vehicle to protect assets against a relationship breakup.

The Clayton case

One area of this changing environment that will be of interest to the rural community is a consequence of some judicial reasoning in the Clayton v Clayton[1] case. There will be particular interest in the comments made in relation to ‘nuptial settlements’ and s182 of the Family Proceedings Act 1980.

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Shareholders’ Agreements

Relationship property for companies

Shareholders’ agreements are comparable to relationship property agreements (colloquially known as ‘pre-nuptial agreements’), as the objective of each is to establish rules for relationship property – whether it’s in your business or your personal life.

Not all relationships were built to last forever, and even the most stable relationship amongst shareholders may waver. Issues may also arise unexpectedly, such as the death of a shareholder or the need for a shareholder to sell their shares. Planning in advance for these events can pre-empt a dispute, and save some costs for the respective parties.

Unlike a company constitution, a share-holders’ agreement is not registered with the Companies Office and therefore it has a greater degree of confidentiality. Company constitutions generally contain the nuts and bolts provisions to operate the company that are not provided for in the Companies Act 1993.

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Looking After Your Inheritance

Keep it protected

For many people a gift by Will (also known as a legacy) from a relative or friend can be very significant – both personally and financially. The relative or friend wants to show you kindness but also usually wants the gift to be of real benefit to you personally. The gift is not intended to benefit other parties such as creditors, the Official Assignee or a de facto partner, however, unless it’s protected, that can be the unintended outcome.

Relationship property claims

If you are a beneficiary under a Will and you’re married, in a civil union or de facto relationship, the gift (under the Will) is separate property (as opposed to relationship property). The difference is important because if your marriage or relationship breaks down or you die, your spouse or partner cannot claim half of the gift (or its proceeds) because it’s separate property which is not subject to the equal sharing regime under the Property (Relationships) Act 1976.

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