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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Are We in a De Facto Relationship?

If you are in a de facto relationship, there could be significant financial implications for you if you separate, or if your partner (or you) dies

The principal piece of legislation which deals with the division of property belonging to couples or married couples is the Property (Relationships) Act 1976 (the PRA). Substantial reforms in 2001 extended the scope  of the PRA to cover de facto relationships. But what exactly constitutes a de facto relationship in the eyes  of the law?

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Parallel Trusts: Could be the best option for you

With the growth of multiple relationships and blended families many couples are having to consider ways to ringfence assets and protect inheritances. One option is to establish parallel trusts – so you each have your own trust for your share of the assets.

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Relationship Property Developments

Assets on relationship breakdownWhen relationships break down, numerous issues arise around the division of property. One spouse or partner may be left significantly worse off than the other, assets are often ‘protected’ by trust structures and it can be unclear what property makes up the ‘pool’ to be divided. Two recent cases provide insight into how the courts are approaching relationship property matters.

Economic disparity

The Property (Relationships) Act 1976 provides a presumption of equal sharing of relationship property at the end of a marriage or de facto relationship if it has lasted at least three years. It also allows the court, however, to adjust the division of relationship property in one party’s favour where the court is satisfied that the income and living standards of one party is likely to be significantly higher than the other party, because of the division of functions within the relationship. In August 2013, the Family Court made its most significant adjustment to date, awarding a Continue reading “Relationship Property Developments”

Latest Trust eSpeaking

We publish the latest edition of Trust eSpeaking here.

In this edition:

  • Let’s give it all way – It’s not that straightforward
    With the abolition of gift duty from 1 October 2011 the first thought for most people who have a family trust would be “Let’s give it all away”
  • Rest home care – Don’t expect government hand-outs
    After gift duty comes to an end from 1 October, one thing will still be clear: you can’t give everything away to a trust and then expect to rely on state assistance because you don’t own any assets…
  • Trustee Liability – As vendor under an Agreement for Sale & Purchase Trustees are the legal owners of trust property and are personally liable for warranties given under an Agreement for Sale & Purchase. Trustees should be very careful about giving warranties
  • Trusts and tax – The Supreme Court has spoken Using a trust – or any other structure such as a company – to reduce your income is
    not straightforward. If you push the boundaries too hard you may end up having to pay a lot more. The latest Supreme Court decision provides a useful warning