Fishhooks in new property relationship proposals

Some of New Zealand’s leading family law specialists have welcomed proposed reforms of the Property (Relationships) Act, albeit with reservations.

Fishhooks

Mark Henaghan & Jeremy Sutton

In particular, some predict there is likely to be significant litigation around some of the more controversial recommendations, such as postseparation income sharing.

In its final report on the Act, the Law Commission has recommended a raft of changes to make the law fairer for partners dividing property on separation.

Key proposals include changing how the family home is shared, new family income-sharing agreements (FISAs), giving the Family Court greater powers to divide trust property and giving children’s best interests more priority in relationship property matters.

As things currently stand, a family home is treated as relationship property and is divided equally, regardless of how or when it was acquired.

The commission recommends that if the home was owned by one partner before the relationship began or was inherited, only the increase in the value of the home should be shared.

Family income-sharing arrangements would allow partners to share income for a limited period after a divorce or break-up.

The commission said this would ensure the economic advantages or disadvantages of a relationship were shared more equally.

The amount and duration of such an agreement would depend on the. couple’s incomes before separation and how long they had been together.

To gauge legal reaction to the commission’s proposals, LawNews submitted several key questions to three of the country’s top family law experts: Professor Nicola Peart of Otago University, Professor Mark Henaghan of Auckland University and Auckland family lawyer Jeremy Sutton.

Why does this law need to change and how has it adversely affected couples and their children?

Jeremy Sutton:
“It’s been more than 40 years since New Zealand’s divorce laws were first set out and 18 years since those laws were last amended substantially.

“Our society has changed since then. We now tend to live longer, our partnerships are shorter, we form them later in life and many of us have more than one significant partnership during our lifetime.

“This means often wealth is brought into relationships, rather than partners marrying early and creating wealth while they are together. The law needs to reflect our changing way of life.

“The current laws which mandate a 50:50 split of assets in a separation are just not fair in many situations. The law also doesn’t provide a simple remedy for the partner who is economically disadvantaged after a separation.

“Our divorce laws also need to support children’s needs better.

“The New Zealand Family Court has a childcentred approach for care of children. However, this traditionally has not been a focus for relationship property matters. Children need to be considered from a financial perspective, particularly when one party takes primary care of the children or when finances are an issue.

“Overall, these reforms seek to create a more level playing field for the financially disadvantaged party.”

What are your views on the commission’s proposals about property division, family income-sharing arrangements, trusts and children’s best interests?

Mark Henaghan:
“The major change to property division is to base it on the fruits of the relationship rather than the use of the property.

“So if a person brings into the relationship a $500,000 home, then it will not be split 50/50 after they live together for three years as it would be under the present law.

“Only the increase in value of the home would be shared 50/50. This was the predominant view of those who did our survey of 1000 New Zealanders last year from funding from the Borrin Foundation.

“They thought it unfair for someone to share half a major asset like a home which had not been acquired within the relationship.

“As for FISAs, sharing the family income at the end of a relationship for up to five years (or more in special circumstances, such as after a long relationship) applies only in certain circumstances.

“It applies if there is a child of the relationship, or if one party has sacrificed their career to support the other, or the relationship has lasted more than 10 years.

“There was strong support for this idea in our survey. I strongly support it myself so that the overall result is fair.

“There will be opposition to this by those who like the traditional idea of a clean break and getting on with their new life [but] it will make a big difference to the party doing the primary care of children to have access to such income.

“With regard to trusts, they have been used very unfairly to avoid relationship property obligations. “Once property is in a trust it is no longer owned by either party and therefore cannot be classified as relationship property.

“The new proposal will enable such property in a trust, if it satisfies the test for relationship property (namely, if it was acquired during the relationship), to be classified as relationship property.

“I strongly agree with this. There is a potential ‘out’ clause though where it can be argued if the property is to benefit others, such as children in what is called a dynasty trust to keep property within a particular family line, the property in the trust may still be protected from a relationship property claim even though it is relationship property.

“I don’t agree with this as relationship property, in my view, should trump all other claims as it does in the UK and Australia.

“In respect of children’s interests, they have always been in the legislation but have largely been ignored by the courts.

“The recommendations beef up the court’s ability to make orders which benefit the children, both financially and also in terms of occupation of the home after break up.

“I strongly support this proposal which will enhance the financial wellbeing of children at the end of a relationship.”

Will these changes be universally accepted? Do you anticipate any resistance and, if so, from whom?

Nicola Peart:
“I have no idea but I think some resistance to the new classification of the family home is likely.

“That is a radical change from the current position and resistance may come from organisations concerned about the economic vulnerability of women, in particular.

“There may also be opposition from economists if safeguarding the separate property status of the home affects the real estate market.

“There may also be concern about the proposed FISAs replacing the economic disparity provisions and maintenance.

“Again, a radical change, to which those who would need an FISA and those who would be liable for an FISA might object.

“Those who would need them may see them as too limited. Those who would be liable for them may see them as too onerous. FISAs put an end to the clean-break principle.”

Mark Henaghan:
“The survey we did of 1000 New Zealanders last year found that while the majority still support the idea of equal sharing of relationship property, there were a significant amount who felt it was not fair in all situations.

“For example, a good number felt that if one partner gives up some of their career to look after children they should be entitled to compensation for this over and above 50% of the property to help them have a truly equal economic outcome, such as an ongoing share after the break-up of the income of the primary earner.

“Primary earners are likely to object to this on the basis that their earning power is based on their own special talents and shouldn’t be shared after the break-up.”

Jeremy Sutton:
“I think most New Zealanders will agree that the law changes will result in a fairer split of property and they will welcome the greater priority placed on children in a separation.

“The FISA model of income-sharing won’t be welcomed by the party with the higher income as they would be better off financially under the existing laws. Under the current law, the onus is on the lesser-income party to make a discretionary section 15 claim.

“Generally, s 15 is accepted only when there are children of the relationship. FISA creates a statutory formula like child support that would offend many people. It is likely to result in significant litigation and is controversial.”

Why has it taken so long to address some of these issues and how long will it be before any changes are implemented?

Mark Henaghan:
“The Law Commission has been working on this for nearly three years. How long it will take depends on whether the government of the day sees it as a political priority.

“With all the pressures on the current government of health and education, it may be difficult for relationship property laws to get to the top of the political agenda.”

Nicola Peart:
“I have no idea whether Parliament will adopt the commission’s recommendations and, if so, when.

“MPs are likely to have a range of views on the proposals. They touch most people’s lives, so it is not just technical legislation.”

Are there any areas not covered by the commission’s proposals that you would like to see addressed?

Nicola Peart:
“The proposals do not deal with the relationship property consequences of a relationship that ends on the death of a spouse or partner.

“In other words, part 8 of the Property (Relationships) Act will not form part of the new Act.

“The reason for that is that on death, succession law plays a major role and the relationship between the relationship property entitlements and succession law needs further review.

“The minister has agreed to the Law Commission now reviewing succession law as well. That is good news but there is no guarantee that reform will be completed and legislation enacted before the reforms to the PRA are enacted.”

Mark Henaghan:
“An area I would like to have seen addressed is the valuation of assets.

“At present both sides can hire their valuer and they are often miles apart.

“I would like to see court-appointed valuers who are not working for the parties to save the considerable costs spent at present on valuations by both parties.

“One of the primary purposes of the legislation is for it to be cost-effective and efficient. It is far from that at the moment when disclosure takes ages and valuations cost a fortune.”

Jeremy Sutton:
“I would like to see the following addressed:

  • A more streamlined process in the Family Court, similar to the High Court process;
  • The court fix a timetable at the first case conference. In the High Court, a hearing date and a timetable is set at the first case conference. At the moment, files are dealt with randomly in the Family Court. It is difficult to get a final fixture date and there are huge delays. These delays are due to lawyers, clients and the lack of court resources;
  • For one or two judges to be allocated to a file. This has been trialled, but it has not been working with the shortage of judges;
  • Tougher penalties when court directions are not complied with. For instance, if relevant documents have been requested and are not provided within a set period of time, I would like to see real and not nominal costs for the offending party; and
  • A regular emergency list or call-over of files that need action. In the criminal jurisdiction, you can bring your matter on earlier, before a judge, because of the circumstances of that matter.

“I would like to see the government take steps to make the law more accessible and understandable,” Sutton says.

“This can be done in the form of guidelines. People need to know about the process and the options for resolution.

“Guidelines should also be in other languages. This could be done with YouTube videos or podcasts. We are a multicultural society and the law needs to be more accessible to everyone. Often couples are able to determine relationship property matters without going to a lawyer.”

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