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Last Updated: 16 October 2017
October 2017, Wellington, New Zealand | ISSUES PAPER
41
Dividing relationship property:
time for change? Te mātatoha rawa tokorau
– Kua eke te wā?
October 2017, Wellington, New Zealand | ISSUES PAPER
41
Dividing relationship property:
time for change? Te mātatoha rawa tokorau
– Kua eke te wā?
General information
The Law Commission is an independent, publicly funded, central advisory body established by statute to undertake the systematic review, reform and development of the law of New Zealand. Its purpose is to help
achieve law that is just, principled, and accessible, and that reflects
the heritage and aspirations of the peoples of New Zealand.
The Commissioners are:
Douglas White – President Donna Buckingham Belinda Clark QSO
Helen McQueen
The General Manager of the Law Commission is Jasmine Tietjens
The office of the Law Commission is at Level 19, 171 Featherston Street, Wellington
Postal address: PO Box 2590, Wellington 6140, New Zealand
Document Exchange Number: sp 23534
Telephone: (04) 473-3453, Facsimile: (04) 471-0959
Email: com@lawcom.govt.nz
Internet: www.lawcom.govt.nz
A catalogue record for this title is available from the National Library of
New Zealand.
ISBN: 978-1-877569-82-1 (Online) ISSN: 1177-7877 (Online)
This title may be cited as NZLC IP41
This title is also available on the Internet at the Law Commission’s website: www.lawcom.govt.nz
Kei te pātengi raraunga o Te Puna Mātauranga o Aotearoa te
whakarārangi o tēnei pukapuka.
This work is licensed under a Creative Commons
Attribution 4.0 International License.
Contents
Acknowlegements
|
4
|
Have your say
|
5
|
Glossary
|
7
|
PART A – INTRODUCING THE LAW COMMISSION’S REVIEW
|
10
|
Chapter 1 – Context, scope and approach
|
11
|
Introduction
|
11
|
Social context of this review
|
12
|
Scope of this review and our approach so far
|
14
|
Structure of this Issues Paper
|
15
|
Chapter 2 – Why do we have the PRA?
|
19
|
Marriage and property practices in traditional Māori society
|
19
|
Post-colonial history of relationship property law
|
24
|
The PRA as social legislation
|
35
|
Tikanga Māori and the PRA
|
40
|
Chapter 3 – What does the PRA do?
|
45
|
The framework of the PRA
|
45
|
How it works – The PRA rules
|
53
|
Application of the PRA on death
|
61
|
How New Zealand compares internationally
|
62
|
Chapter 4 – What are the big questions of this review?
|
66
|
Is the framework of the PRA sound?
|
66
|
The big questions
|
72
|
Other general issues
|
81
|
PART B – WHAT RELATIONSHIPS SHOULD THE PRA COVER?
|
84
|
Chapter 5 – Who is covered by the PRA?
|
85
|
Introduction
|
85
|
Relationships covered by the PRA
|
85
|
The inclusion of de facto relationships in the PRA
|
89
|
Chapter 6 – The definition of de facto relationship
|
96
|
Two people who “live together as a couple”
|
97
|
Issues with the definition of de facto relationship
|
105
|
Options for reform
|
118
|
Chapter 7 – Specific relationship types and family
arrangements
|
124
|
Māori customary marriages
|
124
|
Relationships involving young people
|
126
|
Relationships with and between members of the LGBTQI+ community
|
129
|
Contemporaneous relationships
|
131
|
Multi-partner relationships
|
134
|
Domestic relationships
|
135
|
PART C – WHAT PROPERTY SHOULD BE COVERED BY THE PRA?
|
141
|
Chapter 8 – What property is covered?
|
142
|
Introduction
|
142
|
The PRA’s definitions of “property” and
“owner”
|
142
|
Should the PRA apply to wider economic resources?
|
145
|
Is the definition of property future-proof ?
|
149
|
Exclusion of Māori land from the PRA
|
153
|
Chapter 9 – Classifying relationship property and separate
property
|
163
|
Relationship property, separate property and debts
|
163
|
The basis for classification
|
169
|
Is the basis for classification appropriate for contemporary New
Zealand?
|
170
|
Options for Reform
|
179
|
Chapter 10 – When separate property becomes relationship
property
|
183
|
Increasing the value of separate property
|
184
|
Applying separate property to relationship property
|
197
|
Intermingling of gifts and inheritances with relationship property
|
199
|
Implications of moving to a “fruits of the relationship”
approach
|
205
|
Chapter 11 – Issues with particular types of property &
debts
|
211
|
ACC and insurance payments
|
211
|
Super profits and earning capacity
|
215
|
Taonga
|
226
|
Heirlooms
|
233
|
Student loans
|
235
|
Family gifting and lending
|
239
|
PART D – HOW SHOULD PROPERTY BE DIVIDED?
|
242
|
Chapter 12 – The general rule of equal sharing and
exceptions
|
243
|
Introduction
|
243
|
Equal sharing
|
243
|
Extraordinary circumstances
|
246
|
Misconduct
|
250
|
Dissipations of relationship property
|
256
|
Successive and contemporaneous relationships
|
260
|
Chapter 13: Valuation
|
267
|
Valuation of Property in the PRA’s overall Scheme
|
267
|
Determining Value
|
268
|
Issues and options for reform
|
274
|
Chapter 14 – How a court implements a division of
property
|
280
|
Division orders
|
280
|
Interim property orders
|
291
|
Non-division orders
|
299
|
Protection of rights under the PRA
|
304
|
PART E – HOW SHOULD THE PRA TREAT SHORT-TERM
RELATIONSHIPS?
|
309
|
Chapter 15 – The three year rule
|
310
|
Introduction
|
310
|
Should the PRA have different rules for short-term relationships?
|
311
|
How does the three year rule operate?
|
312
|
Should the qualifying period be longer?
|
316
|
Options for reform
|
321
|
Chapter 16 – Short-term marriages and civil unions
|
326
|
The property division rules
|
326
|
Issues with sections 14 and 14AA
|
328
|
Options for reform
|
330
|
Chapter 17 – Short-term de facto relationships
|
334
|
Background to section 14A
|
334
|
The section 14A(2) test
|
335
|
The property division rules
|
336
|
Issues with section 14A
|
336
|
Options for reform
|
344
|
PART F – WHAT SHOULD HAPPEN WHEN EQUAL SHARING DOES NOT
|
|
LEAD TO EQUALITY?
|
350
|
Chapter 18 – Does section 15 achieve post-separation
equality?
|
351
|
Introduction
|
351
|
Historical background
|
352
|
What is section 15 trying to achieve?
|
354
|
How does section 15 work in practice?
|
359
|
Determining the amount of section 15 awards
|
378
|
Other issues with section 15
|
387
|
Chapter 19 – Options for reform
|
391
|
Is reform needed?
|
391
|
Common objectives and characteristics of section 15 reform
|
393
|
Option 1: Retain section 15 but lower the hurdles that partner A must
overcome
|
397
|
Option 2: Repeal section 15 and address financial inequality in other PRA
rules
|
400
|
Option 3: Replace section 15 with financial reconciliation orders
|
402
|
PART G – WHAT SHOULD HAPPEN TO PROPERTY HELD ON TRUST?
|
423
|
Chapter 20 – Trusts
|
424
|
Introduction
|
424
|
The Use of Trusts in New Zealand
|
425
|
Trusts used by New Zealand families
|
428
|
The PRA and property held on trust
|
433
|
Chapter 21 – The Issues
|
456
|
Issue 1: The priority trusts have over rights under the PRA may be
causing problems
|
456
|
Issue 2: It is unclear whether an interest in a trust is property
|
469
|
Issue 3: The Supreme Court’s decision in Clayton v Clayton [Vaughan Road Property Trust] did not resolve the tension between the PRA and trusts 475
Issue 4: remedies outside the PRA to recover property held on trust are inconsistent and create procedural difficulties 478
Issue 5: Section 182 of the Family Proceedings Act 1980 481
Issue 6: whether there are adequate remedies in the wider law to deal with
trusts and rights under the PRA 484
Chapter 22 – Options for Reform 487
Reform is necessary – what are the options? 487
Option 1: Revise the PRA’s definition of “property” to include all beneficial interests in a
trust 490
Option 2: Revise the PRA’s definition of “relationship property” to include some property held on trust 494
Option 3: Broaden section 44C 502
Option 4: A new provision modelled on section 182 of the Family Proceedings
Act 1980 505
PART H – RESOLVING PROPERTY MATTERS IN AND OUT OF
COURT 508
Chapter 23 – How are property matters resolved in practice? 509
Introduction 509
Achieving just and efficient resolution of property matters under the PRA 510
How do people resolve property matters in practice? 517
Chapter 24 – Resolving property matters out of court 523
Do people have access to appropriate information? 523
Is access to legal advice appropriate? 527
Access to dispute resolution services 530
Chapter 25 – Going to court 554
PRA proceedings in the Family Court 554
Is the Court process operating effectively? 563
Options to improve the court process 567
Chapter 26 – Jurisdiction of the courts 583
Introduction 583
The Family Court as a specialist court 583
The limited role of the High Court in PRA proceedings 587
The PRA is a (partial) code 588
Issues with the Family Court’s jurisdiction 592
Issues with the High Court’s jurisdiction 613
Options for reforming the jurisdiction of the Family Court and High Court 620
Other jurisdiction issues 628
PART I: HOW SHOULD THE PRA RECOGNISE CHILDREN’S
INTERESTS?638
Chapter 27 – Children and the PRA
|
639
|
Introduction
|
639
|
How does parental separation affect children?
|
640
|
How does the PRA Fit in?
|
648
|
Chapter 28 – The case for taking a more child-centred approach under the PRA 652
How does the PRA recognise children’s interests? 652
Should children’s interests have a role in the PRA?
|
653
|
Should the PRA take a more child-centred approach?
|
654
|
Which children is the PRA concerned about?
|
661
|
Minor or dependent children
|
671
|
Chapter 29 – Options for reform that take a more child-centred
approach
|
674
|
Promoting Children’s interests in the principles of the PRA
|
674
|
Section 26
|
678
|
Postponement of vesting
|
692
|
Occupation and tenancy orders
|
698
|
Furniture orders
|
700
|
Participation of children in PRA proceedings
|
702
|
PART J – CAN PARTNERS MAKE THEIR OWN AGREEMENT ABOUT
|
|
PROPERTY?
|
705
|
Chapter 30 – Contracting out of the PRA
|
706
|
Introduction
|
706
|
The law governing contracting out agreements
|
707
|
Are the contracting out provisions are working well?
|
718
|
Issues regarding what a contracting out agreement can cover
|
723
|
Other issues
|
733
|
PART K – SHOULD THE PRA AFFECT THE RIGHTS OF CREDITORS?
|
744
|
Chapter 31 – The PRA and creditors
|
745
|
Introduction
|
745
|
The rights of creditors under the PRA
|
745
|
Issues with the way the PRA treats the rights of creditors
|
753
|
PART L – WHAT SHOULD HAPPEN WHEN PEOPLE OR PROPERTY HAVE
A
|
|
LINK TO ANOTHER COUNTRY?
|
773
|
Chapter 32 – Cross-border issues and the PRA
|
774
|
Introduction
|
774
|
What are cross-border issues in the PRA context?
|
775
|
The intersection of private international law and the pra
|
776
|
What is private international law?
How does New Zealand law deal with cross-border issues in relationship
property matters?
|
778
781
|
Section 7
|
783
|
Section 7A
|
791
|
What happens when the current law is applied?
|
795
|
Chapter 33 – Approaches to reform
|
801
|
When should the PRA apply?
|
801
|
When will a New Zealand court decide the matter?
|
815
|
How and where can a judgment or order be enforced?
|
822
|
Issue 4: The deceased’s personal representative does not have the same
rights as the surviving
Foreword
The Property (Relationships) Act 1976 (PRA) is a crucial part of New
Zealand’s social legislation. It contains the rules for
the division of
property when a relationship ends as a result of separation or on the death of
one of the partners. The PRA is,
however, now over 40 years old and is in need
of review. In this review, the Law Commission asks whether the existing rules
in
the PRA are still achieving a just division of property at the end of a
relationship.
When first enacted in 1976, the PRA challenged and helped redefine the role
of women in society. When it was amended in 2001, the
PRA sought fair
treatment for different relationship types by extending its application to de
facto relationships and same-sex
relationships. The PRA has both reflected and
shaped societal values in the way people enter, conduct and leave relationships.
Yet
we know that New Zealand in 2017 looks very different to New Zealand in
1976, and even 2001. Our Study Paper, Relationships and Families in
Contemporary New Zealand: He hononga tangata, he hononga whānau i Aotearoa
o nāianei, confirms that the changes have been dramatic. For
example, in 1976 the marriage rate was 35 per 1,000 unmarried adults yet
by
2016 that rate had dropped to 11. Children are now ten times more likely to
identify with more than one ethnicity than older
New Zealanders.
There have also been some broad changes to New Zealand law over the last 40 years. A more child-centred approach, particularly in
the family law context, is well-established. New Zealand law has increasingly sought to recognise tikanga Māori. Human rights law has developed and plays an important role in our legal framework. The courts have responded to New Zealanders’ widespread use of trusts
by developing remedies to recover property held on trust. All of these
developments are relevant to the legal context in which the
PRA
operates.
Consequently, in this Issues Paper, Dividing Relationship Property – Time for Change? Te mātatoha rawa tokorau – Kua eke te wā?, we ask “if New Zealand has changed so much, is the policy of the PRA still
sound, and are the right principles guiding its rules?” Our preliminary view is that the policy and principles remain sound. We discuss these
in detail in Part A, which I encourage everyone to read before turning to
specific issues.
What has emerged from our work so far are some important questions relating
to the rules of the PRA and how they attempt to ensure
a just division of
property. These questions are:
3 How should the PRA deal with trusts?
5 How should the PRA recognise children’s interests?
7 Does the PRA provide adequately for tikanga Māori?
Each of these important questions gives rise to a number of further
questions. For example, in asking whether the PRA facilitates
the inexpensive,
simple and speedy resolution of PRA matters consistent with justice, we have
looked not only at the resolution
of matters in and out of court, but we have
also looked at the resolution of matters involving a cross-border element such
as when
property or one of the parties is located overseas.
We hope that our online consultation platform and Consultation Paper (which
summarises each important question) will help members
of the public and
interested groups to identify easily those areas that interest them and provide
feedback on those areas. We
also warmly invite members of the public and
interested groups to attend the consultation meetings we will be holding
throughout
the country (details
of which can be found on our website).
The PRA is likely to affect the lives of most New Zealanders. Please read this Issues Paper and share your opinions on the issues and options for reform discussed throughout. We emphasise that the
views we express are preliminary and do not preclude further consideration of
the issues. The feedback we receive will influence
the recommendations we make
to the Government at the end of 2018.
Ngā mihi nui
Douglas White
President
Acknowledgements
The Law Commission gratefully acknowledges the contributions of the people
and organisations that have shaped our views in this
Issues Paper and the
accompanying Study Paper, Relationships and Families in Contemporary New
Zealand – He hononga tangata, he hononga whānau i Aotearoa o
nāianei
(NZLC SP22, 2017). A list appears in Appendix B.
In particular we acknowledge the generous contribution of time and expertise
from our Expert Advisory Group:
• Professor Bill Atkin, Victoria University of Wellington
• Judge Andrew Becroft, Children’s Commissioner
• Mr Stephen van Bohemen, Barrister
• Mr David Goddard QC, Thorndon Chambers
• Mr Greg Kelly, Greg Kelly Law
• Professor Nicola Peart, University of Otago
• Dr Jan Pryor
• Professor Jacinta Ruru, University of Otago
• Judge Laurence Ryan, Principal Family Court Judge
• Ms Renika Siciliano, McCaw Lewis
• Ms Kirsty Swadling, Barrister and Mediator
We are also grateful for the support and guidance of the Māori Liaison
Committee to the Law Commission.
Finally, we gratefully acknowledge the opportunity to participate in
the Otago University Faculty of Law’s Colloquium on 40 Years of the
PRA: Reflection and Reform held in December 2016 in Auckland.
The Lead Commissioner on this project is Helen McQueen. The Advisers who have worked on this project are Emma Bassett, Alec Dawson,
John-Luke Day, Nichola Lambie, Francis McKeefry, Mihiata Pirini, Lisa Yarwood, and Karen Yates. The clerks who have worked on this project are Fady Girgis and Maddy Nash.
Have your say
This Issues Paper, a Consultation Paper and the accompanying Study Paper, Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22,
2017), are available online at www.lawcom.govt.nz.
We want to know what you think about the Property (Relationships) Act 1976
and whether reform is needed. In this Issues Paper and
the Consultation Paper
we ask a series of questions. You can respond to any or all of these questions,
raise any issues we haven’t
covered, or tell us your story. If you are
sending us a submission (by email or in the post) it is helpful if you state
the number
of the question you are discussing.
Your feedback will help shape the Law Commission’s recommendations
to the Government.
When can I have my say?
The deadline for submissions or comments on this issues paper is 7
February 2018.
How can I have my say?
You can go online to our consultation website prareview.lawcom.govt.nz and read the
papers and respond to our online consultation questions (or tell us your
story).
You can come along to a public meeting and speak to one of our team.
Details of the public meetings can be found at www.lawcom.govt.nz.
You can email your submission to: pra@lawcom.govt.nz
You can post your written submission to:
Property (Relationships) Act Review
Law Commission
PO Box 2590
Wellington 6011
DX SP 23534
What happens to my submission?
The Law Commission’s processes are essentially public, and it is
subject to the Official Information Act 1982. Therefore your
submission will
normally be made available on request. Any requests for withholding of
information on grounds of confidentiality
or for any other reason will be
determined in accordance with the Official Information Act 1982. The Law
Commission also complies
with the Privacy Act 1993, which governs how we
collect, hold, use and disclose personal information provided in your
submission.
You have the right to access and correct your personal
information.
We will use submissions to inform our consideration of the issues that arise
in this review, and in any future reviews that cover
the same or related
issues. The Commission may refer to submissions in its reports, but as a matter
of course we will anonymise submissions
from private individuals. All
submissions are kept by us as part of our official records.
If you do not want all or part of your submission to be released (including your name) or referred to in any Commission publication, please tell us which parts should be withheld and the reasons why. When possible,
your views will be taken into account.
Glossary
Terms and abbreviations commonly used in this Issues Paper have the meanings
set out below.
Māori terms
Hapū – Extended kin group, consisting of many whānau. Iwi – Tribe, descent group consisting of many hapū. Mana - Prestige.
Tikanga – Law, custom, traditional behaviour,
philosophy.
Tupuna/Tipuna – Ancestor, grandparent.
Whānau – Family group including nuclear or extended
family.
Whanaungatanga – Kinship, connectedness, a web of relationships
of descent and marriage.
General terms
2001 amendments – The amendments to the PRA that came into
effect on 1 February 2002 through the Property (Relationships) Amendment Act
2001.
Beneficiary – A person who has received, or who will or may
receive, a benefit under a trust or an estate.
Children – Minor or dependent children, except where expressly
stated.
Contracting out agreement – An agreement made between the
partners, or a partner and a deceased partner ’s personal representative,
under section
21, section 21A or section 21B of the PRA with respect to the
status, ownership and division of their property, for the purpose
of
contracting out of the provisions of the PRA.
De facto relationship – Under the PRA, a relationship between two persons who are both aged 18 or older, who live together as a couple but are not married or in a civil union with one another. The PRA lists a range of matters in section 2D(2) that indicate whether two persons
“live together as a couple”, such as the duration of the relationship, the existence of a common residence and the degree of financial dependency
between the partners. Note that the definition of de facto relationship
under the PRA is different to the definition used in other
statutes, and for the
collection of statistics. See discussion in the Study Paper.
Estate – A person’s property left after he or she
dies.
Framework of the PRA – Collectively the PRA’s policy,
theory, principles and rules as described in Chapter 3.
Intestacy – When a person dies without leaving a will, or where
the will does not effectively dispose of the deceased’s property.
Jurisdiction – A court’s power to hear, decide and make
orders in a case, including the territorial limits of the court’s
power.
Māori land – Land that is defined as Māori land under the Te Ture Whenua Māori Act 1993. This includes Māori customary land (held in accordance with tikanga Māori) and Māori freehold land (Māori
customary land to which the beneficial ownership has been determined
according to tikanga Māori by order of the Māori
Land
Court).
Non-division orders – The types of orders a court can make
under the PRA that grant a partner temporary rights to use or occupy property,
but
do not affect each partner ’s entitlement to a share of relationship
property when division occurs.
Policy of the PRA – The policy of the PRA is the just division
of property at the end of a relationship, as described in Chapter 3.
PRA – The Property (Relationships) Act 1976. Between 1976 and 2001 the
PRA was called the Matrimonial Property Act 1976.
Principles of the PRA – The principles which form the basis for
the PRA’s rules, including implicit and explicit principles, as described
in
Chapter 3.
Qualifying relationship – A marriage, civil union or de facto
relationship of three or more years’ duration.
Relationship property – The property described in section 8 of
the PRA, which generally includes the family home, family chattels and
property acquired
during the relationship.
Separate property – The property described in section 9 and section 10 of the PRA which is generally any property that is not relationship property and specifically includes any property a partner receives from a third
party by way of gift or inheritance.
Short-term relationship – A relationship of less than three
years’ duration, and includes short-term marriages, short-term civil
unions and short-term
de facto relationships.
Stepfamily – A couple with children, where at least one child
is the biological or adopted child of only one partner. Stepfamilies include
couples who are married, in a civil union or in a de facto relationship.
Stepfamilies also include “blended families.”
Blended families are
those that include children from previous relationships as well biological or
adopted children of the partners.
Study Paper – The Law Commission’s study paper,
Relationships and Families in Contemporary New Zealand – He hononga
tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22,
October 2017), published jointly with this Issues Paper.
Succession law – The system of rules that says who gets
people’s property when they die.
Trust – A legal relationship in which the owner of property
holds and deals with that property for the benefit of certain persons
or for a
particular purpose.
Trustee – A person who owns property on trust and is required to
deal with the property in accordance with the terms of the trust.
Working Group – The Working Group on Matrimonial Property and Family Property established in 1988 to review the Matrimonial Property Act 1976, the Family Protection Act 1955, the provision for matrimonial property on death and the provision for couples living in de facto relationships.
Part A –
Introducing the Law Commission’s review
Chapter 1 – Context, scope and
approach
Introduction
1.1 Dividing property when relationships end is often a challenging task, and one which typically comes at a time of emotional upheaval. When relationships end as a result of separation,
both partners will generally be worse off financially, because the
resources that were being used to support one household must
now support two.
How property is divided can significantly affect the financial recovery of
partners and any children they might
have. Different issues arise when a
relationship ends on the death of one partner. The interests of the surviving
partner may have
to be balanced against competing interests, for example any
children of the deceased.
1.2 The Property (Relationships) Act 1976 (PRA)1 sets out special rules of property division that apply when relationships end. These rules apply when partners separate, unless they agree otherwise. The rules can also apply when one partner dies. People can use the rules in the PRA to work out their entitlements and
come to an agreement about the division of their property, or they can ask
a court to apply the rules and make a decision for them.
1.3 This Issues Paper asks whether the PRA rules are operating appropriately
in contemporary New Zealand. Is the PRA achieving a
just division of property
at the end of relationships?
1.4 In this chapter we explain the context of this review, its scope and our
process so far. The rest of Part A is arranged as follows:
(a) In Chapter 2 we explore why we have the PRA. We explain that the PRA
is social legislation, and outline its history.
(b) In Chapter 3 we discuss what the PRA attempts to achieve. We describe
the framework of the PRA and how it works in practice.
1 For ease of reading, we will refer to the Property (Relationships) Act 1976 as the PRA in the remainder of this Issues
Paper.
(c) In Chapter 4 we discuss the big questions we have
identified so far, and some of the options for reform that might
significantly change how the PRA works in practice.
Our terminology and approach to anonymisation of court decisions
1.5 Three types of relationships are at the centre of the PRA: marriages, civil unions and de facto relationships. For readability, we use the term “relationship” unless we are referring to a specific relationship type. Likewise, we use the term “partner” to refer
to a spouse, civil union partner or de facto partner. Often the discussion
in this Issues Paper takes place after a relationship
ends, but for simplicity
we will continue to refer to “partners” rather than “former
partners”.
1.6 In Chapter 4 we ask whether the PRA should be amended to use
relationship neutral terms, and invite submissions on this issue.
1.7 Many court decisions under the PRA are anonymised through the use of
fictitious names or the use of parties’ initials.
Some decisions are not
anonymised yet are still subject to publication restrictions.2 To
address this, we have replaced the names of parties with initials when our
discussion of the facts of a case includes sensitive
information which could
identify individuals who may be vulnerable.3
Social context of this review
1.8 The PRA was enacted over 40 years ago. Since then New Zealand has undergone a period of significant change. We discuss these changes in detail in our Study Paper, Relationships and Families
in Contemporary New Zealand – He hononga tangata, he hononga
whānau i Aotearoa o nāianei (NZLC SP22, 2017) (Study
Paper).
1.9 New Zealand is more ethnically diverse. The Māori, Pacific and
Asian populations have more than doubled since 1976.4 In
2013,
2 Property (Relationships) Act 1976, s 35A; Family Court Act 1980, ss 11B–11D.
3 For a copy of our anonymisation policy please contact the Law Commission.
4 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Introduction citing Ian Pool “Population change - Key population trends” (5 May
2011) Te Ara - the Encyclopedia of New Zealand <www.teara.govt.nz> and Statistics New Zealand 2013 QuickStats about culture and identity (April 2014) at 6.
one in seven people identified as Māori.5 Children today are also
ten times more likely to identify with more than one ethnic group compared
to older New Zealanders.6 The population is ageing, and at
significantly different rates across ethnic groups, which will continue to drive
ethnic diversity
in the future.7 Religious identity is also
changing. Fewer people identify as Christian, while almost half of the
population report that they have
no religion.8
1.10 These population shifts have coincided with changing patterns of partnering, family formation, separation and re-partnering.9
What it means to be partnered has changed significantly since the 1970s, when the paradigm relationship involved a marriage between a man and a woman, in which children were raised and wealth was accumulated over time. Now, fewer people are marrying and more people are living in de facto relationships.10
In 2016, 46 per cent of all births were to parents who were not married (or in a civil union).11 There is also greater recognition and acceptance of relationships that sit outside the 1970s paradigm, including same-sex relationships.12 More relationships
end in separation,13 and increasing rates of separation are
driving
5 Statistics New Zealand 2013 Quickstats about Māori (December 2013) at 5.
7 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Introduction citing Statistics New Zealand National Population Projections:
2016(base)–2068 (19 October 2016) at 5 and 7; and Statistics New Zealand 2013 QuickStats about culture and identity
(April 2014) at 8.
11 In 1976, only 17 per cent of children were born out of marriage: Law Commission Relationships and Families in
Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter
2 citing Statistics New Zealand “Live births by nuptiality (Maori and total population) (annual-Dec)” (May 2017) <www. stats.govt.nz>.
a rise in re-partnering,14 which is leading to an increase in
stepfamilies. There has also been a significant increase in single parent
families, with the proportion of single parent households
almost doubling
since 1976.15
1.11 These social changes have significant implications for our
review. They will have undoubtedly influenced public values and attitudes,
and increasing diversity in relationships and families
may affect what a
“just” property division looks like today. The policy implications
of increasing diversity in relationships
and families are well
recognised:16
Increasingly diverse and flexible family forms mean there are no longer clear universally held assumptions to be made about family circumstances; the increasing pragmatism of family law reform, aiming to offer management of family matters rather
than abstract justice based on moral or religious principles, means that
it becomes ever more important for the policy maker to understand
what
individuals expect and value...
Scope of this review and our approach so far
1.12 In December 2015, the Minister responsible for the Law Commission, Hon
Amy Adams, asked the Law Commission to review the PRA.
The Terms of Reference
are set out in Appendix A and are wide-ranging. They require consideration of
the PRA rules and how property
matters are resolved in practice.
1.13 Since then we have extensively researched the history of the PRA and
reviewed case law, commentary and court data to understand
how the PRA is
operating in practice. We have looked at international experiences to inform
our understanding of possible
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 3 citing Statistics New Zealand “Divorce rate (total population) (annual- Dec)” (June 2017) <www.stats.govt.nz>. This does not include de facto separations, for which no information is collected.
16 Mavis MacLean and John Eekelaar “The Perils of Reforming Family Law and the Increasing Need for Empirical Research,
1980-2008” in Joanna Miles and Rebecca Probert (eds) Sharing Lives, Dividing Assets An Interdisciplinary Study (Hart
Publishing, Oxford, 2009) 25 at 31.
reform options. We have also researched the social context and
published our findings in the accompanying Study Paper. We established an
Expert Advisory Group to assist us in this review, and
sought guidance from
the Law Commission’s Māori Liaison Group on those matters that may
be of particular concern to
Māori.
1.14 We have also undertaken targeted, preliminary consultation with a range
of interested parties (see Appendix B). This preliminary
consultation
identified a number of issues and options for reform that are reflected in this
Issues Paper. We know there will be
other perspectives, and the submissions we
receive in response to this Issues Paper will help us to develop our views on
whether
changes to the PRA are needed and if so what form they should
take.
1.15 The Terms of Reference for this review do not include other areas of family and social legislation such as the child support regime in the Child Support Act 1991, the maintenance regime in the Family Proceedings Act 1980 or the social security regime in the
Social Security Act 1964. We cannot, however, consider the PRA in isolation from these regimes, as they each play an important role in supporting partners and children at the end of a relationship.
In Part F we consider options for reform that have implications for the maintenance regime, and our discussion of the application of the PRA on the death of one partner in Part M has also required
us to consider aspects of succession law which are not part of our Terms of
Reference. It is possible that our final recommendations
may have implications
for these regimes. In Part L of this Issues Paper we also address the rules of
private international law,
the full extent of which is beyond the scope of
this review. We discuss the role of the PRA as social legislation, and its
relationship
with other areas of family and social policy, in Chapter 2.
1.16 Our final report to the Minister Responsible for the Law
Commission is due in November 2018.
Structure of this Issues Paper
1.17 This Issues Paper is divided into parts. Following on from Part A (Introducing the Law Commission’s review) the parts are as follows:
• Part B – What relationships should the PRA
cover?
We look at the types of relationships to which the PRA’s main rules of
division apply. We examine whether the PRA focuses on
the right kinds of
relationships.
• Part C – What property should the PRA
cover?
The PRA requires partners to divide their relationship property. We look
at the types of property that the PRA defines as relationship property and
separate property.
• Part D – How should the PRA divide
property?
The general rule at the heart of the PRA is that, on division, each
partner is entitled to an equal share of relationship property.
We discuss
whether this general rule remains appropriate. We also look at the exceptions
to equal sharing and whether they apply
in the right circumstances.
• Part E – How should the PRA treat short-term
relationships?
If a relationship has lasted for less than three years, the general rule of
equal sharing does not apply. The PRA provides special
rules for short- term
relationships, and de facto partners have different rights to married and civil
union partners. We ask whether
the special rules should continue to apply to
short-term relationships and if the different rights based on relationship type
are
justified.
Sometimes the partners will take different roles in a relationship. If one partner has been freed up for paid work, that partner may leave
the relationship with a developed career. Conversely, a partner who has sacrificed paid work to perform unpaid roles in the relationship might not have the same income-earning opportunities after the relationship. Equal sharing may not fairly apportion the economic advantages and disadvantages each partner takes from the relationship. We look at how the PRA deals with these scenarios and whether it is effective.
• Part G – What should happen to property held on
trust?
Many families use trusts to hold property. Trusts can cause difficulties if a
relationship ends because trust property generally
stands outside the PRA.
There are, however, many legal remedies through which a partner can claim a
share of the trust property,
but they are not all found within the PRA. We
examine this law and consider whether reform is needed.
We look at how the PRA facilitates the resolution of property matters at the
end of a relationship. We look at whether the law and
processes meet
people’s reasonable expectations, and whether they are as inexpensive,
simple and speedy as is consistent with
justice.
• Part I – How should the PRA recognise children’s
interests?
Children have an important interest in the way their parents divide property
at the end of a relationship. We focus on whether the
PRA does enough to
recognise the interests of children and we look at what taking a more
child-centred approach would look like in
practice.
The PRA does not require all people to divide their property according to its rules. Instead, partners can make their own agreements to determine the status, ownership and division of their property in the event they separate or one partner dies. Partners can also make their own agreement to settle any differences that have arisen between them with respect
to their property. We look at how the PRA controls the way these agreements
are made and how agreements are to apply.
• Part K – Should the PRA affect the rights of
creditors?
The PRA has a general rule that creditors continue to have the same rights against the partners and their property as if the PRA had not been passed. There are however a few exceptions. We examine whether the general
rule and the exceptions are working appropriately.
• Part L – What should happen when people or property have a
link to another country?
Some relationships will have links with other countries, either because the
partners have ties with those countries or because they
hold property
overseas. We look at when the PRA should apply to these relationships, when
a New Zealand court will decide the
matter, how and where remedies can be
enforced, and whether reform is needed.
• Part M – What should happen when one partner
dies?
When a partner dies, the surviving partner can choose to either take whatever provision is made for them under the deceased’s will, or apply for a division of the couple’s property under the PRA. There is also limited scope for the personal representative of the deceased to seek
a division under the PRA. These rules are complex. They give rise to difficult questions about the surviving partner ’s interest in the couple’s relationship property and the rights of other people who feel entitled to the deceased’s property. We discuss these issues and consider whether the PRA is the best statute to address these questions.
Chapter 2 – Why do we have the
PRA?
2.1 In order to understand why we have the PRA, it is helpful to look to
the past and explore how property practices when relationships
end have changed
throughout New Zealand’s history. We look at property practices in
traditional Māori society, those
that were inherited from England and
Wales and the series of law changes that ultimately resulted in the PRA. We
then go on to
explore the current social and legal context within which the PRA
currently operates.
Marriage and property practices in traditional Māori society
2.2 Māori ascribe to a unique world view that governs their
relationships with each other and the world around them. The roles
of men and
women in traditional Māori society can be understood only in the context
of this world view.17
2.3 In traditional Māori society, men and women were considered essential parts of the collective whole, both formed part of the whakapapa that linked Māori people back to the beginning of the world, and women in particular played a key role in linking the past with the present and the future.18 Women were nurturers and organisers, valued within their whānau, hapū and iwi.19 Women
of rank maintained powerful positions within the social and political organisations of their tribal nations, reflected in the fact
that some women signed the Treaty of Waitangi on behalf of
their
125 at 125.
125 at 125.
hapū.20 Women’s mana could be inherited from male and female
tupuna, as well as conferred on female and male
descendants.21
2.4 Marriage was a relationship of importance not only to the spouses but also to their whānau, for it established links between the whānau and provided each with new generations.22 According to Māori custom, public expression of whānau approval established
a couple as “married”.23 A married woman remained a part of her own whānau even if she chose to live with her spouse’s whānau: her marriage did not entail a transferral of “property from her father to her spouse”.24 Spousal differences were resolved between whānau,25 and in cases where misconduct was shown, divorce was relatively simple so long as the correct procedures were followed.26
Divorce carried no stigma, and child care arrangements and support were
sorted out within the whānau context.27
2.5 While Māori valued marriage, it was not given absolute precedence
over other relationships because of the emphasis placed
on descent.28
For Māori, descent and descent group membership are key elements in
the organisation of both social
1992). Some marriages were arranged for the purpose of building relationships between iwi, in some cases for securing peace following hostilities: Hirini Moko Mead Tikanga Māori (Revised ed, Huia Publishers, Wellington, 2016) at 177–180.
The Experiences of Māori Women; Te Tikanga o te Ture: Te Mātauranga o ngā Wāhine Māori e pa ana ki tēnei (NZLC R53, 1999) at 19 and Jacinta Ruru “Kua tutū te puehu, kia mau: Māori aspirations and family law policy” in Mark Henaghan and Bill Atkin (eds) Family Law Policy in New Zealand (4th ed, LexisNexis, Wellington, 2013) 57 at 62.
25 ET Durie Custom Law (unpublished confidential draft paper for the Law Commission, January 1994) at 52.
27 Annie Mikaere “Māori Women: Caught in the contradictions of a Colonised Reality” [1994] WkoLawRw 6; (1994) 2 Waikato LRev 125 at 127.
However, the tikanga of muru was traditionally practised in circumstances that threatened the institution of marriage, including he tangata pūremu: Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 161 and 255.
28 Jacinta Ruru “Kua tutū te puehu, kia mau: Māori aspirations and family law policy” in Mark Henaghan and Bill Atkin
(eds) Family Law Policy in New Zealand (4th ed, LexisNexis, Wellington, 2013) 57 at 62.
life and personal identity.29 Mana, land rights and the trusteeship
of taonga all passed down descent lines.30
2.6 Māori place high value on land, or whenua.31 Māori are “tangata whenua”, or people of the land, and cultural practices or tikanga associated with birth and death emphasise links to the land.32
Land was the foundation of the social system, and continuity
of the group depended very much on a home base, called te wā
kāinga, where people could live like an extended family.33 The
relationship Māori had with the land was not about owning the land or being
master of it:34
In the beginning land was not something that could be owned
or traded. Māoris did not seek to own or possess anything, but to
belong. One belonged to a family, that belonged to a hapū,
that belonged to
a tribe. One did not own land. One belonged to the land.
2.7 Both men and women had the capacity to hold
property:35
The position of Māori women with regard to the ownership of property
was in great contrast to that of their Pākehā
contemporaries. In
Māori society before and after contact, use- rights over land and resources
were ‘owned’ or held
by women as individuals as well as by men,
subject only to the overriding right of the tribal community and the mana
(authority)
of chief over the land and people.
2.8 Marriage “did not alter this reality.”36 A woman retained ownership of land that was hers prior to marriage, and decisions regarding
it were hers to make, subject to her whānau and hapū
interests.37
29 Jacinta Ruru “Kua tutū te puehu, kia mau: Māori aspirations and family law policy” in Mark Henaghan and Bill Atkin
(eds) Family Law Policy in New Zealand (4th ed, LexisNexis, Wellington, 2013) 57 at 62.
31 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 285–286.
32 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 287.
33 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 288.
35 Angela Ballara “Wahine Rangatira: Māori Women of Rank and their Role in the Women’s Kotahitanga Movement of the
1890s” (1993) 27 The New Zealand Journal of History 127 at 133–134. See also Law Commission Justice: The Experiences of Māori Women; Te Tikanga o te Ture: Te Mātauranga o ngā Wāhine Māori e pa ana ki tēnei (NZLC R53, 1999) at 15; and Judith Binney and Gillian Chapman Ngā Mōrehu The Survivors (Oxford University Press, Auckland, 1986) at 25-26.
36 Jacinta Ruru “Indigenous Peoples and Family Law: Issues in Aotearoa/New Zealand” (2005) 19 Int J Law Policy Family 327 at 330. See also Law Commission Justice: The Experiences of Māori Women; Te Tikanga o te Ture: Te Mātauranga o ngā Wāhine Māori e pa ana ki tēnei (NZLC R53, 1999) at 22.
37 Jacinta Ruru “Indigenous Peoples and Family Law: Issues in Aotearoa/New Zealand” (2005) 19 Int J Law Policy Family
327 at 330 and Angela Ballara “Wahine Rangatira: Māori Women of Rank and their Role in the Women’s Kotahitanga
Movement of the 1890s” (1993) 27 The New Zealand Journal of History 127 at 134.
Women could hand land down to some or all of their children,
male or female, and gifts of land were often made by parents to their daughters on their marriage.38 If a woman’s family gifted land to her husband in celebration of their marriage, his right
of occupancy would terminate and the land would revert to her family if on
the woman’s death there were no children of the
marriage and the husband
had no blood link to the land.39
The impact of introduced law on the role of Māori women in
society
2.9 At the time of the signing of the Treaty of Waitangi in 1840, Māori
women were acknowledged as owners of Māori land
in accordance with
tikanga.40 Māori women continued to play important and active
leadership roles during the latter part of the nineteenth century,
particularly
in the Māori land movements and the land
wars.41
2.10 However the role of Māori women in society was gradually undermined in the period of colonisation that followed the signing of the Treaty of Waitangi.42 Māori collectivism was philosophically at odds with the colonial ethic of individualism.43
The role of women as nurturers and organisers was challenged
by the colonial view of men as heads of the family, while the role of women
of rank as leaders was challenged by the colonial view
of the subordinate role
of women to men.44 The relationship of women with the land was also
challenged by the colonial concept of individual land ownership and the role of
men as property owners.45
41 Angela Ballara “Wāhine Rangatira: Māori Women of Rank and their Role in the Women’s Kotahitanga movement of the
1890s” (1993) 27 The New Zealand Journal of History 127 at 133–134.
42 Law Commission Justice: The Experiences of Māori Women; Te Tikanga o te Ture: Te Mātauranga o ngā Wāhine Māori e pa ana ki tēnei (NZLC R53, 1999) at 11; and Pat Hohepa and David Williams The Taking into Account of Te Ao Maori in Relation to Reform of the Law of Succession (NZLC MP6, 1996) at 29.
43 Annie Mikaere “Māori Women: Caught in the contradictions of a Colonised Reality” (1994) 2 Waikato LRev 127 at 133.
2.11 Most Māori married according to their own custom until the early
twentieth century.46 However, the English Laws Act 185847 and successive marriage laws required Māori to conform more closely to the legal requirements for establishing marriage inherited
from England until, in the 1950s, customary marriages were no longer legally
recognised.48 To avoid their children being deemed illegitimate, and
to access social services (such as the widow’s benefit and housing
assistance), Māori couples had to marry according to State law. This led
some Māori to move away from customary marriage,
although it remained
common in the 1950s and 1960s.49 The Status of Children Act 1969,
which eliminated the discrimination of children based on their parents’
marital status, and
the growing prevalence of cohabitation among non-
Māori, may have subsequently reduced pressure for Māori couples to
officially
register a marriage.50 Today the general rule remains
that Māori have to marry in accordance with State law in order for their
marriage to be legally
recognised.51
2.12 Customary Māori land tenure with regard to women was
progressively undermined in the late nineteenth century.52 The Native
Land Act 1873 provided that husbands should be party to all deeds executed by
married Māori women.53 Husbands on the other hand were free to
dispose of their Māori wives’ land
46 Megan Cook “Marriage and partnering — Marriage in traditional Māori society» (4 May 2017) Te Ara — The Encyclopedia of New Zealand <www.teara.govt.nz>.
47 The English Laws Act 1858 declared that the laws of England had force in New Zealand. See Law Commission Justice: The
Experiences of Māori Women; Te Tikanga o te Ture: Te Mātauranga o ngā Wāhine Māori e pa ana ki tēnei (NZLC R53, 1999) at
22.
48 Law Commission Justice: The Experiences of
Māori Women; Te Tikanga o te Ture: Te Mātauranga o ngā
Wāhine Māori e pa ana
ki tēnei (NZLC R53, 1999) at 22. The
Māori Purposes Act 1951, s 8(1) and the Māori Affairs Act 1953, s 78,
both provided that:
Every marriage to which a Māori is a party shall be celebrated in the
same manner, and its validity shall be determined by the
same law, as if each of
the parties was a European; and all provisions of the Marriage Act 1908 shall
apply accordingly.
The Māori Affairs Act also invalidated all future Māori customary marriages and any marriages entered into in the past, except as expressly provided by that Act (s 79).
51 Family law statutes enacted since 1950, including the Marriage Act 1955, largely ignore Māori customary marriages.
The exception is Te Ture Whenua Maori Act 1993, which preserves the application of family maintenance in relation to marriages in accordance with tikanga Māori, but only those entered into before 1 April 1952 (s 106(4)). See Jacinta Ruru “Indigenous Peoples and Family Law: Issues in Aotearoa/New Zealand” (2005) 19 Int J Law Policy Family 327 at 334.
52 Angela Ballara “Wahine Rangatira: Māori Women of Rank and their Role in the Women’s Kotahitanga Movement of the
1890s” (1993) 27 The New Zealand Journal of History 127 at 134.
interests without their wife being a party to the deed.54 Legislation
enacted during this period also moved land ownership into individual
(usually male) ownership rather than guardianship, again eroding
Māori
women’s control.55
2.13 As the Law Commission has earlier observed:56
Land alienation had profound effects on Māori society, and in particular Māori women, as it destroyed the collective whānau/ hapū unit. That the whānau/hapū unit was given less importance undermined the values that maintained its well-being. The
erosion of those values – family and tribal history, language
skills, mutual caring and support – eroded the importance
of the roles and
of the women who traditionally performed them.
2.14 The imposition on Māori of colonial standards subordinated Māori women and contributed directly to the diminution of their value
in Māori society.57 The influence of introduced laws and
culture eventually affected the core of Māori society. When the English
common law was applied
to Māori women, their status was the same as
their English counterparts.58
Post-colonial history of relationship property law
The doctrine of matrimonial unity
2.15 Colonial New Zealand inherited its rules of marriage and divorce from
England and Wales. In contrast to the role of women
in traditional Māori
culture, in English common law the husband was the authoritarian head of the
family, with powers over both
person and property of his wife and children. On
marriage, the law deemed husband and wife to be one legal person, and that
person
was the husband. This was known as the doctrine of matrimonial unity,
and it meant that most of the wife’s property
rights were acquired by the husband on marriage.59 The property
of the husband and wife could be used and, in most cases, disposed of as the
husband pleased. It was also available to the husband’s
creditors to
satisfy his debts. In contrast, the wife could not dispose of what had been her
property without the consent of her
husband.60
2.16 The husband, in return for the ownership and control of property his wife brought to the marriage, had an obligation to maintain his wife and children.61 This maintenance obligation remained
even if the husband and wife ceased to live together, and could be enforced
by a court.62
2.17 The importance of the institution of marriage in post-colonial New
Zealand meant that it was supported and protected by the
State and the justice
system: “Entry to and exit from marriage was firmly controlled, and the
responsibilities of husband
and wife were supported by the law and the fact that
the welfare system was very limited.”63
The separation of property system
2.18 In the nineteenth century, New Zealand lawmakers introduced legislation
to remove many of the legal disabilities the doctrine
of matrimonial unity
placed on married women. In the first instance, changes were relatively
modest, providing limited protections
for “deserted
wives”.64
59 See RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [1.4].
60 The courts did, however, develop a number of ways to mitigate the harshness of the doctrine. In particular, the courts of equity recognised that a settlement on trust solely for the wife’s benefit was not captured by the doctrine, and thus a husband and his creditors could not access those funds. This led to the widespread practice of marriage settlements
among the moneyed classes. See Ulrich v Ulrich, [1968] 1 WLR 180 at 188 (CA); W v W, [2009] NZSC 125; [2010] 2 NZLR
31 at [14]; Nicola Peart “Intervention to Pervent the Abuse of Trust Structures in New Zealand” [2010] NZ L Rev 567 at
592; John Rimmer “Nuptial Settlements: Part 1” (1998) 5 PCB 257 at 258.
61 A Angelo and W Atkin “A Conceptual and Structural Overview of the Matrimonial Property Act 1976” (1977) 7 NZULR
237 at 241–242. See also Dewe v Dewe [1928] P 113 at 119 per Lord Merivale as cited in RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [1.5]: “A husband is obliged to maintain his wife, and may by law be compelled to find her necessaries, as meat, drink, clothes, physic, etcetera suitable to the husband’s degree, estate or circumstances”.
62 Matrimonial Causes Act 1857 (England & Wales) 20 & 21 Vict c 85, s 32. In New Zealand see the Divorce and
Matrimonial Causes Act 1867, s 27.
63 Megan Cook “Marriage and Partnering - Marriage in the 19th century” (4 May 2017) Te Ara - the Encyclopedia of New
Zealand <www.teara.govt.nz> at 2.
of a wife who had been deserted by her husband could later be seized by the husband or even his creditors, leaving
the deserted wife destitute: (16 August 1860) 2 NZPD 320. The circumstances in which an order could be sought were enlarged by the Married Women’s Property Protection Act 1870. Section 2 granted the woman the right to seek an order when she and her husband had separated due to the husband’s cruelty, adultery, habitual drunkenness or habitual failure to provide maintenance for the wife and children. Both the 1860 Act and the 1870 Act were consolidated in the Married Women’s Property Protection Act 1880.
2.19 More significant reform came with the Married Women’s Property
Act 1884, which swept aside the doctrine of matrimonial unity and replaced
it with a “separation of property” system.
Parliament’s
primary concern was that the matrimonial unity doctrine had allowed husbands
to squander the property that their
wives brought to the marriage so that
women were left without any means.65 In response, the Act provided
that a wife could independently acquire, hold and dispose of property as if
she was a “feme
sole”.66 In other words, she was an
independent legal person. Wives could now acquire their own property, enter
contracts in their own name,
and sue and be sued.
2.20 While the previous law deemed husband and wife to be one legal person (the husband), the effect of the Married Women’s Property Act was to treat husband and wife virtually as strangers.67 The
Act looked at property as his or hers, rather than “theirs”.68 This, however, brought its own problems. The law now required a court to divide property according to each spouse’s entitlements under general property law principles. More often than not, ownership was determined based on who held legal title and had paid for each item of property. The Act therefore did little for married women as most had remained homemakers, earned no income and accordingly had no means to contribute financially to the
purchase of property.69 In reality most of the matrimonial property was in the husband’s sole name and had been paid for from his earnings. Likewise, the income on which the spouses relied was usually earned by the husband. As a result, on separation many women were left without any rights to the property used and acquired in the course of the marriage, unless they could show
a direct interest in property that they had paid for in “cold hard cash”.70
2.21 Despite the problems with the Married Women’s Property Act, its
substance was retained in later re-enactments of the
same
65 (5 September 1884) 48 NZPD 155.
66 Married Women’s Property Act 1884, s 3.
68 Special Committee on Matrimonial Property Matrimonial Property: Report of a Special Committee: Presented to the Minister of
Justice in June 1972 (Department of Justice, June 1972) at 3.
law, and lingered well into the twentieth century.71 Amendments
in 1961 extended the principles to relationships that ended on
death.72 No provision was made for de facto
relationships.73
The Matrimonial Property Act 1963 – Recognising non-monetary
contributions to property
2.22 In the second half of the twentieth century, concern was growing about the way in which the law disadvantaged women. There
was increasing recognition that a wife may have supported her husband for many years by maintaining the home and looking after the children. These types of contributions undoubtedly helped the husband to work, earn income and acquire property.74
However under the existing Married Women’s Property Acts these types
of contributions did not create any property interest
in the matrimonial
property.
2.23 The Matrimonial Property Act 1963 (1963 Act) was introduced in response to these concerns. It retained the separation of property system of the Married Women’s Property Act, but with
a “superimposed judicial discretion” that enabled a court to make orders overriding the spouses’ strict legal and equitable75 interests in the property.76 When making those orders, a court was required to have regard to the contributions the husband and wife made to
the property in dispute, whether “in the form of money
payments,
sitting on it.” (Lord Simon of Glaisdale “With All My Worldly Goods” (address to the Holdsworth Club, University of
Birmingham, 20 March 1964) at 32).
76 Matrimonial Property Act 1963, s 5(3). See A Angelo and W Atkin “A Conceptual and Structural Overview of the
Matrimonial Property Act 1976” (1977) 7 NZULR 237 at 248.
services, prudent management, or otherwise”.77 For example,
if the legal title to the matrimonial home was solely in the husband’s name, a wife could claim an interest in that property by showing contributions that would not ordinarily result in a property interest under general property law principles. A 1968 amendment clarified that it did not matter that the spouse had
not made a contribution in the form of money payments, nor did those
contributions have to be of an “extraordinary
character”.78
2.24 The reforms brought about by the 1963 Act were very progressive for its time, although it applied only to marriages. It was at
this point that New Zealand matrimonial property law broke away from
England and Wales and took on its own distinctive character.79 The
philosophy of the 1963 Act was to produce an outcome that recognised a
wife’s role in the family, at a time when marriage
was still a defining
structure of society and a wife’s role was still largely focused in the
home.80 For the first time a wife’s non-monetary efforts for
her family, rather than direct financial contributions, could justify an
interest in property when that marriage ended, on separation or death.81
Despite the landmark shift, however, a number of problems with the 1963
Act’s practical application emerged over the next decade.
The Matrimonial Property Act 1976 – “A new deal”82
2.25 Problems with the 1963 Act were identified in a report released in
1972 by a committee comprising members of the Ministry
of
77 Matrimonial Property Act 1963, s 6(1).
78 Matrimonial Property Amendment Act 1968, s 6(1), which inserted a new s 6(1A) into the Matrimonial Property Act
1963.
(UK). See also: Law Commission of England and Wales Family Law: The Financial Consequences of Divorce: The Response to the Law Commission’s Discussion Paper, and Recommendations on the Policy of the Law (LAW COM No 112, 1981).
1945” (1978) 12 New Zealand Economic Papers 156 at 157; Ian Pool, Arunachalam Dharmalingam and Janet Sceats The
New Zealand Family from 1840: A Demographic History (Auckland University Press, 2007) at 225.
Justice and the New Zealand Law Society.83 In 1975 the Select
Committee on Women’s Rights also reported to Parliament on the way the 1963 Act was working.84 Both committees complained that the 1963 Act’s approach of requiring a spouse to show
specific contributions to identified pieces of property still caused difficulties for married women. The committees said the law should instead assume that equal contributions have been made
in respect of all assets of the marriage, especially the family home, and
equal division should be automatic.85 A “coherent and
rational code” was needed to replace the 1963 Act.86
2.26 There was a general political consensus that progressive reform was
needed.87 The Matrimonial Property Bill 1975 (Bill) was introduced
into Parliament and, despite an intervening general election and change
in
government, the Bill was enacted and became the Matrimonial Property Act 1976
(the 1976 Act). 88
What problems did the Bill intend to remedy?
2.27 In a White Paper published on the introduction of the Bill to
Parliament, the Minister of Justice explained:89
The law in New Zealand that now governs relations between husband and wife in property matters, despite the improvements made in the last 15 years, falls well short of achieving equal
justice in practice between married people; nor does it accord with the
way in which most married people in New Zealand look on their
property and treat
it.
2.28 The Minister explained that the fundamental problems with the
1963 Act included:90
83 Special Committee on Matrimonial Property Matrimonial Property: Report of a Special Committee: Presented to the Minister of
Justice in June 1972 (Department of Justice, June 1972).
84 NV Douglas “Women’s Rights Committee: June 1975” [1975] IV AJHR I13.
85 Special Committee on Matrimonial Property Matrimonial Property: Report of a Special Committee: Presented to the Minister of Justice in June 1972 (Department of Justice, June 1972) at 11. NV Douglas “Women’s Rights Committee: June 1975” [1975] IV AJHR I13 at 75.
86 Special Committee on Matrimonial Property Matrimonial Property: Report of a Special Committee: Presented to the Minister of
Justice in June 1972 (Department of Justice, June 1972) at 2.
88 The only major issue which divided the two parties in the process leading to the enactment of the Matrimonial Property
Act 1976 was whether de facto partners should be included: see (7 December 1976) 408 NZPD 4564.
(a) An applicant had to prove specific contributions to
identifiable items of property and have them quantified by a court.91 In truth, the Minister said, a wife would be seeking an award from the husband’s property, rather than
a share of “their” property. In settlement negotiations, this
placed married women in an inferior bargaining position.
(b) There was a considerable measure of uncertainty in every case. The
cases decided under the 1963 Act showed that results could
differ
“significantly” on similar facts, and could depend “a good
deal” on which judge heard the case.
(c) The practice of the courts had been less than generous.
There had been cases where wives had made significant contributions to their
families over a number of years but, despite such loyalty
and hard work, they
were awarded a share of between one quarter and one third of the family
home.92
(d) The task of showing specific contributions to identifiable items of
property was often impossible in practice. The non- monetary
contributions of
wives and husbands were of a far more general character, although no less
real.
What solution did the Bill seek to provide?
2.29 The Bill was said to embody the concept of “marriage as an equal
partnership between two equal persons and as the basis
on which our present
society is built”, and was “devised in the light of New Zealand
needs and New Zealand values”.93 Spouses were no longer to be
treated as strangers in law but as partners in a common
91 The courts’ approach of determining disputes by considering each item of property and making orders in respect of those items had been confirmed by the Court of Appeal in E v E [1971] NZLR 859 (CA). However the Privy Council later saw no justification or foundation for an “asset by asset” approach as taken by the Court of Appeal: Haldane v Haldane [1976] 2
NZLR 715 (PC) at 727.
Though judicial discretions are inherently unpredictable, the pattern that the courts appear to have adopted in exercising their discretion was to grant the wife an equal share in the matrimonial home, where she could show some financial
or material contribution as well as domestic contributions, while in other cases she could normally have expected an entitlement of around about a third.
enterprise.94 The primary shift in emphasis was from the concept
of contribution to the property, to contributions to the marriage
partnership, which were presumed to be equal.
2.30 The Bill was founded on the basis that a court should be permitted to look at the marriage assets as a whole and relate the contributions of the husband and wife to them, rather than to specific items of property.95 The Bill did this by introducing the concept of “matrimonial property”.96 Matrimonial property was
the property that the husband and wife could regard as “theirs”. Broadly speaking, the Bill defined matrimonial property as the family home, family chattels and all other property acquired by husband or wife after the marriage except by inheritance or gift.97
It was this matrimonial property that would be subject to equal division
between the husband and wife. Separate property, in contrast,
would continue to
belong solely to the husband or wife and would not be eligible for sharing. All
property owned by either spouse
that did not come within the definition of
matrimonial property was separate property.
2.31 The concept of equal division of matrimonial property, the Minister
explained, “has the great advantage of reintroducing
certainty, putting
husband and wife in an equal bargaining position should the marriage break up,
and being consistent with broad
social justice.”98
2.32 The Bill expressly considered the role of Māori land, which had not been excluded under the 1963 Act. The Bill sought to protect the special status of Māori land and recognise the interests of other parties in that land by removing it from the ambit of the property sharing regime.99 There was no discussion in Parliament of the change brought about by the Bill, but it seems to reflect
the view that special rules for Māori land were necessary.100 The
exclusion of Māori land meant that if one or both of the
spouses
94 Bill Atkin “Classifying Relationship Property: A Radical Re-shaping” in Jessica Palmer, Nicola Peart, Margaret Briggs and
Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
99 Clause 6 of the Matrimonial Property Bill 1975 (125–1) excluded Māori land within the meaning of the Māori Affairs Act
1953.
100 Jacinta Ruru “Implications for Māori: Historical Overview” in Nicola Peart, Margaret Briggs, and Mark Henaghan (eds)
had an interest in Māori land that land would not fall within the
pool of matrimonial property available for sharing at the end of the
marriage.
2.33 While the Bill dealt only with dividing property on separation, the
Government also considered that the rights of a surviving
spouse should not
be inferior in any way to those of a separated spouse.101 The
Government observed, however, that reforming the law on the division of
property on death presented “complex and stubborn
problems”, and
elected to deal with this issue separately.102
2.34 The Government also questioned whether the new equal sharing regime should apply to de facto partners.103 It observed that the same vulnerabilities married women suffered under the previous law could also affect women in long standing de facto relationships. The Minister said that for “practical and humanitarian grounds” there was a strong case for including
de facto partners within the new regime. Following a change of
Government, de facto relationships were removed from the Bill.104
The incoming Minister of Justice said that removing de facto relationships
meant that “...we believe that individuals should
demonstrate to those
they live with a responsibility to the other partner, and a responsibility at
law to regularise that union”.105
2.35 The resulting 1976 Act was recognised as:106
... social legislation aimed at supporting the ethical and moral
undertakings exchanged by men and women who marry by providing a
fair and
practical formula for resolving the obligations that will be due from one to the
other in respect of their “worldly
goods” should the marriage come
to an end.
2.36 In the years that followed, the general rule of equal sharing of
matrimonial property became accepted in New Zealand as
the new
norm.107
104 Matrimonial Property Bill 1976 (125-2) as reported from the Statutes Revision Committee.
105 Hon David Thomson MP, Minister of Justice (9 December 1976) 408 NZPD 4727.
106 Reid v Reid [1979] NZCA 30; [1979] 1 NZLR 572 (CA) at 580 per Woodhouse J. Discussed in Bill Atkin and Wendy Parker Relationship
Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at 5.
107 See JM Krauskopf and CJ Krauskopf “Sharing in Practice: the effects of the Matrimonial Property Act 1976” (1988) 10 Fam
Law Bull 140. The authors conducted a pilot study on, among other things, the extent to which the equal sharing norms
The 2001 Amendments and the new Property
(Relationships) Act 1976
2.37 In 1988 a Working Group was established as part of the
Government’s social policy reform programme, to revise and update
matrimonial property and family protection laws, including the 1976 Act.108
There had been significant change in the social landscape since 1976, and
the Working Group was required to consider whether equal
division of
matrimonial property provided a just and equitable result and whether the
general approach of the 1976 Act was sound.109
2.38 The Working Group reported:
(a) It had looked at the “considerable topical concern” that equal division of matrimonial property had failed to secure an equitable result.110 The heart of the debate about equality and equity, the Working Group said,
was “the economic consequence of current sex roles in our society.”111 This could not, however, be laid at the door of the 1976 Act.112 While the Working Group recommended improvements that would “go some
way towards avoiding the discrepancies in the spouses’ standard of living”,113 it considered it was unrealisistic to expect the 1976 Act to achieve social equity between the sexes.114 Rather, the State must continue to have
a “significant role” in reducing disparities caused by
“social factors.”115
had been accepted in New Zealand one decade after the introduction of the Matrimonial Property Act 1976. The authors concluded that a “minor social and legal revolution occurred in the acceptance of the major goals of the legislation”.
108 The Working Group was convened by Geoffrey Palmer, then Minister of Justice, to review the Matrimonial Property Act
1976, the Family Protection Act 1955, the provision for matrimonial property on death and the provision for couples living in de facto relationships. The Working Group was convened to deal with the broad policy issues, rather than to produce a blueprint for new legislation: Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 1–2.
109 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 3.
110 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
4–15.
111 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12.
112 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12.
113 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
14. These recommendations are discussed at paragraph 2.40 below.
114 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12.
115 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12.
(b) It was still the case that the surviving partner in a
marriage ended by death could be worse off than one whose marriage ended by separation. The Working Group observed that this had long been recognised as “unfair and untenable” and recommended that the 1976
Act should provide for the same rules of division of property on
death.116
(c) Developments in other areas of law had given increasing recognition to de facto relationships. These were permanent and committed relationships in which the partners lived together as husband and wife despite not being legally married. The only way a person could claim an interest in his or her de facto partner ’s property was to commence court proceedings, which were often long and complex.117 Although not unanimous on the exact changes required, the Working Group concluded that
the 1976 Act should be reformed to extend its rules of property division to
de facto relationships.118
2.39 The Working Group reported in 1988, but there was little advancement of its recommendations until 1998, when the Government introduced two reform bills into Parliament.119 Their progress through the House was slow, in part due to a general election and change of government in 1999. This resulted in substantial changes to the proposed reforms, including changes that addressed “the issue of economic disadvantage suffered by
a non-career partner when a relationship breaks down”.120
The amendments were finally enacted in 2001, and the 1976 Act was renamed
the Property (Relationships) Act 1976 (PRA).
2.40 The 2001 amendments extended the PRA to cover de facto relationships,
both same-sex and opposite-sex, and added a new part
to the PRA to provide for
the division of relationship
116 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at at 40.
682 (CA)). The Working Group noted that while the courts had tried to do justice between de facto partners, they had been “hampered by the fact that the law of trusts... is not really suited to achieving a just and predictable result in most cases.” See Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 64–65.
118 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 70.
119 Matrimonial Property Amendment Bill 1998 (109-1), which proposed amendments to the Matrimonial Property Act
1976; and the De Facto Relationships (Property) Bill 1998 (108-1), which proposed a new property division regime for de facto relationships, similar to but distinct from the regime for marriages.
120 Supplementary Order Paper 2000 (25) Matrimonial Property Amendment Bill 1998 (109-2) (explanatory note) at 71 and
74-75.
property if one partner died (either with or without a will).121
The presumption of equal sharing was extended to apply to all matrimonial property (now renamed “relationship property”), following the Working Group’s recommendation.122 New sections
15 and 15A sought to achieve greater substantive equality, by permitting departure from equal sharing to compensate for economic disparity caused by the division of functions in the relationship. The “underlying notion” of the PRA as amended in
2001 was “one of equity; that it is sometimes fair to treat people
differently in order to achieve a just outcome.”123
2.41 Changes were also made to the PRA to recognise the particular
significance of taonga and heirlooms, consistent with the Working
Group’s
recommendations.124 Both were explicitly excluded from the
definition of family chattels and as such were no longer available for
division.125 The Working Group noted that part of the value of
taonga and heirlooms is that they have passed down from earlier generations,
and this is lost if they are passed outside the family
group.126
2.42 The 2001 amendments were the last time significant changes
were made to New Zealand’s relationship property law, other than the
inclusion of civil unions in 2005.127
The PRA as social legislation
2.43 The PRA is social legislation. It reflects the State’s expectations as to how the wealth and resources of a family should be shared when relationships end. As former Principal Family Court Judge Peter Boshier has observed:128
The State... carries an overarching responsibility to provide a blueprint
for societal values which impact the way people live, behave
and interact, both
with each other and with their children. Within the umbrella of family law, it
is appropriate to express
121 Property (Relationships) Act 1976, Part 8.
122 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
13-14. Under the 1976 Act the equal sharing presumption had applied only to the family home and chattels, with other matrimonial property being divided on a contributions basis.
123 Wendy Parker “Sameness and difference in the Property (Relationships) Act 1976” (2001) 3 NZFLJ 276 at 278.
124 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at18.
125 Property (Relationships) Act 1976, s 2 definition of “family chattels”.
126 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 18.
127 Civil Union Act 2005; Property (Relationships) Amendment Act 2005.
128 Peter Boshier and others “The role of the state in Family Law” (2013) 51(2) Family Court Review 184 at 190.
such values from time to time. Accordingly, countries amend
their laws to reflect perceptions of changing social norms and obligations
and this is further carried out through how the courts
interpret and apply the
law.
2.44 The State’s role in shaping the law to both encourage and reflect change in societal values is apparent in the history of the PRA.
It has been significant particularly in challenging and redefining the role
of women in society: “nowhere is the progressive
emancipation of women
reflected more strongly than in the field of matrimonial property rights of
married people.”129 More recent developments have sought to
ensure fair treatment of different relationship types, by applying the same
rules of division
to de facto relationships and same-sex relationships. There
has also been a growing awareness that family law policy needs to
be better
attuned to recognising Māori, and this was reflected, for example, in the
exclusion of taonga from the PRA in 2001.130
2.45 This history emphasises the need for our review to be supported by a
clear understanding of the current values and attitudes
of New
Zealanders.
2.46 The discussion in this Issues Paper also takes place against the backdrop of New Zealand’s domestic human rights law and its participation in a number of international conventions and declarations. The New Zealand Bill of Rights Act 1990 prohibits unjustified discrimination on a range of grounds including
sex, marital status, family status and sexual orientation, with reference to the provisions of the Human Rights Act 1993.131 This is particularly relevant to our discussion on what relationships should be covered under the PRA and how the PRA should
treat short-term relationships.132 New Zealand has ratified
the International Convention on the Elimination of All Forms of
Discrimination Against Women and the United Nations Convention on
the Rights of
the Child.133 New Zealand has also
129 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [1.4].
130 Jacinta Ruru “Kua tutū te puehu, kia mau: Māori aspirations and family law policy” in Mark Henaghan and Bill Atkin
(eds) Family Law Policy in New Zealand (4th ed, LexisNexis, Wellington, 2013) 57 at 57.
132 See Parts B and E of this Issues Paper.
given its support to the non-binding Declaration of the Rights
of Indigenous Peoples.134 These commitments are relevant to our consideration of how the interests of women,135 Māori136 and children137 should be taken into account in the PRA. Any
recommendations we make in our final report will be reviewed for
consistency with domestic human rights law and New Zealand’s
international obligations.
The pillars of financial support available when relationships end
2.47 While the PRA addresses how property is to be divided when relationships end, it is only one part of the broader picture of how former partners and their children are supported into the future. Ideally, future needs should be met without reliance on State support or intervention. Adults should be able to provide for their families from their own incomes. Parents have legal obligations
to support their children and these are not extinguished on
separation.138
2.48 The principles of whanaungatanga and manaakitanga mean that in Māori culture, separating partners and their children may be supported by their whānau and indeed their hapū and iwi in
some cases.139 Support from extended family may also be
available
which New Zealand has ratified: see R I Carter Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis, Wellington, 2015) at 30.
1). State parties undertake, among other things, to ensure the practical realisation of the principle of the equality of men and women through law and other means; and to establish legal protection of the rights of women on an equal basis
with men (art 2).
in other cultures, notably among Pacific people families.140 All
cultures have a vested interest in the functional relationships that
determine the well-being and preservation of the family
unit.141
2.49 Recognising that it will not always be possible for some partners to support themselves and their children when relationships end, the State ensures that there are other means of financial
support available. These means of support have been described as
“pillars”.142 Each pillar addresses a different issue
and together with the PRA they establish a framework of financial
support.
2.50 When partners separate, pillars providing for ongoing support
include:
(a) Maintenance: A person may be entitled to maintenance from their former partner to the extent that it is necessary to meet their reasonable needs if they
cannot meet those needs themselves.143 Maintenance is intended to provide temporary relief to enable a partner to start constructing a new life post-separation.144 Each partner should assume responsibility for meeting their own needs within a reasonable period.145 Maintenance
is usually a matter for a court to determine, although there is nothing
preventing separating partners from making a private agreement
as to the
payment of maintenance. Maintenance is discussed in Part F.
(b) Child support: The costs of caring for any dependent children of the relationship are supported by payments made by a parent who doesn’t live with their children, or who shares the care of their children with another. The objects of the Child Support Act 1991 are set out
in section 4, and the Act affirms the right of children to be maintained by their parents, the corresponding
obligation on parents to maintain their children and the
2017) at Chapter 5 citing Susan MB Morton and others Growing Up in New Zealand: A longitudinal study of New Zealand children and their families. Now we are Four: Describing the preschool years (University of Auckland, May 2017) at 39.
141 John Chadwick “Whanaungatanga and the Family Court” (2002) 4 BFLJ 91.
143 Family Proceedings Act 1980, s 64.
144 See for example: Slater v Slater [1983] NZLR 166 (CA) at 174 and C v G [2010] NZCA 128; [2010] NZFLR 497 (CA) at [31] and [32].
145 Family Proceedings Act 1980, s 64A.
responsibility of parents to ensure that their obligations
to birth and adopted children are not extinguished by obligations to step-children.146 The amount of child support payable is calculated according to a formula set out in the legislation. The formula takes into account each parent’s income, living needs, number
of dependent children and care arrangements. The Commissioner of Inland Revenue is responsible for administering the scheme and any parent can apply to the Commissioner for a child support assessment. Court proceedings are not required. The formula does not take into account the special needs of a particular child or
the special circumstances of the parents, but a parent can apply to the
Commissioner for a departure from the standard formula. Child
support is
discussed in Part I.
(c) State benefits: The State has a role in supporting individuals under the Social Security Act 1964. This includes the financial support of single parents and jobseekers, the payment of supported living payments147 and pensions, and the provision of Working for Families tax credits for low income households. While recourse
to State benefits is generally seen as a last resort, it plays an important
role in supporting families post- separation:148
There is little enthusiasm worldwide for the state
to assume responsibility for the economic fallout of relationship
breakdown. In reality, where private resources are limited, one
party frequently
becomes at least partially dependent on state support, but this is more often
the product of inevitability than
design.
2.51 Where a relationship ends on death, in addition to having the right to
elect an entitlement under the PRA the surviving partner
may be able to access
State benefits of the kind described above. They may also have a claim under the
Family Protection Act 1955
against the deceased partner ’s estate which,
like maintenance on separation, seeks to provide temporary relief to enable
a
surving
146 Child Support Act 1991, s 4.
148 Joanna Miles “Financial Provision and Property Division of Relationship Breakdown: A Theoretical Analysis of the New
Zealand Legislation” (2004) 21 NZULR 267 at 272.
partner to start constructing a new life.149 Claims under the Wills
Act 2007,150 the Administration Act 1969151 or the Law
Reform (Testamentary Promises) Act 1949152 may also be available to a
surviving partner or any children of the deceased. These statutes are discussed
in Part M.
2.52 It is clear that the State has a vital interest in both the operation
of the PRA and its interaction with the other pillars
of financial support. When
relationships end, this usually comes at a financial cost to each partner, and
that cost is ultimately
borne by the State through the provision of benefits
when the other pillars fail. We have been mindful in preparing this Issues
Paper that the division of property at the end of a relationship can affect the
need for State support by one or both partners and
any affected
children.
Tikanga Māori and the PRA
2.53 In recent decades there has been a growing recognition of te ao
Māori (the Māori dimension) and the need to acknowledge
tikanga
Māori and address how it might to operate within or alongside New Zealand
law.153 In 2001 the Law Commission published a Study Paper,
Māori Custom and Values in New Zealand Law, in which it
concluded:154
If society is truly to give effect to the promise of the Treaty of Waitangi to provide a secure place for Māori values within New Zealand society, then the commitment must be total. It must involve a real endeavour to understand what tikanga Māori
is, how it is practised and applied, and how integral it is to
the
153 Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [117]. The Law Commission Act
1985 requires the Commission to take into account te ao Māori in making recommendations for the reform and development of the laws of New Zealand: s 5(2)(a). In a draft paper written for the purposes of the Commission’s review of Māori custom and values, Whaimutu Dewes said there is “an increasing acceptance that Māori Custom Law should
be recognised to ensure its survival and to provide Māori determined alternatives to a moncultural government legal system.” See Whaimutu Dewes Māori Custom Law: He Kākano i Ruia Mai i Rangiātea, e Kore e Ngaro (unpublished draft paper written for the Law Commission) at 11 as cited in Law Commission Māori Customs and Values in New Zealand Law (NZLC SP9, 2001). See also Jacinta Ruru and Leo Watson “Should Indigenous Property Be Relationship Property” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
154 Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [402], see also [403].
social, economic, cultural and political development of Māori, still
encapsulated within a dominant culture in New Zealand society.
2.54 In 2016, Sir Hirini Mead wrote that:155
... it is time for New Zealand to establish its own common law that is
relevant to our people and the realities we face in this country.
In other
words, Māori custom law has to be an essential part of our joint common
law.
2.55 David Williams has observed that a delicate balance is required of
law-makers and decision makers:156
If tikanga Māori is ignored altogether, except when it needs to be
obtained for the purpose of extinguishment, then the monoculturalism
of the past
will be perpetuated. On the other hand, if custom law is entirely removed from
the community context whence it arose
then it will rapidly lose its
authenticity.
2.56 New Zealand legislation has, for many years, recognised various
Māori concepts.157 The courts address Māori concepts in
case law, taking account of tikanga Māori both through the provision of
expert evidence
and by taking judicial notice of it.158
2.57 Ruru identifies the challenge to the family law system and its
practitioners, in “how to recognise, understand and accommodate
tikanga
Māori relating to the family”.159
2.58 In the context of the PRA, there are a number of specific issues
of particular interest to Māori.160 However, there is also a broader question about the recognition of tikanga Māori in the framework
155 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at viii.
156 David Williams He Aha Te Tikanga Māori (unpublished draft paper for the Law Commission, 1998) at 5. See also Law
Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [294].
160 See paragraph 4.48 for a discussion of Property (Relationships) Act 1976 matters where tikanga Māori is relevant.
of the PRA as it is outlined in Chapter 3. To provide context to
that discussion, we briefly describe tikanga
Māori.161
What is tikanga Māori?
2.59 Tikanga Māori162 refers to the body of rules and values developed by Māori to govern themselves – the “Māori way of doing things”.163 It is sometimes described as Māori custom law.164
Importantly, tikanga Māori should not be seen as fixed from time
immemorial, but is based on a continuing review of fundamental
principles in a
dialogue between the past and the present.165 Mead observes that
“[t]ikanga Māori is adaptable, flexible, transferable and capable of
being applied to entirely new
situations.”166
2.60 In the Commission’s Study Paper, Māori Custom and Values in
New Zealand Law, it concluded that:167
Tikanga Māori comprises a spectrum with values at one end and rules at the other, but with values informing the whole range. It includes the values themselves and does not differentiate between sanction-backed laws and advice concerning non-sanctioned customs. In tikanga Māori, the real challenge is to understand the values because it is the values which provide the primary guide
to behaviour. Aspects of tikanga may be subject to a
particular
163 Joseph Williams He Aha Te Tikanga Māori (unpublished paper for the Law Commission, 1998) at 2, as cited in Law
Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [71].
166 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 355.
to achieve a modern Maori consensus on the nature of customary law that is workable in the present, it is necessary to appreciate the extent to which colonisation was more than simply a catalyst for the modification of customary law. That at different times Maori customary law was denied, acknowledged, defined modified and extinguished according to non-Maori agenda casts a long shadow that cannot be ignored.
interpretation according to certain circumstances but then
reinterpreted in the light of other circumstances. Thus tikanga Māori
as a social system was traditionally pragmatic and open-
ended and remains so
today.
2.61 While tikanga Māori was an essential part of traditional
Māori society and was binding, today there are choices
about how people
conduct their lives, and tikanga is being revisited.168
2.62 Whanaungatanga is the underlying concept of Māori customary family law.169 It signals that in traditional Māori thinking relationships are everything, and the individual identity is defined through that individual’s relationships with others; the individual is important as a member of the collective.170 Whakapapa, which identifies the nature of relationships between all things, is the
glue that holds the Māori world together.171 It follows that
tikanga Māori emphasises the responsibility owed by the individual to the
collective.172 Mead characterises this as individuals expecting to be
supported by their relatives near and distant, while the collective group
also
expects the support and help of its individuals.173
2.63 The basic social unit of Māori society is the whānau.174 Each whānau belongs to one or more hapū and iwi, although Mead observes that today, these terms “are not firmly attached to one kind of kinship grouping”, rather they are used more creatively.175
Nuclear families are submerged in and dominated by the whānau, which also include grandparents, aunts and uncles.176 Children are
considered taonga. The child is viewed as not the child of the
birth
168 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 7. Richard
Mulgan suggests that
...neither the modern whanau nor the modern iwi encompasses the individual’s daily life to the extent achieved by the former hapu. Given that both the extent and the flexibility of the authority of tikanga over individuals depended on their involvement in the life of the hapu, the attenuation of hapu life must set limits to the extent to which Maori customary law is appropriate for modern urban Maori. By the same token, there may be grounds for allowing a more extensive application of tikanga Maori for those Maori who choose to live in closer, more intensely Maori communities which, like the traditional hapu, encompass their economic as well as their social life.
169 Jacinta Ruru “Indigenous Peoples and Family Law: Issues in Aotearoa/New Zealand” (2005) 19 IJLPF 327 at 329. See
also Joseph Williams He Aha Te Tikanga Māori (unpublished paper for the Law Commission, 1998) at 9, as cited in Law
Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [130].
170 Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [130].
171 Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [130] citing Joseph Williams He Aha Te
Tikanga Māori (unpublished paper for the Law Commission, 1998) at 9 .
172 Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, Wellington, March 2001) at [130].
173 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at p 32.
174 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 224.
175 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 242.
parents, but of the family, and the family is not a nuclear unit
within space, but an integral part of a tribal whole.177
2.64 Alongside whanaungatanga there is manaakitanga, which Mead describes as “nurturing relationships, looking after people, and being very careful about how others are treated”.178 Mead stresses that manaakitanga is important no matter what the circumstances might be.179 Durie observes that “[k]inship bonds [compel]
support for whanau during crisis without reference to cause or
blame.”180
177 Jacinta Ruru “Indigenous Peoples and Family Law: Issues in Aotearoa/New Zealand” (2005) 19 IJLPF327 at 329 quoting
Department of Social Welfare 1996 74-5.
178 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 33.
Alternatively, Durie describes manaakitanga as “generosity, caring for others and compassion”: ET Durie Custom Law (unpublished confidential draft paper for the Law Commission, January 1994) at 6, referred to in the Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, Wellington, March 2001).
179 Hirini Moko Mead Tikanga Māori: Living by Māori Values (Revised ed, Huia Publishers, Wellington, 2016) at 33.
180 ET Durie Custom Law (unpublished confidential draft paper for the Law Commission, January 1994) at 52 as cited in Law
Commission Māori Custom and Values in New Zealand Law (NZLC SP9, Wellington, March 2001).
Chapter 3 – What does the PRA
do?
3.1 The PRA sets out rules that govern how property owned by either or both partners is divided when a relationship ends. The rules that apply when partners separate sit within a framework. The framework, illustrated in the pyramid below, also includes policy, theory and principles.181 It is important that we identify and articulate this framework before we discuss the rules of the PRA, because it explains why we have the rules, and guides the courts’
interpretation of the rules.182
3.2 While the PRA also sets out rules that apply to relationships ending on death, in some respects these rules are at odds with the framework that applies on separation. We therefore discuss
the PRA’s application on death separately, at paragraphs 3.31-3.32
below.
The framework of the PRA
3.3 The framework of the PRA is complex because it has developed over time and involves a range of different, sometimes competing, concepts.183 This problem is not unique to New Zealand. In
England and Wales, where the rules of property division on separation have developed largely though case law, the
courts recognise multiple objectives but there is no overriding
... it does not seem satisfactory that questions of social policy, which have very important financial consequences for individuals, should turn on informal understandings and somewhat arbitrary rules of thumb based on no ascertainable principle...
3–4, is in part due to the fact that people do not live lives according to a theory, and are not always driven by rational decision-making: “it is not surprising that in an area such as family relationships where the issues causing the conflict are complex that the remedies can be pragmatic and lacking in coherence.” Wilson goes on to say at 4: “The fundamental reason however for the lack of a coherent theoretical legislative approach in this area is the gendered nature of our relationships”.
rationale.184 In Scotland, when the Scottish Law Commission
looked at what the objective of financial provision on divorce should be,
it concluded that no one objective or principle was
adequate standing by
itself.185 A combination of principles was appropriate, because it
“corresponds to reality”.186
Policy and theory of the PRA
3.4 The policy187 of the PRA is the just division of property at the end of a relationship. By “just” we mean the broad statutory concept of justice outlined in PRA, including in the rules of division but also the rules that permit partners to enter into their own property arrangements, subject to safeguards.188 This policy is reflected in the statutory purpose and principles set out in sections 1M and
1N of the PRA189 as well as in the legislative history discussed in
Chapter 2.
3.5 But why do the PRA’s rules divide property in the way they do, and
why can this division be described as just? The answers
to these questions are
found in the theory of the PRA. The theory ties together the policy of a just
division of property and the
rules that
184 Law Commission of England and Wales Matrimonial Property, Needs and Agreements (LAW COM No 343, 2014) at [3.62].
The Commission observed at [3.7] that this meant the courts have extraordinarily wide discretion, resulting in a lack of transparency and the potential for judicial inconsistency.
185 Scottish Law Commission Family Law; Report on Ailment and Financial Provision (SCOT. LAW COM. No. 67, 1981) at
[3.59].
186 Scottish Law Commission Family Law; Report on Ailment and Financial Provision (SCOT. LAW COM. No. 67, 1981) at
[3.60]:
We have seen that no single objective which is precise enough to be useful is wide enough to cover all the situations in which an award of financial provision may be called for. The reason is that an award of financial provision on divorce may be justified by one or more principles. It leads to clarity in the law to recognise this. A subsidiary advantage is that a system based on a combination of several principles can be discriminating as well as realistic. It may be, for example,
that matrimonial misconduct will be relevant in relation to some
principles but not others; or that an order for periodical payments
for an
indefinite period will be justified by some principles but not by
others.
The Commission recommended the adoption of five principles, and these remain the foundation of financial provision on divorce in Scotland today. See Family Law (Scotland) Act 1985, s 9, discussed in Jane Mair, Enid Mordaunt and Fran Wasoff Built to Last: The Family Law (Scotland) Act 1985 – 30 years of financial provision on divorce (Project Report, University of Glasgow, 2016) at 54.
187 Or purpose. We have used the term policy here so that we do not confuse purpose with the statutory purpose of the
Property (Relationships) Act 1976, in s 1M.
implement that policy. The theory provides the reason for why the
division of property under the PRA is a just division.190
3.6 The primary theory of the PRA is based on the entitlement of the
two partners. The PRA treats a qualifying relationship as an equal
partnership or joint venture. The partners contribute equally, although perhaps
in different ways, to the relationship. Each partner is therefore entitled to an
equal share in the property of the relationship.191
3.7 Two secondary theories sit alongside the primary entitlement
theory:
(a) The compensation theory recognises that in certain circumstances one partner should receive a share of the other ’s resources in order to compensate them for economic disadvantages a partner suffers from the
relationship. Section 15, which allows a partner to claim compensation when
the partners’ division of functions during the
relationship has led to a
disparity in income and living standards after separation, reflects a theory of
compensation.192
(b) The needs theory recognises that certain resources
could help meet the needs of a partner or children of the
relationship. Key needs-based provisions of the PRA are those dealing with
occupation of the family
home and postponement of the vesting of the partner
’s property entitlements.
3.8 We discuss these theories in greater depth where relevant in this
Issues Paper.
190 For a discussion of the theoretical analysis of property division frameworks see Joanna Miles “Financial Provision and
Property Division on Relationship Breakdown: A Theoretical Analysis of the New Zealand Legislation” (2004) 21 NZULR
268.
191 See Joanna Miles “Financial Provision and Property Division on Relationship Breakdown: A Theoretical Analysis of the
New Zealand Legislation” (2004) 21 NZULR 268 at 275 and 292–293.
Principles of the PRA
3.9 The principles form the basis for the PRA’s rules.193 Primarily, they are set out in the PRA itself: including in section 1N, which explicitly identifies four principles to guide the achievement
of the purpose of the PRA, as set out in section 1M. We do not, however, see the list in section 1N as exhaustive. It was inserted by the Parliamentary select committee considering the amendments to the PRA in 2001, and in our view its effect
was to add to, rather than replace, the implicit principles of the
legislation as originally enacted.194 A fuller expression of the
PRA’s principles can be discerned from its purpose, rules, history and the
materials accompanying
its enactment and subsequent
amendment.195
3.10 We start with the four explicit principles set out in section 1N of
the PRA:
(a) Men and women have equal status, and their equality should be maintained and enhanced.196 Promoting the equal status of women and men has been a principle of the PRA since it was introduced in 1976. The principle
of gender equality is enshrined in New Zealand law, and the Government remains committed to the protection and promotion of women’s rights.197
(b) All forms of contribution to the relationship are treated as
equal.198 The notion that unpaid domestic and childcare
responsibilities are of equal value to
194 In particular, the effect of s 1N of the Property (Relationships) Act 1976 was to add to the principles of the legislation
as originally enacted the principle regarding functional equivalence of different types of relationships (s 1N(b)) and the principle that a just division of property takes into account the economic disadvantages partners suffer arising from the relationship (s 1N(c)).
195 The White Paper to the Matrimonial Property Bill 1975 identified a series of principles on which that Bill was based.
We note however that some of these principles no longer apply as a result of amendments to the Bill as it progressed through Parliament, and subsequent amendments to the Matrimonial Property Act 1976. See AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial Property Bill 1975” [1975] II AJHR E6 at 10. The 1988
Working Group similarly identified certain principles that underpinned New Zealand’s family law. See Department of
Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 3.
196 Property (Relationships) Act 1976, s 1N(a).
197 Consistent with the New Zealand Bill of Rights Act 1990, ss 5 and 19 and Human Rights Act 1993, s 21, as well
as the Convention to Eliminate All Forms of Discrimination against Women. See Women in New Zealand: United Nations Convention on the Elimination of All Forms of Discrimination against Women: Eighth Periodic Report by the Government of New Zealand 2016 (CEDAW/C/NZL/8, 15 July 201) at [1].
financial contributions further promotes the equal
status of men and women. An entitlement based on
non-financial contributions to the relationship was “not to be regarded
as a matter of grace or favour, or as a reward for
good behaviour, but as plain
justice.”199
(c) A just division of relationship property has regard to the economic advantages or disadvantages to
the partners arising from their relationship or from the ending of the relationship.200 This principle was introduced in 2001 amid concerns that an equal division of relationship property does not always produce substantive economic equality between the partners.201 For example, when a partner takes time
out of the paid workforce to care for the children of the relationship, or
leaves their job in order to move with their partner
to a different geographic
location with fewer career prospects, this can negatively affect how much
that partner is likely to
earn in the future.
(d) Questions arising under the PRA should be resolved as inexpensively, simply and speedily as is consistent with justice.202 Inherent in this principle is a preference for people to resolve property matters out of court
where that is consistent with justice.203 Avoiding court is generally in the interests of not only the partners but also any children of the relationship. Predictable outcomes encourage partners to resolve property
matters out of court; therefore straightforward rules of classification and division of property, as opposed to rules involving an exercise of discretion, are consistent with this principle.204 However situations will inevitably arise which were not contemplated by the legislation. The question is how to balance the need for some
measure of discretion to enable a just result in the
200 Property (Relationships) Act 1976, s 1N(c).
201 See for example the discussion in Department of Justice Report of the Working Group on Matrimonial Property and Family
Protection (October 1988) at 4–15.
202 Property (Relationships) Act 1976, s 1N(d). Similar objectives are stated in the Family Court Rules 2002, r 3 and the High
Court Rules 2016, r 1.2.
204 Bill Atkin “Classifying Relationship Property: A Radical Re-shaping” in Jessica Palmer, Nicola Peart, Margaret Briggs and
Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
exceptional cases, but not at the expense of certainty
and predictability for the majority.205 It is also inevitable that recourse to the courts will be necessary in some cases. In order for property matters to be resolved inexpensively, simply and speedily in court, a court
must be properly resourced and court procedures need to be efficient and
easy to follow. Another important aspect of ensuring property
matters are
resolved “consistent with justice” is the need for full disclosure
between the partners, both in and out
of court.
3.11 Although not stated in section 1N, the following are also implicit
principles of the PRA:
(a) The law should apply equally to all relationships that are substantively the same. This principle is inherent in the core rules of the PRA which apply in the same
way to marriages, civil unions and de facto relationships of three or more years’ duration.206 The principle is driven by the idea of equality as expressed in anti- discrimination laws and is reflective of a shift in family
law policy towards greater recognition of a wide range of family
relationships.207
(b) A just division of property when a relationship ends should reflect the assumed equal contributions made by both partners. This principle embodies the concept of equal sharing or the “50:50 split”. The idea of equal sharing was introduced having regard to the “great advantages of reintroducing certainty, putting husband and wife in an equal bargaining position should the marriage break up, and being consistent with broad social justice.”208
(c) Only property that has a connection to the relationship should be
divided when the relationship
208 AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial Property Bill 1975” [1975] II
ends. Just as important as “how” property is shared, is
“what” property should be shared. The principle of the PRA is that only property which is central to family life (commonly owned or used property, such as the family home and chattels, whenever acquired) and property attributable to the relationship is subject to equal sharing. Property of one partner that is kept separate from the relationship is not subject to equal sharing.
It can be a difficult task to define the property pool to which equal sharing
should apply.
(d) Misconduct during the relationship is generally irrelevant to the
division of property. This principle is long-standing. Speaking in
Parliament on an amendment to the predecessor to the PRA, the Matrimonial
Property Act 1963, the then Minister of Justice
confirmed
that:209
The purpose of the Act is not to reward a wife for good behaviour or to
punish her for bad behaviour... To introduce an element of
fault in a
substantial way would be to warp altogether the concept behind the Act –
the concept of marriage as a partnership.
(e) This principle was carried into the PRA210 and is
consistent New Zealand’s no-fault approach to marriage
dissolution.211 The PRA is generally not concerned with moral
judgements about the partners’ conduct.212 Misconduct can only
be considered in PRA proceedings in truly extraordinary cases, where the
conduct was “gross and palpable”
and it significantly affected the
extent or value of the property to be divided.213 Even then,
misconduct is treated merely as a negative fact diminishing or detracting from
other positive contributions to the relationship,
rather than warranting a
penalty in the division of property.214
209 (26 November 1968) 358 NZPD 3392.
210 Matrimonial Property Act 1976, s 18(3). See discussion in AM Finlay “Matrimonial Property – Comparable Sharing: An
Explanation of the Matrimonial Property Bill 1975” [1975] II AJHR E6 at 10.
212 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.40].
213 Property (Relationships) Act 1976, s 18A(3).
(f ) A just division of relationship property should have
regard to the interests of children of the relationship. This principle is expressed in several places in the PRA, including section 1M (which sets out the purpose of the PRA) and section 26.215 It recognises that the interests
of children of the relationship may be considered sufficiently important to warrant some degree of priority over their parent’s property entitlements.216
However as we discuss in Part I, in practice children’s interests are
seldom prioritised in this way.
(g) Partners should be free to make their own agreement regarding the status, ownership and division of
their property, subject to safeguards.217 The rules of division in the PRA were intended to be “subordinate to the freedom of the husband and wife, subject to proper safeguards, to regulate their property relations in whatever way they think fit.”218 The Government at the time did not want to “force married people within the straitjacket of a fixed and unalterable regime.”219
This principle was therefore an “integral feature of [the PRA’s] public legitimacy.”220 Importantly, the principle concerns relationship autonomy rather than individual autonomy. A person cannot unilaterally contract out
of his or her obligations under the PRA; they must do so by way of agreement
with their partner. Safeguards ensure that both partners
enter agreements with
informed consent and the rights of third parties are not prejudiced.
Agreements settling the partners’
property matters at the end of the
relationship must be made on the same basis if they are to be enforceable in a
court.
(h) A just division of property under the PRA should recognise tikanga
Māori and in particular whanaungatanga. This principle is reflected in
the
215 The need to have regard to the interests of children is also evident from the White Paper accompanying the Matrimonial Property Bill 1975 when it was introduced into Parliament. See AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial Property Bill 1975” [1975] II AJHR E6 at 11.
216 See discussion in Joanna Miles “Financial Provision and Property Division on Relationship Breakdown: A Theoretical
Analysis of the New Zealand Legislation” (2004) 21 NZULR 268 at 290–291 and 302–303.
217 Property (Relationships) Act 1976, pt 6.
218 AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial Property Bill 1975” [1975] II AJHR E6 at 10.
219 AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial Property Bill 1975” [1975] II AJHR E6 at 11.
220 Wells v Wells [2005] NZHC 1761; [2006] NZFLR 870 (HC) at [38].
exclusion of Māori land and most taonga from the pool
of relationship property to be divided under the PRA. Instead, dealings with
Māori land are governed by Te Ture Whenua Māori
Act 1993 and the
kaitiakitanga of taonga is governed by tikanga.221
(i) A single, accessible and comprehensive statute should regulate the
division of property when partners separate. The PRA sought to provide a
single, coherent, and rational code to replace the existing law on the division
of property on separation.222 This recognised the undesirability of
requiring partners to rely instead on general remedies in property law or
equity.223 The situation is more complex for relationships ending by
the death of one partner, as succession law also applies.
3.12 As highlighted throughout this Issues Paper, it is often necessary to
prioritise and accommodate different theories and principles
in particular
situations.224
How it works – The PRA rules
3.13 The rules in the PRA set out how the policy, theory and principles
(explicit and implicit) are achieved in practice. This
discussion provides a
high level summary of how the rules generally operate. Specific rules, and how
well they work in practice,
are considered in greater detail in other parts
of this Issues Paper.
3.14 The PRA implements a deferred regime of property sharing. This is
because the actual division of property only happens when
a court makes
orders dividing the relationship property, or when the partners enter into a
contracting out agreement under Part
6 of the PRA dividing the property between
them. Prior to division,
221 Although legal action under concepts such as constructive trusts may still be taken in relation to taonga. See for example
B v P [2017] NZHC 338 at [150], [161]-[168].
the partners may deal with or dispose of any property as if the
PRA did not exist.225
3.15 It is important to note that many New Zealanders do not resolve their property affairs in accordance with the PRA rules. We know from anecdotal evidence that many partners divide their property in accordance with their own sense of fairness. Sometimes, the partners record their agreement in a way that meets the PRA’s requirements for a binding contracting out agreement. Those agreements can be made before or during the relationship to specify how their property is to be divided if they separate in the future, or after separation to resolve their property matters.226
Agreements can also provide for the division of property if one partner dies, and an agreement can be made between a surviving partner and the personal representative of the deceased’s estate.227
At other times, partners may resolve their property matters informally,
with or without taking legal advice.228 In all cases, the negotiated
compromises may lead to different outcomes than might have resulted if the PRA
was applied.
3.16 We also know that some rules of the PRA appear significant on a plain reading, but in reality are seldom relied on by a party
or applied by a court. Section 26, which provides that a court may make
property orders for the benefit of children, is a good
example. This is an
important power, however it is rarely used and when it is, the orders tend
to relate to only a small proportion
of the partners’
property.229
Who does the PRA apply to?
3.17 The PRA is concerned with three types of relationships: marriages,
civil unions and de facto relationships. The general rule
of equal
227 Property (Relationships) Act 1976, ss 21(2) and 21B.
229 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR26.04(2)].
sharing applies to all relationships of three years or longer,
although special rules of division exist for shorter
relationships.230
3.18 The PRA defines a de facto relationship as a relationship between two
persons who are both aged 18 or older, who live together
as a couple and who are
not otherwise married or in a civil union with one another.231
Sometimes it can be difficult to determine whether partners are in a de
facto relationship for the purposes of the PRA and, if so,
when that
relationship began. No official records of de facto relationships are kept as
is the case with marriages and civil unions.
The PRA therefore lists a range of
matters that indicate whether two people “live together as a
couple”, such as the
duration of the relationship, the existence of a
common residence and the degree of financial dependency between the
partners.232
What property is covered by the PRA?
3.19 The first step in dividing property is to identify what is covered by the PRA. The PRA applies to all property the partners own, either individually or jointly. The definition of property in the PRA is broad, and it includes real property, personal property, estates or interests in such property, debts and other rights or interests.233
The property owner is a person who is the “beneficial”
owner.234 A person can therefore have rights to property even if
they are not the legal owner.
3.20 There are, however, several resources that can confer considerable financial benefits on a partner but they do not come within the PRA’s definition of property. These resources include things like
a partner ’s ability to earn income or a discretionary beneficial
interest in a trust.
231 Property (Relationships) Act 1976, s 2D(1).
232 Property (Relationships) Act 1976, s 2D(2).
233 Property (Relationships) Act 1976, s 2.
What property is shared between the partners?
3.21 Property eligible for division between the partners when a
relationship ends is what the PRA classifies as “relationship
property”.235 Only property that has a connection to the
relationship should be subject to division.236
3.22 Relationship property is defined in the PRA to include:237
(a) the family home and family chattels (including furniture, household
appliances and motor vehicles), whenever acquired;
(b) all property owned jointly or in common in equal shares by the
partners;
(c) all property owned by either partner before the relationship if the
property was acquired in contemplation of the relationship
and was intended for
the common use or benefit of both partners;
(d) all property acquired by either partner after the relationship
began;238 and
(e) the proportion of the value of any life insurance policies and
superannuation scheme entitlements that are attributable to
the
relationship.239
3.23 Property that is not relationship property is “separate property” under the PRA,240 and is not subject to division at the end of a relationship. Separate property can include:
(a) property acquired by either partner while they were not living
together as a couple;241
235 Property (Relationships) Act 1976, s 11.
– Comparable Sharing: An Explanation of the Matrimonial Property Bill 1975” [1975] II AJHR E6 at 5-6.
237 Property (Relationships) Act 1976, s 8.
240 Property (Relationships) Act 1976, s 9(1).
241 Property (Relationships) Act 1976, s 9(4)(a).
(b) property acquired out of separate property, for example,
dividends received from shares acquired before the
relationship;242
(c) property acquired by a partner as an inheritance, gift or because the
partner is a beneficiary under a trust;243 and
(d) property with a special character, such as heirlooms and
taonga.244
3.24 Separate property can, however, be converted to relationship property and be divided between the partners in some circumstances. This might happen when an increase in value in the separate property, or any income or gains received from
the separate property, are due to the application of relationship property or
the actions of the other partner.245 Separate property may also
become relationship property if it is used to acquire or improve relationship
property, or if it is
mixed with relationship property so that it becomes
unreasonable or impracticable to regard that property as separate
property.246
3.25 The PRA also classifies debts. A debt may be a relationship debt or a personal debt.247 A relationship debt is, broadly speaking, a debt incurred for the common benefit of the partners or in the course of their common life together, and is eligible for division.248
The net value of relationship property to be divided between the partners is
calculated by determining the total value of the relationship
property and then
subtracting any relationship debts.249
How is relationship property divided?
3.26 The general rule is that all relationship property is divided equally
between the partners.250 This rule characterises the PRA as
an
242 Property (Relationships) Act 1976, s 9(2); Rowney v Rowney (1981) 4 MPC 178 (HC) cited in RL Fisher (ed) Fisher on
Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [11.38].
243 Property (Relationships) Act 1976, s 10(1).
244 Section 2 of the Property (Relationships) Act 1976 defines heirloom and taonga.
108 (SC).
246 Property (Relationships) Act 1976, ss 9A(3) and 10(2).
247 Property (Relationships) Act 1976, s 20.
249 Property (Relationships) Act 1976, s 20D.
250 Property (Relationships) Act 1976, s 11.
equal sharing regime.251 The rule is built firmly on the principles
that all forms of contribution to the relationship are treated as equal, and
that a just division of property when a relationship
ends should reflect
those equal contributions.252
3.27 The PRA’s general rule of equal sharing is not absolute. It
does not apply to short-term relationships. There are also
circumstances where
equal sharing can be departed from even if the relationship is three years or
longer:253
(a) Extraordinary circumstances: If there are “extraordinary circumstances” that would make equal sharing of relationship property “repugnant to justice”,
a court can order that each partner ’s share of property is to be
determined in accordance with the contributions they made
to the
relationship.254 This exception has a high threshold and will only
apply in truly extraordinary cases.255
(b) Economic disparity: Sometimes the income and living standards of one partner after a relationship ends
are likely to be significantly higher than the other partner, because of the division of functions within the relationship. The obvious example is where one partner stopped working to care for children, while the other partner continued to work and progressed their career. On separation, the partner that stopped working may struggle to restart their career (particularly if they have ongoing childcare responsibilities). In these cases, a court may order the partner with the higher income and
living standards on separation to pay compensation to
252 Property (Relationships) Act 1976, ss 1N(a) and 1N(b).
253 See RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.21]; Nicola Peart
(ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR11.03].
254 Property (Relationships) Act 1976 (PRA), s 13. A partner ’s contributions, within the meaning of the PRA, are defined in s
18 of the PRA.
‘repugnant to justice’ to emphasise the stringency of the test which has to be satisfied in order to justify departure from the equal sharing regime.”
the other partner out of their share of the relationship
property.256
(c) Dispositions of relationship property to a trust: If one partner has disposed of relationship property to a trust, and this defeats the other partner ’s rights under the PRA, a court can order that the partner who disposed
of the property to the trust to pay compensation to the other partner, either
from their separate property or their share of relationship
property.257
(d) Settling relationship property for the benefit
of children: If the court makes an order settling relationship property for the benefit of children, that property is not divided between the partners, although
a court can reserve an interest of either or both partners in that
property.258
(e) Two homes owned when the relationship began: If, when the relationship began, the partners each owned a home that was capable of becoming the family home,259 but only one home (or the sale proceeds of one home) came into the pool of relationship property, a court
may adjust the partners’ shares of relationship property to
compensate for the inclusion of only one partner ’s
home.260
(f ) Sustained or diminished separate property: If the separate
property of one partner has been sustained by the actions of the other partner
or with the application of relationship
property, a court may increase the share
of relationship property to be received by the other partner.261
Conversely, if the value of one partner ’s separate property has
diminished in value because of the actions of the other partner,
a court may
reduce the other partner ’s share in relationship
property.262
256 Property (Relationships) Act 1976, s 15.
257 Property (Relationships) Act 1976, s 44C.
258 Property (Relationships) Act 1976, s 26. As noted at paragraph 3.16 above, s 26 is seldom used.
260 Property (Relationships) Act 1976, s 16.
261 Property (Relationships) Act 1976, s 17.
262 Property (Relationships) Act 1976, s 17A.
(g) Personal debts paid from relationship property: If one
partner has used relationship property to pay personal debts, a court can
adjust the shares of relationship property to be divided
between the partners
or make orders requiring the partner to pay compensation to the
other.263
The role of the courts in dividing property
3.28 Partners can agree to divide their property in any way they think fit. They are not required to apply the PRA’s rules of division, however, if they want their agreement to be enforceable they must meet certain process requirements set out in the PRA.264
Partners can resolve their property matters in a range of different ways,
including by negotiation, with or without legal advice,
or by mediation,
arbitration or some other dispute resolution process.
3.29 If partners cannot agree on the division of property, then the PRA provides for property disputes to be decided by the Family Court.265 A partner can apply for a determination as to the respective shares of each partner to the relationship property, or for orders dividing the relationship property between the partners.266 The Court is bound to follow the rules of division
in the PRA, but has a range of powers to implement its determination of each partner ’s share of the relationship property. In particular, the Court can order the sale of property and the distribution of the proceeds, order the vesting of any property in one partner and order the payment of money by one partner to
the other.267
3.30 The Family Court can also make a range of orders that do not affect
the division of relationship property (non-division orders).
These provisions
are needs-based and primarily give effect to the principle that a just
division of relationship property has
regard to the interests of children.
Non-division orders include orders postponing the vesting of any share in
the relationship
property,
263 Property (Relationships) Act 1976, s 20E.
265 Property (Relationships) Act 1976, s 22. This is subject to the Family Court’s power to transfer proceedings to the High
Court under s 38A, and the right of appeal of Family Court decisions to the High Court under s 39.
orders granting one partner a right of occupation of the family
home (or other home forming part of the relationship property), orders
vesting a tenancy in one partner, and orders giving one
partner the right of
possession and use of furniture.268
Application of the PRA on death
3.31 When a partner dies, the surviving partner chooses between applying for a division of relationship property under the PRA rules (option A), or accepting an entitlement under the deceased partner ’s will or the intestacy rules (option B).269 If the surviving partner chooses option A, he or she does not usually receive anything under the will, as the PRA treats all gifts to the surviving spouse as having been revoked, unless the will expresses a contrary intention.270. The choice must be made within six
months of the grant of administration of the deceased partner ’s estate
unless a court extends the time period.271 If the surviving partner
fails to make a choice, option B is the default option.272
3.32 There are several differences between the PRA rules that apply on
death and the rest of the PRA. Notably, the surviving partner
can divide the
couple’s relationship property on death by electing option A, while the
deceased’s personal representative
must seek leave of a court for a
division of property and show that a failure to grant leave would cause
“serious injustice”.273 If the surviving partner elects
option A, that entitlement takes priority over any beneficial interest under
the will or the rules
of intestacy, as well as any claim made under the Family
Protection Act 1955 or the Law Reform (Testamentary Promises) Act 1949.
3.33 Short-term relationships on death are treated differently. A short term marriage or civil union is treated the same way as a qualifying relationship when one partner dies, unless the court considers that would be unjust.274 Short-term de facto
relationships that end on death are treated differently, and
are
268 Property (Relationships) Act 1976, ss 26A–28D.
269 Property (Relationships) Act 1976, s 61.
270 Property (Relationships) Act 1976, s 76. We understand that few wills satisfy this requirement.
271 Property (Relationships) Act 1976, s 62.
272 Property (Relationships) Act 1976, s 68.
273 Property (Relationships) Act 1976, s 88(2).
subject to the rules that apply to short-term de facto relationships
that end on separation.275
How New Zealand compares internationally
3.34 Jurisdictions around the world recognise the need for special rules of property division when relationships end, but differ on what shape these rules should take.276 Most jurisdictions that have a specific statutory scheme follow a similar structure, with rules
of classification and division, followed by adjustment provisions for the exceptional cases. There are two broad approaches, with some countries adopting a regime that has elements of both. The first is a “community of property” approach, where the property of the partners is considered to be held jointly. The second is the separate property approach, where the property of the partners
is kept separate at all times. Most jurisdictions have moved away from separate property systems and have embraced some form
of community of property regime. These regimes vary from a full community of
property approach, where all property is shared,277 to a
“community of surplus” approach, whereby the partners share only
the property gains made during the relationship.278
3.35 A key distinguishing feature of New Zealand’s relationship
property regime is the application of the same rules to de
facto, married and
civil union partners. Of the jurisdictions that New Zealand usually compares
itself to,279 only Australia and Scotland make specific provision
for the division of property between de
275 Property (Relationships) Act 1976, ss 85(3) and 85(4).
277 Such as the universal property regime, found in the Netherlands until recently (the law change comes into effect on
1 January 2018) and in Portugal previously (where universal community of property was abandoned with reform of
the 1966 Civil Code in 1977). Under a full or universal community of property regime all property of the partners is in principle owned by both partners from the start of the relationship and throughout the relationship. At the end of the relationship all the property is divided equally
marriage usually concludes with the spouses sharing all their property whenever acquired because of the operation of a presumption that what is not stated to have been acquired before marriage is deemed to have been acquired during marriage. We note however that behaviour may have changed since the date of publication of this article. An example of a jurisdiction that has a community of surplus or accrued gains as an option available to partners is Germany (known as Zugewinngemeinschaft).
279 Including Australia, England and Wales, Ireland, Scotland and Canada.
facto partners along similar lines to married partners.280 In other
jurisdictions, de facto partners (or “cohabitants” as they are
often referred to in Europe) are required to resolve any
property disputes using
other general legal remedies such as constructive trust, contract or unjust
enrichment.281
3.36 Different jurisdictions prioritise the theories of entitlement,
compensation and needs in different ways. There can be many
variations in terms
of how a regime is constructed, given the large number of policy choices to be
made (for example deciding what, when and how property should be
divided). The scope for variation means that those countries that New
Zealand often compares
itself with have radically different approaches to
dividing relationship property.
3.37 In England and Wales for example, there is no statutory rule that each partner has an equal entitlement to relationship assets. Rather, the courts divide property at their discretion, with the first consideration being the welfare of any minor children.282 In Australia, the courts have a significant discretion pursuant to the Family Law Act 1975 to alter the property division on the basis
of what the court considers to be just.283 A court will consider the contributions of the partners to the property, the welfare of the family and the partners’ future needs.284 In Canada there is a
presumption of equal division of “net family property”, which
can
282 Matrimonial Causes Act 1973 (UK), ss 24 and 25.
284 See the factors set out in s 75(2) of the Family Law Act 1975 (Cth).
be rebutted for example if equal division would be unconscionable
(in Ontario) or unfair (in British Columbia).
3.38 There are also differences in the approach when a relationship ends on death. Most European civil law jurisdictions have a default matrimonial property regime that entitles spouses to an
equal share of their matrimonial property on divorce and death.285
Succession law governs the distribution of the estate, after the matrimonial property entitlement has been accounted for, and a surviving partner may have a fixed entitlement to property from the estate.286 The surviving spouse may also be entitled
to additional financial security in the form of either capital or income
provision or a maintenance claim.287
3.39 In both Australia and England and Wales, the court’s power to alter the spouses’ matrimonial property interests (discussed at paragraph 3.37 above) does not apply if a relationship ends on death. Instead, succession law governs the distribution of the deceased partner ’s estate and will determine whether and to what extent the surviving partner shares in the assets of the deceased.288 In Canada, a surviving spouse can apply to court for a division of the deceased’s estate. The court’s approach will be
province dependant. In British Columbia for example, a court can order a
just and equitable amount be paid from the deceased’s
estate if it
considers the surviving spouse was left with an inadequate amount.
3.40 Ultimately, each country takes a unique approach not only to the division of relationship property but also to the other “pillars” of financial support that may be used to assist partners affected by the end of a relationship. Some countries will place more emphasis on private transfers between individuals (such
as maintenance or child support) while others have strong State assistance systems. The approach of each country will, as with New Zealand, be influenced by the values that each society
prioritises. For example, the degree of importance placed on the
286 Nicola Peart “Family Finances of Death of a Spouse or Partner” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark
Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
287 Nicola Peart “Family Finances of Death of a Spouse or Partner” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark
Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
2006 (NSW).
interests of the children can influence whether provision is made
to protect their interest in the family home.
Chapter 4 – What are the big
questions of this review?
4.1 In this chapter we introduce what we think are the “big
questions” about how the PRA is working in contemporary New
Zealand. These
are big questions because the responses could result in substantial change to
the law. These questions, and possible
options for reform, are then discussed
in detail throughout the Issues Paper.
Is the framework of the PRA sound?
4.2 The PRA as passed in 1976 “was easy to understand and apply to most marriages.”289 Since then New Zealand has undergone a period of significant social change, including in patterns of partnering, family formation, relationship breakdown and re-
partnering. The PRA itself has also undergone significant change during this period, extending to de facto relationships, civil unions, same-sex relationships and relationships ending on death. Before we turn to how the PRA is working in practice, it
is important to first consider whether the framework of the PRA (explained in
Chapter 3) still reflects what most New Zealanders
want now and in the
foreseeable future. If evidence suggests that this framework no longer reflects
the values and expectations
of most New Zealanders, this will affect our
consideration of the PRA rules, as “the principles that we choose to
guide us
are the DNA of law reform.”290
The policy of a just division remains sound
4.3 While there may be different views on how the PRA framework ought to be
implemented through rules, we consider that the policy
of a just division of
property at the end of a relationship remains appropriate for New Zealand both
now and into the future.
289 Bill Atkin “Financial support – who supports whom?” in Mark Henaghan and Bill Atkin (eds) Family Law Policy in New
Zealand (4th ed, LexisNexis, Wellington, 2013) 209 at 224.
290 Bill Atkin “Classifying Relationship Property: A Radical Re-shaping” in Jessica Palmer, Nicola Peart, Margaret Briggs and
Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
4.4 We think that there is an ongoing need for specific legislation
that ensures a just division of property when relationships end. The general law of property does not respond well to the issues that arise on separation or the death of one partner. In many
cases where the partners have made different contributions to the relationship, general property law principles will not achieve a
just result.
4.5 Our preliminary view is that there should continue to be a
comprehensive statutory regime setting out the rules to provide
for a just
division of property when partners separate.
4.6 We also take the preliminary view that the rules to provide for a just division of property when a partner dies should be set out in
a separate statute that also addresses the interests of third parties and
relevant aspects of succession law. The death of a partner
gives rise to
different issues than separation and in some respects the rules that apply to
relationships ending on death are at
odds with the framework that applies on
separation.. The remainder of this discussion focuses on the PRA as it applies
to separation.
We discuss the rules that apply on death at paragraphs 4.50 to
4.52 below.
The PRA strikes the right balance between the theories of entitlement,
compensation and needs
4.7 We consider that the primary theory underpinning the rules of division in the PRA, based on a partner ’s entitlement to certain property as a result of the (presumed) equal contributions they made to the relationship, remains sound. We have considered fundamentally different approaches prioritising the different theories of compensation or need. However changing the approach would require a substantial redesign of the PRA rules, involve making difficult policy decisions291 and would introduce a much greater measure of discretion into the rules of division. As discussed in Chapter 3, greater discretion comes at a cost
to certainty and predictability, both of which are important in
should be quantified. Rules based on need would also involve policy decisions including how we measure the claimant’s needs (subjectively or objectively), how we account for the other partner ’s needs (for example, if he or she has limited assets), whether there should be a causation requirement (for example, that the needs are generated as a result of
the relationship ending), and how long the payments should continue for. See discussion in Joanna Miles “Financial Provision and Property Division on Relationship Breakdown: A Theoretical Analysis of the New Zealand Legislation” (2004) 21 NZULR 268.
promoting resolution of disputes.292 We are also mindful of the
costs of significant structural change and the risk of unintended
consequences.
4.8 The theory of compensation already has a role in the PRA. Section
15 is aimed at remedying situations where the roles each partner took during
the relationship have led to a disparity in their income
and living standards
after separation. It compensates a partner for the economic disadvantages he or
she suffers as a result of
the division of functions during the relationship.
This can, where necessary, provide “a more sophisticated concept of
equality”
than equal division alone can achieve.293
4.9 A theory based on needs is different in nature. The entitlement and
compensation theories focus on past events and have the
same broad objective of
achieving economic equality at the end of a relationship.294 In
contrast, a needs-based theory is forward- looking and imposes an ongoing
financial responsibility as if the relationship were
continuing.
4.10 Our preliminary view is that property should not primarily be
divided according to need at the end of a relationship, for
several
reasons:
(a) First, the PRA, as social legislation, plays an important role in promoting gender equality. It does so largely
by recognising that non-monetary contributions to a relationship, that have traditionally been the remit of women, are equal in worth to monetary contributions and create enforceable property rights. In contrast, framing a claim in terms of future need has the effect
of “casting claimants in the passive role of supplicants”, encourages or at least prolongs dependency (as future
re-partnering may affect their eligibility to receive relief ), and fails to recognise the legitimacy of their claim to property of the relationship.295
(b) Second, a division of relationship property based primarily on needs
does not strike the right balance
292 See paragraph 4.10 (d) above.
293 Joanna Miles “Financial Provision and Property Division on Relationship Breakdown: A Theoretical Analysis of the New
Zealand Legislation” (2004) 21 NZULR 268 at 288.
295 Joanna Miles “Financial Provision and Property Division on Relationship Breakdown: A Theoretical Analysis of the New
Zealand Legislation” (2004) 21 NZULR 268 at 287.
with the concepts of “no-fault” relationship dissolution
or a “clean break”. The concept of a “clean break” is that the property of the relationship is divided upon separation and the parties are free to go their separate ways without any competing continuing demands on their property.296 The clean break concept will often
be inappropriate where there are children of the relationship (discussed in Part I), or where the there is financial inequality between the partners resulting from the relationship (discussed in Part F).297 But we appreciate that the concept of a clean break is still valued by many people, particularly given that more
people are now entering into more than one qualifying relationship throughout
their lifetime.
(c) Third, the PRA does not operate in a vacuum and cannot be expected to resolve all of the financial consequences of separation. Partners should ideally
be able to meet the future needs of their families from their own
incomes, and where that is not possible by payments under
other pillars of
financial support that are needs-focused (discussed in Chapter 2), including
maintenance under the Family Proceedings
Act 1980, child support under the Child
Support Act 1991 and State benefits under the Social Security Act 1964.
(d) Fourth, a distribution of property based on entitlement and/or compensation may be sufficient to meet a partner ’s needs in any event. In contrast, distribution based on need is effectively defined by and limited
to one partner ’s needs, which may in fact result in a smaller distribution (with the other partner retaining
more than an equal share of the property).298
298 Joanna Miles “Financial Provision and Property Division on Relationship Breakdown: A Theoretical Analysis of the New
Zealand Legislation” (2004) 21 NZULR 268 at 284 and 287–288.
4.11 However, that is not to say that a needs-based theory should
play no role in the PRA. In practive section 15 compensation payments (discussed at paragraph 4.8 above) often meet a partner ’s post-separation needs. Our preliminary view, discussed in Part F, is that section 15 requires reform, and one option we consider is to unite the section 15 compensation payments
and maintenance payments by requiring one partner to make financial
reconciliation payments to the other partner in certain circumstances.
Such an
approach would be based on both the compensation and needs theories. It would
not, however, detract from the general rule
of equal sharing under the PRA
based on a theory of entitlement.
4.12 The needs of the partners and any children of the relationship are also relevant to the court’s implementation of the (generally equal) division of relationship property under the PRA and
its consideration of whether to make non-division orders. These orders
grant a partner temporary rights to use or occupy property,
but do not affect
each partner ’s entitlement to a share of relationship property when
division occurs. Non-division orders
are usually made to reflect the needs of
the other partner or their children.
Some principles may need change
4.13 Our preliminary view is that, broadly speaking, the principles of the
PRA remain sound in 2017. Some principles may, however,
need to change to
better reflect people’s changing values and expecations about what is
fair when relationships end.
4.14 In Part C we consider the principle that all property that has a
connection to the relationship should be divided when a
relationship ends.
Repartnering and stepfamilies are more common today, and this might mean more
people want to keep property separate.
The PRA automatically treats some
property as relationship property because of its use, such as use of a house
for the family home.
There is a question as to whether this principle remains
appropriate in contemporary New Zealand.
4.15 In Part I we also consider whether the PRA should take a more child-centered approach, and propose options for promoting children’s best interests that might require a redefinition of existing the principle that a just division of property should have regard to children’s interests.
Recognising tikanga Māori in the PRA
4.16 We discussed in Chapter 3 the implicit principle that a just division of property under the PRA should recognise tikanga Māori and in particular whanaungatanga. At paragraphs 4.48–
4.49 below we identify some potential issues with the way that the rules
allow tikanga to operate, and ask whether this means aspects
of the PRA should
be changed.
4.17 A further question we have considered is whether the current approach of accommodating and responding to tikanga Māori within the framework of the PRA, rather than having a separate regime for property division according to tikanga Māori, remains appropriate. Our preliminary view is that the PRA framework
can respond to matters of tikanga Māori, and that these matters should
not be treated separately. We would like to hear from
anyone who has a different
view, with their suggestions for reform.
The principles should be explicit
4.18 As a matter of good drafting practice, particularly where a statute substitutes the general law and introduces rules based on distinct values, we commend the approach of a comprehensive principles section at the outset of the legislation. The Interpretation Act
1999 provides that that the meaning of an enactment must be ascertained from its text and in the light of its purpose.299 The principles will guide the reader with a clear understanding of the values that are promoted through the legislation and what
Parliament intended to be
achieved.300
Do you agree?
4.19 Our preliminary view is that the framework of the PRA is sound.
On the whole, we think that the current framework can achieve a just
division of property when partners separate.
4.20 This preliminary view is significant, but it does not necessarily preclude major change. We discuss below what we think are big questions with the way the PRA is currently working, and
potential options for reform. Changes in these areas could have
considerable consequences for outcomes under the PRA.
A1 Does the framework of the PRA described in Chapter 3 remain appropriate both in
2017 and in the foreseeable future?
a. Should this regime continue to be based primarily on a theory of
entitlement, supplemented by theories of compensation and need?
b. Have we accurately articulated the explicit and implicit principles
which should guide the content and interpretation of the
rules in the PRA?
Should any of the principles be amended or removed? Should any other principles
be added?
The big questions
4.21 We have identified eight “big questions” with how the PRA
is working in contemporary New Zealand. These raise questions
about whether the
PRA always achieves a just division of property at the end of a relationship.
In response to these big questions
we are considering whether substantial change
is needed to the PRA rules. This may require the PRA to embrace new ideas and
new
concepts.
4.22 These big questions are summarised below and are then explored in depth throughout this Issues Paper.
Big question 1: Does the PRA always apply to the
right relationships in the right way?
4.23 Since the PRA was first enacted over 40 years ago, there have been significant changes in relationship patterns, including
how relationships form and end.301 In essence, relationships are
now much more diverse and this diversification is expected to continue. For
example:
(a) Fewer people are marrying.302
(b) More people are living in de facto relationships.303
There is evidence to suggest that most married couples now spend a period
of time living together before marriage.304
(c) Remarriages have increased, and in 2016 accounted for
29 per cent of all marriages, compared to 16 per cent in
1971.305 No information is collected about re-partnering in a de
facto relationship, but it is expected that these rates will have also
increased.
(d) Legal recognition and social acceptance of same-sex relationships has
also coincided with more people recording that they are
in a same-sex
relationship.306
4.24 While there is little New Zealand-based research about the changing
dynamics within relationships, we have heard anecdotally
that there is an
increasing variety in approaches
301 For further discussion about changes in relationships and families see see Law Commission Relationships and Families in
Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017).
303 In 2013, 409,380 people reported they were in a de facto relationship, which accounts for 22% of all couples, up from
8% in 1986: Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1 citing Statistics New Zealand “Partnership status in current relationship and ethnic group (grouped total responses) by age group and sex, for the census usually resident population count aged 15 years and over, 2001, 2006 and 2013 Censuses” <nzdotstat.stats.govt.nz>; and Statistics New Zealand Population Structure and Internal Migration (1998) at 10.
306 In 2013, 8,328 same-sex couples lived together, up from 5,067 in 2001: See Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1 citing Statistics New Zealand 2013 Census QuickStats about families and households – tables (November 2014).
to managing finances. We understand that more partners are
choosing not to share their finances, or keep a joint account only for
shared expenses such as rent or food. We have also heard
about people who,
having been through one relationship separation and property division, prefer to
keep their finances separate
in subsequent relationships. This is sometimes
because one or both partners have children from previous relationships and
prefer
to organise their affairs so that each partner is financially
responsible for his or her own children.
4.25 Similarly, we are aware of the increasing research attention being given to partners who live apart. Little is known about how common these types of relationships are in New Zealand, but research in the United Kingdom and Australia suggests that just under 10 per cent of adults are in a relationship but do not live with their partner.307 This research suggests that partners can live apart for very different reasons. Some partners may face constraints to living together, for example, they may work in
different locations, or have commitments to dependent children or elderly
parents. For others, living apart may be a conscious
choice.308
4.26 The increasing diversity of relationships requires us to consider whether the PRA still applies to the right relationships in the
right way. While we think the PRA’s application to marriages, civil
unions and de facto relationships is broadly appropriate,
we have identified the
following possible issues:
(a) Does the definition of de facto relationship capture the right
relationships?
(b) Is three years an appropriate period of time before the PRA’s general rule of equal sharing applies, or should it be longer?
(c) Are the different rules of division for relationships shorter than
three years justified?
308 For further discussion about partners who “live apart together”, see Law Commission Relationships and Families in
Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
(d) Are the different rules that apply to short-term de facto
relationships, compared to short marriages and civil unions,
appropriate?
(e) Does the PRA apply appropriately where partners live or have lived
outside New Zealand, or hold property in a number of jurisdictions?
4.27 We address question (a) in Part B, questions (b), (c) and (d) in Part
E, and question (e) in Part L of the Issues Paper.
Big question 2: Does the PRA divide property that should be kept
separate?
4.28 The PRA classifies property as either relationship property or separate
property as a means of identifying which property should
be divided at the end
of the relationship.
4.29 The PRA’s definition of relationship property, consistent with
the principle that all property central to the relationship
be shared, includes
some items that may have been acquired by one partner before the relationship
began. In particular, the couple’s
family home and the family chattels
are deemed relationship property “whenever acquired”.
4.30 We have encountered criticism that the PRA forces some people to divide property that was not acquired through joint effort. For example, when one partner brings a home into the relationship but the other does not, people have told us that it is unfair that the full value of the house be divided between the couple. There are also various anomalies that may arise depending on the use to which property has been put. For example, if a valuable item of property acquired before the relationship is placed within the family home and used for family purposes, it may be deemed
a family chattel and subject to equal sharing. If, however, the item was
kept separate to family life (for example if a piece of
art was displayed at the
partner ’s workplace) the item may not be considered a family
chattel.
4.31 These complaints suggest that the definition of relationship property could be reformed to exclude assets that were acquired before the relationship began. Instead, the concept of relationship property would only extend to property that was acquired during the relationship. This would have significant consequences for the
size of the property pool available for division in some cases, and
therefore requires careful consideration.
4.32 We discuss this question in Part C.
Big question 3: How should the PRA deal with trusts?
4.33 Property held on trust will generally not be subject to the
PRA’s rules of division, even if one or both partners enjoy
the use and
benefits of that property.309 Many families in New Zealand use
trusts as a means of holding property. Consequently, the PRA does not apply to
a significant amount
of property attributable to relationships, undermining the
policy of a just division and the principle that all property central
to a
relationship ought to be divided equally.
4.34 The PRA has provisions designed to expose trust property and require
the partner who disposed of property to a trust to pay
compensation to the other
partner. However these provisions are widely criticised for being of limited
effect and easy to avoid.
4.35 While there are a number of possible remedies outside the PRA regime that a partner could pursue in relation to trust property, they generally depend on different principles, leaving the law complex and conflicting. Their existence also undermines
the principle that a single, accessible and comprehensive statute should
regulate the division of property at the end of a relationship.
4.36 One significant option for reform is to amend the definition of relationship property in the PRA so that certain interests in a trust or even the trust property itself could, in defined circumstances,
be divided. Broadening the relationship property definition in this way would enable the partners to share property that had a connection to the relationship. It would in effect prevent the
policy of the PRA being undermined by the use of trusts to hold property that
would otherwise be attributable to the relationship
and subject to
division.
4.37 We are also considering whether section 182 Family Proceedings Act
1980, which relates to setting aside nuptial settlements,
should be either
repealed or brought within the PRA and
309 Unless a partner has a vested or contingent beneficial interest under the trust.
amended, consistent with the principle that a single, accessible
and comprehensive statute should regulate the division of property at the
end of a relationship. Another option for reform is to
improve the existing
provisions in the PRA that deal with dispositions of property to a
trust.
4.38 We discuss this question in Part D.
Big question 4: What should happen if equal sharing does not lead to
equality?
4.39 In some cases, separation may impose disproportionately greater economic disadvantages on one partner, as a result of the division of functions within the relationship. For example, in some relationships the career of one partner is prioritised (explicitly
or implicitly) over the career of the other. This may mean that the other partner (the supporting partner) instead prioritises the care of any children of the relationship and maintaining the family home. He or she may leave the workforce to do so, work part-time and/or deliberately choose a less demanding and ambitious job. The supporting partner may also relocate with their partner when their partner ’s job requires it. When the relationship ends, the supporting partner may find it more
difficult to recover economically from the separation. Because of the
decisions the partners made about the division of functions
during the
relationship, the supporting partner may lack the skills and experience to find
rewarding employment, whereas the other
partner leaves the relationship with the
benefits of an advanced career. In this scenario, the supporting partner loses
the economic
benefits that he or she expected to receive from the investment in
the relationship.
4.40 One of the principles of the PRA is that a just division of property
has regard to the economic advantages or disadvantages
to the partners arising
from their relationship or from its end. This principle is given effect by
section 15. Having reviewed
section 15 and the case law, we conclude that it
has been largely ineffective in remedying the disproportionate economic
disadvantages
one partner may suffer.
4.41 We are considering a number of options to address this issue. The first option is to lower the hurdles that a partner must overcome to obtain an award under section 15. The second option is to
treat a partner ’s ability to earn income as an item of property
which could be divided to the extent it has been enhanced by
the relationship. The third option is unite the section 15 remedy with
maintenance in a form of periodic financial reconciliation
payments.
4.42 We discuss this question in Part F.
Big question 5: How should the PRA recognise children’s
interests?
4.43 The interests of children are referred to in a limited number of
provisions in the PRA. We have found that in practice children’s
interests are seldom expressly taken into account in relationship property
matters. This is probably due to the uncomfortable fit
of needs-based provisions
focused on children’s interests within an entitlement-based property
division regime for adults.
Children of relationships are, however, affected
when parents or step-parents separate, and New Zealand family law has
increasingly
adopted a more child-centred approach within social legislation,
consistent with New Zealand’s obligations under the United
Nations
Convention on the Rights of the Child.
4.44 A key question we consider is whether the PRA should be reformed to
take greater account of children’s interests and,
if so, what form those
amendments should take. We explore this question further and consider a number
of potential options in Part
I.
Big question 6: Does the PRA facilitate the inexpensive, simple and speedy
resolution of PRA matters consistent with justice?
4.45 We understand that the vast majority of partners who separate will not go to court to resolve the division of their property. Some will not even consult a lawyer. There is a critical need to ensure that the PRA’s rules, the court process and any dispute resolution mechanisms facilitate the inexpensive, simple and speedy resolution of PRA matters in a manner that is consistent with justice. Agreements reached outside court must be just, efficient and enduring.
4.46 We currently lack the information to fully analyse how couples
are resolving PRA matters. We welcome submissions on how the regime is
operating in practice, and any areas of concern. Our research
and preliminary
consultation to date has identified two broad problems:
(a) Lack of information and support for resolution of PRA matters. International research suggests that access to information about property rights and the available processes for resolving disputes is vital in ensuring a just and prompt resolution of relationship property disputes.310 The clarity and certainty of the rules themselves is also important in facilitating
just agreements. We are concerned that the current information and support available to people at the end of their relationship may be lacking. We are considering a range of reform options, including the promotion of online resources about the PRA rules and the Family Court process, and online dispute resolution tools. We also identify the range of options for more formal out
of court dispute resolution, and ask whether the State should have a greater
role in facilitating any of these options for PRA disputes.
(b) Undue delay in resolving property matters in the court system. This includes delays as a result of inefficiencies in the case management procedure for PRA cases
in the Family Court, as well as delays caused by one partner, for example, by failing to provide full disclosure or comply with other process requirements. We are considering reforms to improve the court process, including changes aimed at early issue identification
and minimising undue delay through stricter timeframes, clear rules of
disclosure and tougher penalties for breaching process requirements.
We are
also considering reform options designed to clarify the jurisdiction of the
Family Court and High Court to deal with PRA
and related matters.
4.47 We consider issues relating to the resolution of PRA matters in
Part H.
Big question 7: Does the PRA provide adequately
for tikanga Māori to operate?
4.48 The PRA recognises tikanga Māori in the exclusion of Māori
land from the ambit of the PRA and the exclusion of taonga
from the definition
of family chattels.311 In this Issues Paper, we raise a range of
other specific matters where tikanga Māori is especially relevant, and
question whether
the PRA is adequately providing for tikanga Māori to
operate. These matters relate to:
(a) recognising customary marriage without subsuming it into de facto
relationships (discussed in Part B);
(b) recognising whāngai children (discussed in Part I);
(c) addressing family homes built on Māori land (discussed in Part
C);
(d) exempting taonga from division (discussed in Part C);
(e) whether contracting out agreements can be used to accommodate tikanga
Māori (discussed in Part J); and
(f ) how should tikanga Māori interact in dispute resolution
processes (discussed in Part H).
4.49 In some, or all of these areas, reform might be needed to ensure
tikanga Māori can operate effectively.
Big question 8: How should the PRA’s rules apply to relationships
ending on death?
4.50 The are tensions between the rules set out in Part 8 of the PRA that govern property division when one partner dies and succession law. There is considerable difficulty in the way
Part 8 tries to bring the two regimes together. First, when one partner dies different interests are at stake than if the partners separate during their lifetime. The law has to grapple with the obligations the deceased may have owed to third parties such
as other family members. These obligations may conflict with a surviving partner ’s interest in the deceased’s estate under the PRA. Second, the rules that apply on death are generally complex
and inaccessible. We understand that many will-makers, surviving
partners and even advisers struggle to come to terms with how
the law applies. Third, Part 8 is silent on key matters, such as how the
rules are to apply when the deceased’s representative
seeks a division
of relationship property under the PRA.
4.51 We question whether the PRA framework remains appropriate for relationships ending on death, given the increase in re- partnering and the prevalence of step-families. Our preliminary view is that while surviving partners should not lose their right
to an equal share of relationship property when one partner dies, the
provisions that relate to the division of property on death
should be placed
in a separate statute, which would also address the interests of third parties.
Any such legislation would fall
outside the scope of this review and would need
to be progressed separately. Such legislation would also need to consider issues
arising from the intersection of tikanga Māori and succession law.
4.52 We discuss these issues and options for reform further in Part M.
Other general issues
4.53 In addition to the big questions discussed above, there are some
smaller points that we wish to raise here because they have
an overarching
application to the PRA and this review.
Should relationship neutral terms be used in the
PRA?
4.54 The PRA uses specific terms to describe different types of relationships, even though the same rules generally apply regardless of the relationship type.312 In particular the PRA uses
the terms “marriage”, “spouse”,
“husband” and “wife”; “civil union” and
“civil union partner”; and “de facto relationship” and
“de facto partner”.313
4.55 The Select Committee considering the 2001 amendments decided to retain specific terms to describe the different relationship
types in response to concerns that failure to do so would
313 There is one partial exception: the phrase “spouse or partner” is sometimes used in the Property Relationships Act to
undermine the sanctity of marriage.314 New Zealand society has
undergone considerable change since 2000. There may be less social
significance attached to different types of relationship, and
objections to the
use of relationship neutral terms may no longer be so strong. We think it is
timely to reconsider whether these
objections remain today, or if it is
appropriate to use relationship neutral terms in the PRA where the same rules
apply to all
relationship types.
4.56 While sensitive to the concerns raised in 2001, our preliminary view is
that relationship neutral terms should now be adopted,
for two primary
reasons:
(a) First, the use of specific terms is out of step with the principles of
the PRA discussed in Chapter 3. The PRA seeks to achieve
substantive equality
and neutrality in terms of relationship type. Relationship neutral terms may
better reflect the principle
that the law should apply equally to all
relationships that are substantively the same.
(b) Second, the use of specific terms can make the PRA complicated and long-winded. The introduction of civil unions in 2004 means there are now three different categories of relationship that must be specified in
the PRA. For example, section 13 of the PRA currently provides that if the
exception to equal sharing applies:
...the share of each spouse or partner in that property or money is to be
determined in accordance with the contribution of each spouse
to the marriage or
of each civil union partner to the civil union or of each de facto partner to
the de facto relationship.
(c) This could be simplified, without loss of meaning; to read
“...the share of each partner in that property or money
is to be
determined in accordance with the contribution of each partner to the
relationship”. Simpler language would make
the PRA more concise and
accessible to the public.
‘partnership relationship’, because they believe that marriage has a quality of sanctity that de facto relationships do not possess.” and Wendy Parker “Sameness and difference in the Property (Relationships) Act 1976” (2001) 3 BFLJ 276. The Rt. Hon. Jenny Shipley said at the time “We are now required to ...swallow the amoral and gender-neutral, politically correct line and call our husbands ‘partners’. Marriages are now just relationships. ...Well, Burton’s my husband. I’m his wife. And that’s the way we like it”. (Rt. Hon. Jenny Shipley, Address to the New Zealand National Party Conference 2000,
19 August 2000).
A2 Should specific terms be substituted with the neutral terms of “relationship” and
“partner” where there is no need to distinguish between relationship types?
Should there be more public education about the
PRA and how it works?
4.57 In our preliminary consultation, practitioners told us that most of their clients understand that after three years a de facto relationship will become subject to the general rule that relationship property is divided equally under the PRA.
However there are many things that people don’t know. People are
often unaware that a de facto relationship does not require
cohabitation. Nor
do they realise that a surviving partner can choose to receive his or her
entitlement under the PRA and not under
the will. People often do not
understand the implications of property being held in trust.
4.58 We would like to know whether greater public awareness of the PRA is
needed and, if so, how this could be achieved. Some ideas
we have are:
(a) Informing buyers of residential property of potential future
obligations under the PRA.
(b) Providing couples who are getting married or entering a civil union
with information about the PRA when they apply for a marriage
or civil union
licence.
(c) New immigrants being told, as part of the information package they
receive on arriving in New Zealand, of the existence of the
PRA, its general
provisions and that the regime is likely to be very different to that regime
in the person’s country of
origin.
(d) Education on the PRA at secondary school.
A3 Do you agree that there needs to be greater public education about the
PRA and the obligations and responsibilities that arise
under it?
A4 Do you have any ideas about ways to promote public education relating to the PRA? Do you agree with any or all of the ideas we have suggested?
Part B – What
relationships should the PRA cover?
Chapter 5 – Who is covered by the
PRA?
Introduction
5.1 New Zealand has undergone significant change in the last 40
years.1 As a result of changing patterns in partnering, family
formation, separation and re-partnering, what it means to be partnered has
changed significantly since the 1970s. Public attitudes have also undergone
major shifts towards matters such as couples living
together before or as an
alternative to marriage, separation and divorce, having and raising children
outside marriage, and same-sex
relationships.
5.2 In this chapter we explain the different relationships covered by the PRA, and the history leading up to the inclusion of de facto relationships in 2001. We look at why the PRA should continue
to apply to de facto relationships, and on the same “opt-out”
basis as marriages and civil unions. The rest of Part B
is arranged as
follows:
(a) In Chapter 6 we consider the PRA’s definition of “de facto relationship”, and in particular what it means to “live together as a couple”. We consider potential
issues with the definition, and set out some options for reform.
(b) In Chapter 7 we look at some specific types of relationships, including
Māori customary marriage, and consider how they
are treated under the
PRA.
Relationships covered by the PRA
5.3 The PRA covers three types of relationships: marriages, civil unions and
de facto relationships.2
Marriages
5.4 Marriage is defined as the union of any two people, regardless of their
sex, sexual orientation or gender identity.3
5.5 Despite population growth, the number of marriages each year is decreasing.4 The marriage rate is now around one quarter
of what it was when it peaked in 1971.5 Many factors will
have contributed to the fall in the marriage rate, including the increasing
prevalence of de facto relationships (discussed below),
the increasing numbers
of New Zealanders remaining single,6 and a general trend towards
delaying marriage.7 In 2016, the median age at first marriage was 30
for men and 29 for women, compared to 23 for men and 21 for women in
1971.8
5.6 Marriage today offers few legal advantages over a de facto relationship. So why do couples still get married? One reason is to make the shift from a private to a public commitment, another is to celebrate a “successful” and enduring relationship and ensure that it is properly acknowledged by family and friends.9 Some couples may wish to marry before they have children, or for pragmatic reasons or to conform to expectations and pressures
to marry.10 Some couples may marry for cultural or religious
reasons, and in New Zealand cultural and religious identity
is
relationships of short duration under s 2E of the Property (Relationships) Act 1976. Relationships of short duration are considered in Part E.
4 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
5 Statistics New Zealand Information Release – Marriages, Civil Unions and Divorces: Year ended December 2016 (3 May 2017) at 3. Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
2013 this had declined to 65%. For men, the partnership rate declined from 67% in 1986 to 61% in 2013. See: Paul Callister and Robert Didham The New Zealand ‘Meet Market’: 2013 census update (Callister & Associates, Research Note, September 2014) at 11.
7 Families Commission / SuPERU Families and Whānau Status Report 2014 (June 2014) at 164.
8 Statistics New Zealand Information Release – Marriages, Civil Unions and Divorces: Year ended December 2016 (3 May 2017)
at 5.
diversifying.11 Baker and Elizabeth say that marriage has “...
retained its cultural and symbolic value as the socially ordained vehicle for
relationships of romantic love and commitment”.12
Civil unions
5.7 A civil union is a formal registered relationship that is similar
to a marriage.13 Civil unions were introduced in 2004 to provide for heterosexual couples who wanted formal recognition of
their relationship but who did not wish to marry, and to address the situation regarding same-sex couples who could not legally marry.14 Civil unions and marriages are both “opt-in” relationships that make a private commitment public. A civil union provides
the opportunity to formalise a relationship without the religious and social
associations that can arise with marriage.15 Civil unions are
generally treated the same as marriages under the PRA.
5.8 The number of people entering civil unions since 2005 has remained
relatively small, accounting for 1.4 per cent of all marriages
and civil unions
between 2005 and 2013.16 The number of civil unions has dropped even
further since same-sex marriage was legalised in 2013. In 2016, there were only
48 civil
unions, accounting for 0.2 per cent of all marriages and civil
unions.17
De facto relationships
5.9 The decline in the rate of people entering marriages and civil unions
has coincided with an increase in the number of people
11 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Introduction.
(Relationships) Act 1976, a “civil union” includes a civil union that is void (for example a civil union where at the time of solemnisation either party was already married or in a civil union: see Civil Union Act 2004, s 23 and Family Proceedings Act 1980, s 31); and a civil union that has ended by a legal process while both civil union partners are alive or by the death of one civil union partner.
14 Hon David Benson-Pope, Associate Minister of Justice, (24 June 2004) 618 NZPD 13927.
15 Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at 1.11.1.
living in de facto relationships.18 In New Zealand, 409,380 people
reported they were in a de facto relationship in 2013.19 This accounted for 22 per cent of all people partnered, or 13 per cent of the total adult population.20 This has increased since 2001, when people in a de facto relationships accounted for 18 per cent of
all people partnered, or 11 per cent of the total adult population. The
increasing prevalence of de facto relationships follows international
trends,
however the rate is higher in New Zealand than in other comparable countries.
The increase in de facto relationships is
also likely driving the increase in
the number of children born outside marriage.21 In 2016, 46 per cent
of all births in New Zealand were ex-nuptial, up from 17 per cent in
1976.22
5.10 Census data can tell us about some characteristics of people living in de facto relationships. A breakdown of census data by relationship type and age demonstrates that younger people are more likely to be in a de facto relationship, with people aged
15–24 being more likely to be in a de facto relationship than be married in 2013.23 Marriage then becomes more common in the older age brackets, which suggests that many people are living in a de facto relationship before marriage.24 De facto relationships are more prevalent among Māori compared to any other ethnic group. In the 2013 census, 17 per cent of Māori identified they were in
a de facto relationship, compared to the 13 per cent of the total
population.25
18 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1. It is important to note that data collected on de facto relationships
in New Zealand (including census data) generally defines a de facto relationship as one where the partners live together as a couple in a relationship in the nature of marriage. As we discuss in Chapter 6, this is different to the definition of de facto relationship in the Property (Relationships) Act 1976, s 2D.
19 Statistics New Zealand “Partnership status in current relationship and ethnic group (grouped total responses) by age group and sex, for the census usually resident population count aged 15 years and over, 2001, 2006 and 2013 Census (RC, TA)” <nzdotstat.stats.govt.nz>.
21 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
23 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
25 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
The inclusion of de facto relationships in
the PRA
5.11 Prior to 2001, when a de facto relationship ended property rights
were usually determined under general property law principles
or the law of
equity.26 This often resulted in significant unfairness,
particularly for women.27 An analysis of de facto property cases
between 1986 and 1990 had found that the average division of property for
women in heterosexual
de facto relationships of between three and ten
years’ duration ranged from 10–40 per cent.28 Obtaining
more than a 20–30 per cent division under this approach was described as
“extremely difficult”,29 and predicting outcomes as
“somewhat of a lottery”.30
5.12 There were attempts as early as 1975 to provide a statutory property regime for de facto relationships. The Matrimonial Property Bill 1975 originally provided for a court to consider applications by partners living in a “de facto marriage” of two or more years’ duration.31 In a White Paper accompanying the Bill, the Minister of Justice at the time said that on “practical and humanitarian grounds” there was a strong case for including
de facto relationships within the property division regime for marriages.32 Following a change of Government, de facto relationships were removed from the Bill at the Select Committee stage.33 The incoming Minister of Justice said that removing de facto relationships meant that “...we believe that individuals should demonstrate to those they live with a responsibility to
the other partner, and a responsibility at law to regularise that
union”.34 The opposition described the decision as
“unfortunate”
27 (14 November 2000) 588 NZPD 6517.
28 (14 November 2000) 588 NZPD 6517.
29 (14 November 2000) 588 NZPD 6517.
30 Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at 6.
31 Matrimonial Property Bill 1975 (125-1), cl 49.
33 Matrimonial Property Bill 1976 (125-2) as reported from the Statutes Revision Committee.
34 Hon David Thomson MP, Minister of Justice (9 December 1976) 408 NZPD 4727.
and accused the Government of “closing its eyes” to the needs of
people in de facto relationships and the future welfare of their
children.35
5.13 In 1988 a Working Group was established by the Ministry of Justice to revise and update the Matrimonial Property Act 1976. The Working Group was unanimous that the law as it applied to de facto relationships was unsatisfactory and should be reformed.36
In 1998 the De Facto Relationships (Property) Bill 1998 was introduced,
proposing a separate statutory property regime for de facto
relationships.37 The Bill defined de facto relationship as “a
man and a woman... living together in a relationship in the nature of marriage,
although not married to each other.”38 The proposed regime was
different to the regime for married couples, and only applied to de facto
relationships of three or more
years’ duration.39
5.14 Supplementary Order Paper No 25 signalled a new policy direction.40 It was introduced in 2000 following a change of Government, and extended the Matrimonial Property Act 1976 to cover opposite-sex and same-sex de facto relationships.41
The same property division rules that applied to spouses would generally
apply to de facto partners. The Associate Minister of
Justice at the time
said:42
As we enter a new century it is about time that New Zealand caught up with the rest of the world and provided legal
recognition and rights to the members of a considerable large and growing section of our community who freely chooses to organise
their relationships outside the formality of
marriage.
35 Mary Batchelor MP (9 December 1976) 408 NZPD 4724.
36 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
65–66. It gave as reasons: Many de facto partners fulfil the same family functions as legal spouses; it is inequitable to deny recognition to a relationship which is a marriage in substance; de facto partners and spouses encounter the same problems and therefore need comparable legal remedies; legal rights will reduce opportunities for exploitation and the need for litigation; the law should recognise the undeniable reality of de facto relationships and ameliorate unnecessary hardship and patent injustice; de facto partners can contract out of the legislative reforms; and a greater recognition of de facto relationships is consistent with the trend in similar overseas jurisdictions.
37 De Facto Relationships (Property) Bill 1998 (108-1) (explanatory note) at i.
38 De Facto Relationships (Property) Bill 1998 (108-1), cl 17.
39 De Facto Relationships (Property) Bill 1998, (108-1), cl 50(1). See Government Administration Committee Interim Report on the De Facto Relationships (Property) Bill (September 1999) at 13 for a table summarising the main differences between the Matrimonial Property Act and the De Facto Relationships (Property) Bill 1998.
40 Supplementary Order Paper 2000 (25) Matrimonial Property Amendment Bill (109-3).
41 (4 May 2000) 583 NZPD 1926.
42 Hon Margaret Wilson MP, Associate Minister of Justice (4 May 2000) 583 NZPD 1927.
5.15 Supplementary Order Paper No 25 was considered by the
Parliamentary Select Committee in mid-2000.43 Public interest was high, and the select committee received 1,631 submissions.44
While the vast majority of submissions (approximately 1,330)
did not support extending the Matrimonial Property Act to
de facto relationships,45 the majority of the Select Committee
supported the key changes, making these observations and
recommendations:
(a) The Matrimonial Property Act should be extended to cover both
opposite-sex and same-sex de facto couples.46 Statutory protection
was necessary to safeguard children and the property rights of people whose de
facto relationships end, particularly
those in vulnerable
positions.47
(b) The definition of “de facto relationship” should centre on
two people who “live together as a couple”,
rather than “a
relationship in the nature of marriage”.48
(c) An “opt-out” regime for de facto couples is preferable to
an “opt-in” regime.49
5.16 The Property (Relationships) Amendment Bill was passed on 22
November 2000, with most amendments extending the regime to de facto
relationships coming into force on 1 February 2002. The extension
of the PRA to
de facto relationships has been described as a “minor triumph for the
traditional values of Kiwi pragmatism and
tolerance”.50 It is
said that we “lead the world” by largely applying the same rules of
property division to all relationship types.51
43 (1 June 2000) 584 NZPD 2754–2770.
50 Simon Jefferson “De facto or ‘friends with benefits’” (2007) 5 NZFLJ 304, at 1.
51 Wendy Parker “Sameness and difference in the Property (Relationships) Act 1976” (2001) 3 BFLJ 276.
Should the PRA continue to apply equally to long-
term relationships that are substantively the same?
5.17 In Part A we said that an implicit principle of the PRA is that the law should apply equally to all relationships that are substantively the same. This principle is inherent in the PRA’s core rules, which generally apply in the same way to marriages, civil unions and de facto relationships of three or more years’ duration (long-term relationships).52 The principle is driven by equality as expressed
in anti-discrimination laws and reflects a shift in family law policy
towards greater recognition of a wide range of family
relationships.53
5.18 There may be potential issues with how the PRA ensures that only those
unmarried relationships that are substantively the
same as marriages and civil
unions are covered. If the PRA is not capturing substantively similar
relationships, it may be failing
to provide for a just division of property
because it imposes the same general rule of equal sharing on relationships
that are
different. These issues relate to the PRA’s definition of de
facto relationship, and are discussed in Chapter 6.
5.19 The broader question is whether the PRA should continue to apply in the same way to all long-term relationships that are substantively the same, regardless of relationship type. Our preliminary view is that it should. We think it would be inconsistent with human rights principles to have different
rules for relationships that are substantively the same and that face the same property issues when they end.54 Treating de facto relationships differently is also likely to be out of step with social trends such as the increasing prevalence of de facto relationships and changing attitudes on social issues such as living together before marriage (or not marrying at all), separation and having
and raising children outside marriage.55 Although legal
remedies
1980, which do not apply to couples in a de facto relationships. Short-term relationships (those that last for less than three years) are discussed in Part E.
54 See New Zealand Bill of Rights Act 1990, ss 5 and 19; and Human Rights Act 1993, s 21(1)(b).
55 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
may be available in property law or equity, they may be difficult
to access or less favourable than the PRA.56 Retaining de facto
relationships within the PRA may also minimise some of the social and economic
costs of relationship breakdown
to the State.57
5.20 Atkin has also observed that:58
... recognising unmarried relationships in financial statutes is unlikely to undermine marriage because the legal issues that arise in each case are usually when the marriage or relationship is in strife or when one of the parties has died; ... and definitions of the relevant relationship and a duration requirement as a condition
of jurisdiction (in New Zealand three years) can weed out the fringe
associations that should be outside a marriage-based regime.
5.21 We have also considered whether there should be a separate regime for de facto relationships, as originally proposed in 1998.59
However we think that it would be a backward step to reconsider that
proposal at this stage of the PRA’s evolution. The
current approach has
its issues (discussed in Chapters 6 and 7 below), but is workable as a starting
point for reform.
Should the PRA continue to apply to de facto relationships on an opt-out
basis?
5.22 The PRA establishes a bilateral “opt-out” regime for all marriages, civil unions and de facto relationships.60 This means that long- term de facto relationships are subject to the PRA, unless
both partners agree to opt out by entering a “contracting out”
agreement.61 A contracting out agreement is a way that
partners
56 For example, an alternative remedy may exist in the common law of contract, constructive trust, under the Law Reform
(Testamentary Promises) Act 1949 or the Family Protection Act 1955.
58 Bill Atkin “The Legal World of Unmarried Couples: Reflections on ‘De Facto Relationships’ in Recent New Zealand
Legislation” (2008) 39 VUWLR 793 at 794.
59 See the De Facto Relationships (Property) Bill 1998 (108-1); and Supplementary Order Paper 2000 (25) Matrimonial
Property Amendment Bill 1998 (109-2).
3.
61 Property (Relationships) Act 1976, ss 1C(2), 14A and 21. Short-term de facto relationships are discussed in Part E. A court may treat a relationship of three years or longer as a short-term relationship if it considers it just: s 2E(1); and short-term relationships must pass a further test before a property division order can be made: s 14A.
contracting out agreement must comply with Part 6 of the PRA,
and may be made during a relationship or in contemplation of entering a
relationship.63 The ability to contract out is said to be an
“integral feature” of the PRA.64
5.23 Alternatives to a bilateral opt-out regime include a:
(a) unilateral opt-out regime, where de facto relationships are covered by
the PRA unless one partner opts out (the other partner
’s agreement is
not required);
(b) unilateral opt-in regime, where de facto relationships are not covered
by the PRA unless one partner opts in (the other partner
’s agreement is
not required); and
(c) bilateral opt-in regime, where de facto relationships are not covered
by the PRA unless both partners agree to opt-in.
5.24 The Parliamentary select committee considered a bilateral opt- in regime for de facto relationships in 2000,65 but preferred a bilateral opt-out regime because it would mean that vulnerable people unaware of their legal situation would be covered without having to try to contract in.66 In contrast, under an opt-in regime some people might not be able to secure their partner ’s agreement to contract into the PRA – this was of particular concern where
the relationship is a long one or where there are dependent
children.67
5.25 Our preliminary view is that the existing bilateral opt-out regime
remains appropriate for de facto relationships. We have
found no new evidence
that questions the conclusion in 2000 that, while an opt-out regime may create
unfair outcomes for some,
it will
64 Wells v Wells [2005] NZHC 1761; [2006] NZFLR 870 (HC) at [38].
“...protect more people, especially those who are vulnerable,
and create less unfairness than an opt-in regime”.68 Rather, the arguments in favour of an opt-out regime may be even stronger in 2017. An increasing number of people are living in de facto relationships,69 and with the passage of time there is likely to be
greater public awareness that de facto relationships carry property
consequences. Public education about the PRA and how it works,
as discussed in
Part A, would also help to raise awareness.
C ONSU LTATION QUESTIONS
B1 Do you agree with our preliminary view that the existing bilateral
opt-out regime for de facto relationships is appropriate?
B2 Is the PRA’s bilateral opt-out approach causing issues for de
facto relationships? If so, would those issues be best addressed
by
re-examining that approach, or in other ways, such as education; changes to the
definition of de facto relationship; changing
the minimum duration requirement
(see Part E); changes to the PRA’s rules of classification and division
(see Parts C and
D); changes to the PRA’s contracting out provisions (see
Part J) or something
else?
69 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
Chapter 6 – The definition of de
facto relationship
6.1 Under the PRA, a “de facto relationship” is a relationship between two people, both age 18 years or older; who “live together as a couple”; and who are not married to, or in a civil union with, each other.70 The definition is flexible because it relies on a high level
of judicial discretion and takes a functional approach that looks at how a
couple’s relationship operates in practice rather
than its form.71
The definition is set out in full below.72
2D Meaning of de facto relationship
(1) For the purposes of this Act, a de facto relationship is a relationship between 2 persons (whether a man and
a woman, or a man and a man, or a woman and a woman)—
(a) who are both aged 18 years or older; and
(b) who live together as a couple; and
(c) who are not married to, or in a civil union with, one
another.
(2) In determining whether 2 persons live together as a couple, all the
circumstances of the relationship are to be taken into account,
including any of
the following matters that are relevant in a particular case:
(a) the duration of the relationship:
(b) the nature and extent of common residence: (c) whether or not a sexual relationship exists: (d) the degree of financial dependence or
interdependence, and any arrangements for financial support, between the
parties:
(e) the ownership, use, and acquisition of property:
(f ) the degree of mutual commitment to a shared life: (g) the care and
support of children:
70 Property (Relationships) Act 1976, s 2D(1).
72 Determining the duration of a de facto relationship, including start and end dates, is discussed in Part E.
(h) the performance of household duties:
(i) the reputation and public aspects of the relationship. (3) In determining whether 2 persons live together as a
couple,—
(a) no finding in respect of any of the matters stated in subsection (2),
or in respect of any combination of them, is to be regarded as necessary;
and
(b) a court is entitled to have regard to such matters, and to attach
such weight to any matter, as may seem appropriate to the court
in the
circumstances of the case.
(4) For the purposes of this Act, a de facto relationship ends
if—
(a) the de facto partners cease to live together as a couple;
or
(b) one of the de facto partners dies.
Two people who “live together as a couple”
6.2 At the heart of the definition of de facto relationship is the concept of two people who “live together as a couple”.73 This was not always the case. Early drafts of the definition hinged on
the central concept of a man and a woman living together “in a relationship in the nature of marriage”.74 The more neutral concept of two people living together as a couple emerged in 2000 at
Select Committee stage.75
in cl 2A(2) of the Matrimonial Property Amendment Bill 1998 and Supplementary Order Paper No 25 2000 (109-3)
introduced by the newly elected Labour Government in 2000.
be difficult and costly to define in court. Some submitters were offended at de facto relationships being defined as relationships “in the nature of marriage”. The Select Committee saw the definition of de facto relationship in the New South Wales Property (Relationships) Act 1984 (NSW) and the criteria referred to in T v Department of Social Welfare [1993] NZHC 2044; (1993) 11 FRNZ 402 (HC) as a good starting point for what became the current definition of de facto relationship in s 2D of the Property (Relationships) Act 1976.
covered by the definition of de facto relationship. It said that:
76
In considering what criteria to include in the definition of de facto relationship, we discussed who should be covered by this legislation. There is a wide variety of de facto relationships. At one end of the scale there are long-term relationships where
a couple have children together, share property, operate as an economic
partnership and are committed to sharing their lives. At the
other end of the
scale there are couples who live together, but are not committed to sharing
their lives, remain financially independent
and do not have children together.
Such couples may be people who seek companionship and may be living in a de
facto relationship
expressly because they do not wish to share their property.
We believe that a definition should aim to capture the first group, but
avoid
unduly covering the second.
The factors in section 2D(2)
6.4 In determining whether two people live together as a couple, all the circumstances of the relationship must be considered, including the nine factors in section 2D(2) where relevant. However no factors are prerequisites for a de facto relationship.77
A court may have regard to such matters, and attach such weight to any
matter, as may seem appropriate in the case.78 This means that two
people may “live together as a couple” even if they do not
physically live together in the same house,
or are financially independent. In
S v S the High Court said that “...the approach must be broad,
with various factors weighed up in an evaluative
task”.79
6.5 Whether two people live together as a couple is case specific.80
If both parties say they were in a de facto relationship, then
“that may well be decisive direct evidence, depending on the
existence of
other characteristics”.81 However it is not uncommon for
one
77 Property (Relationships) Act 1976, s 2D(3).
78 Property (Relationships) Act 1976, s 2D(3)(b).
79 S v S [2006] NZFLR 1076 (HC) at [64]. See also B v F [2009] NZHC 1165; [2010] NZFLR 67 (HC) at [51]; and Benseman v Ball [2007] NZFLR
127 (HC) at [20].
80 PT v C [2009] NZFLR 514 (HC) at [37]; and S v S [2006] NZFLR 1076 (HC) at [37].
81 S v S [2006] NZFLR 1076 (HC) at [64].
up to a court to decide whether the parties lived together as a
couple. As seen below, a range of committed relationships are de facto
relationships. This highlights the flexibility of the definition.
It also shows
that relationships that are hard to categorise can end up in section 2D
disputes.
The duration of the relationship
6.6 A long-term relationship is not necessarily a de facto relationship.
In C v S83 the parties had a 19 to 20 year relationship
but did not share a common residence (even when they could have) and there was
no
financial commitment between them.84 The parties carried on
“an affair” of about two decades that never moved to where they
were living together as a couple.85 There the Family Court found
that the parties were not in a de facto relationship.
6.7 A short-term relationship may still be a de facto relationship.86
In L v D, a relationship of two years and three months was a de facto relationship.87 Although the relationship was short, many of the section 2D(2) factors were present. The partners had a
common residence for the whole period, a sexual relationship, the applicant
carried out substantial unpaid work on the respondent’s
property, and the
partners presented themselves publicly to their friends as a couple.
The nature and extent of common residence
6.8 Sharing a home is an important indicator that two people are in a de facto relationship, but is neither essential nor conclusive.88
In O’Shea v Rothstein the High Court said that the expression “two
people who live together as a couple” means more than
physically
84 C v S FC Dunedin FAM-2005-012-157, 28 September 2006 at [158].
85 C v S FC Dunedin FAM-2005-012-157, 28 September 2006 at [159].
86 However different rules apply to short-term de facto relationships: see Part E.
87 L v D HC Blenheim CIV-2006-406-293, 2 November 2010.
88 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at PR2D.04(2). See also
W v L [2017] NZHC 388, [2017] NZFLR 299 where at [26] the High Court agreed with the Family Court that living at the same address cannot be determinative.
is not shared at all times does not break the period of a de facto
relationship provided that the true nature and characteristic of a de facto
relationship remains.90 In S v S the extent of common
residence was not great, with the longest period of continuous cohabitation
being nine months during a five
year relationship. The High Court observed
that “the absence of sharing a common residence is not
determinative”.91
6.9 Two people who share a home for a long period are not necessarily in a de facto relationship. In PT v C the parties shared a common residence for approximately 20 years.92 They also had a sexual relationship for around five years, shared the care and support
of their child, had a degree of financial interdependence and had a business relationship.93 Despite these factors the High Court found they were not in a de facto relationship.94 The
relationship lacked the degree of mutual commitment to a shared life
indicative of a de facto relationship.95 One party had “divided
loyalties” due to an intimate relationship with someone else, from which a
child was born.96
6.10 In contrast, two people who live in separate homes can still be in a de facto relationship. In G v B the High Court found that the partners had been in a de facto relationship even though
they maintained separate residences for lengthy periods of time because the interests of one partner ’s children required it.97 The Court said that:98
There may be compelling reasons why a couple do not share a common
residence for substantial periods of time whilst remaining totally
committed to
a long-term relationship. Ill- health and the need for medical treatment, the
demands of employment or studies, the
responsibility for childcare or other
dependents, and financial need may separately or in combination
89 O’Shea v Rothstein HC Dunedin CIV-2002-412-8, 11 August 2003 at [20].
90 S v S [2006] NZFLR 1076 (HC) at [63].
91 S v S [2006] NZFLR 1076 (HC) at [42].
92 PT v C [2009] NZFLR 514 (HC) at [37].
93 PT v C [2009] NZFLR 514 (HC) at [37] and [45].
94 PT v C [2009] NZFLR 514 (HC) at [55] and [57].
95 PT v C [2009] NZFLR 514 (HC) at [55].
96 PT v C [2009] NZFLR 514 (HC) at [37]–[39] and [55].
97 G v B (2006) 26 FRNZ 28 (HC) at [35].
98 G v B (2006) 26 FRNZ 28 (HC) at [33].
periods of time.
6.11 It can sometimes be difficult to determine if the parties had shared a common residence as flatmates, landlord and tenant or as de facto partners. This can be the case where a relationship starts as a commercial arrangement and evolves into something more. In Z v C the applicant, a migrant student, claimed that within 18 months of moving in she had started a de facto relationship with her elderly landlord.99 The Family Court found
they had developed an affectionate, mutually supportive and close relationship that included sexual contact.100 Despite that, the Court was not satisfied that they were in a de facto relationship because “...[t]he range of their relationship simply did not
develop to the extent that it can fairly or properly be said that they were
“a couple” with a mutual commitment to a
shared life for the
foreseeable future”.101
6.12 The reason the parties live in separate houses may be relevant.102
In S v S the High Court observed that there are many examples
outside the PRA where people living in separate houses or with different
families
were nevertheless “cohabiting”, “so long as the
parties retained the intention of cohabiting whenever possible
so that their
“consortium” was regarded as
continuous”.103
Whether or not a sexual relationship exists
6.13 Two people can be in a de facto relationship even if there is
insufficient evidence of a sexual relationship.104 A relationship
where the partners’ religious beliefs prevent them from living together
or having a sexual relationship can
still be a de facto
relationship.105
99 Z v C [2006] NZFLR 97 (FC). See also C v W FC Morrinsville FAM-2009-039-160, 26 April 2010; [LC] v T [2012] NZFC
1702; and G v R [2013] NZHC 89, [2014] NZFLR 563.
100 Z v C [2006] NZFLR 97 (FC) at [47].
101 Z v C [2006] NZFLR 97 (FC) at [47].
103 S v S [2006] NZFLR 1076 (HC) at [40].
104 In [LC] v T [2012] NZFC 1702 (FC) the evidence fell short of establishing a sexual relationship at [14], but regardless the
Family Court found that the parties were living together as couple, at [24].
105 In S v S [2006] NZFLR 1076 (HC) at [37] Gendall and France JJ had “no doubt” that the relationship in H v G (2001) 20
FRNZ 404 (CA) would have been a de facto relationship for the purposes of the Property (Relationships) Act 1976.
they do not have an exclusive sexual relationship.106 In S v S, the
partners were in a de facto relationship although they were not
monogamous.107 The High Court said that:108
There may be instances where couples in a relationship operate on an
understanding that each might have, from time to time, other
sexual partners.
There may be instances where intermittent sexual behaviour occurs but is kept
secret from a partner for many years.
Sexual fidelity may be a factor which,
depending on the circumstances, may indicate a lack of commitment but it depends
on all the
circumstances.
The degree of financial dependence or interdependence, and any
arrangements for financial support, between the parties
6.15 Financial dependence, interdependence or support is not a requirement for a de facto relationship but it can be an important factor. One text states that “[c]ouples who do not live together and maintain complete financial independence are unlikely to
be regarded as living in a de facto relationship.”109 In C v S the absence of any financial commitment between the parties was a material consideration leading to the conclusion that their 19 to
20 year relationship was not a de facto relationship (see paragraph
6.6).110 In that case, there was little pooling of resources or use of the other ’s independent funds and neither consulted the other regarding their future financial wellbeing.111 However in a more recent case the High Court observed that the parties’ separate finances were not a “...reliable indicator of the nature of the relationship between them, as separate financial arrangements can be quite a common feature of settled de facto or married couples”.112
6.16 Partners may still provide financial support to each other even if
they have separate bank accounts and manage their money
107 S v S [2006] NZFLR 1076 (HC).
108 S v S [2006] NZFLR 1076 (HC) at [44].
109 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at PR2D.04(4).
110 C v S FC Dunedin FAM-2005-012-157, 28 September 2006 at [158].
111 C v S FC Dunedin FAM-2005-012-157, 28 September 2006 at [158].
independently. In S v S, while the partners kept their financial
affairs largely separate, Ms S depended financially on Mr S in the sense he
provided her with a rent-free home and other benefits
that enabled her to
maintain a “generous lifestyle”.113
6.17 Two people can be in a de facto relationship even if one partner
receives a State benefit as a sole parent or has made a declaration
for
benefit purposes that they are not in a relationship.114
6.18 Two people can also be in a de facto relationship even if one pays rent to the other. In C v W board payments were evidence of a degree of financial interdependence, and represented the parties “having thrown their lot in together”.115 In all the circumstances
of that case the Family Court found there was a de facto
relationship.116
The ownership, use, and acquisition of property
6.19 It may be relevant whether property was acquired before or during the
relationship; whether it is held in the name of one
or both parties and to
what degree; and whether it was used for family, investment or other
purposes.
6.20 Two people can be in a de facto relationship even if they hold property in separate names. In G v B the High Court observed that how the parties had acquired and owned property showed a clear intention to maintain separate ownership, which “pointed away from a de facto relationship”.117 No property was acquired
in joint names and, with the sole exception of cars bought for one party by the other, each paid for their own property when it was purchased.118 But the parties were in a de facto relationship due to their level of commitment, the existence of a constant physical and emotional relationship and the provision of financial
support.119
113 S v S [2006] NZFLR 1076 (HC) at [45]–[47] and [65].
115 C v W FC Morrinsville FAM-2009-039-160, 26 April 2010 at [7], [15] and [20].
116 C v W FC Morrinsville FAM-2009-039-160, 26 April 2010 at [20].
117 G v B (2006) 26 FRNZ 28 (HC) at [16] and [38].
118 G v B (2006) 26 FRNZ 28 (HC) at [16].
119 G v B (2006) 26 FRNZ 28 (HC) at [35].
The degree of mutual commitment to a shared life
6.21 The attitude of each party to the relationship can be important
evidence, and is often “...used to distinguish an affair
or infatuation
from a de facto relationship, because it signifies a deeper and more
meaningful relationship”.120
6.22 A common argument is that the parties were merely “friends with
benefits” and not de facto partners. In G v R the High Court found
that despite Mr G’s arguments that he was a boarder and the parties
were “friends with benefits”,
the evidence supported a mutual
commitment to a shared life to the extent that the conclusion that the parties
were in a de facto
relationship was
“inevitable”.121
The care and support of children
6.23 Care and support of any children may include physical care, financial support and non-financial support. In this context “children” is not limited to children of the relationship. While having children together may indicate that two people are living together as a couple, it is not determinative. In PT v C, two parents shared a common residence and cooperated in the upbringing
of their daughter for over 20 years, but were not in a de facto relationship
(see paragraph 6.9).122
The performance of household duties
6.24 Household duties may include home maintenance, gardening, cooking
and cleaning. The way domestic work is shared in a relationship
may need to be
viewed in the light of other factors such as living arrangements and financial
support. Household duties performed
for payment may suggest a commercial
relationship rather than two people who live together as a couple.
The reputation and public aspects of the relationship
6.25 Establishing the public face of the relationship may require evidence
from family, friends and colleagues; and may be
120 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at PR2D.04(6).
121 G v R [2013] NZHC 89, [2014] NZFLR 563 at [4].
122 PT v C [2009] NZFLR 514 (HC).
illustrated through attendance at family and work functions as
a couple, photographs of the parties presenting as a couple, and public
displays of affection.
6.26 A clandestine relationship however may still be a de facto relationship. In [LC] v T the parties described their relationship to others as landlord/tenant or flatmates.123 There was a considerable age gap between the parties, their relationship was a talking
point in their community and they were in fraudulent receipt of a benefit.
Yet other factors satisfied the Family Court that
although the public aspects
of the relationship were “somewhat problematic but understandable”,
the parties were living
together as a couple.124
Issues with the definition of de facto relationship
6.27 Achieving a universal definition of de facto relationship is not an object of this review. The current legislative landscape contains three definitions of what is essentially the same concept: de
facto relationship as defined in the PRA;125 de facto relationship as defined in the Interpretation Act 1999;126 and the phrase “a relationship in the nature of marriage”.127 The PRA’s definition of de facto relationship is unique in that it hinges on the concept of two people who “live together as a couple” as opposed to a marriage/civil union analogy. Inconsistency across the statute
book raises wider issues, because two people may be in a “de facto
relationship” for some purposes but not others.
6.28 Our preliminary view is that having a unique definition of de facto relationship in the PRA is not an issue. The PRA defines de facto relationship for a specific purpose, to establish which
relationships are subject to its rules about property division when the relationship ends. The central concept of the PRA definition
(two people who live together as a couple) has advantages over
123 [LC] v T [2012] NZFC 1702 (FC) at [14] and [22].
124 [LC] v T [2012] NZFC 1702 (FC) at [22]–[24].
125 Property (Relationships) Act 1976, s 2D.
126 Interpretation Act 1999, s 29A.
“live together as a couple” is comparatively neutral and may
better accommodate couples who reject the religious and social connotations of marriage. The language of “coupledom” also allows room for a variety of two person relationships to be recognised
in the PRA, and for de facto relationships to be recognised as a genuine “third option”. Adopting a marriage/civil union analogy would not achieve a universal definition of de facto relationship because the inquiry will always be context specific.128 We do however recognise that historical objections to a marriage analogy may not be as strong in 2017 as they were when this approach
was rejected in 2000.129 Same-sex marriage is now possible, and
the meaning of marriage may have changed for some
people.130
Does the definition include relationships that are not substantively the
same as marriages and civil unions?
6.29 In Chapter 5 we set out our preliminary view that the PRA should continue to apply in the same way to all long-term relationships that are substantively the same, regardless of relationship type (see paragraphs 5.17 to 5.20). However we signalled there may
be issues with whether the definition of de facto relationship captures
relationships that are substantively the same as marriages
and civil
unions.
6.30 There is an argument that the definition of de facto relationship
risks capturing relationships that are not substantively
the same as marriages
and civil unions. This may be because the definition does not prioritise
factors that are more indicative
of a qualifying relationship. It may also be
because of perceived differences in how de facto relationships function that
are not
sufficiently taken into account by the definition. If so, the PRA may
fail to provide
130 The Marriage (Definition of Marriage) Amendment Act 2013 amended the definition of marriage in the Marriage Act
1955 to allow same-sex marriage. Maureen Baker and Vivienne Elizabeth Marriage in an Age of Cohabitation: How and When People Tie the Knot in the Twenty-First Century (Oxford University Press, Canada, 2014) at 188 said that “[c]learly, a diminishing number of people in the English-speaking countries see marriage as a sacrament, or even a union between a man and a woman”.
rule of equal sharing on relationships that are different.
6.31 There is also an argument that the current approach is appropriate. This may be because the flexibility inherent in the definition is thought to give courts the ability to exclude
relationships that are not substantively the same as marriages and civil unions. It may be because the definition rightly avoids imposing additional requirements on de facto partners that do not exist for couples that are married or in a civil union, because to do so would raise issues under human rights law. Prioritising factors may set a higher bar for de facto relationships and could expect them to exhibit characteristics of a traditional marriage that are
no longer hallmarks of a marriage or civil union today.
6.32 We consider below whether more weight should be given to some section
2D(2) factors in the definition of de facto relationship.
This may be necessary
to avoid unduly capturing relationships that are not substantively the same as
marriages and civil unions.
It may also be favoured to give more prominence to
factors considered more indicative of a de facto relationship, in line with
public
expectations, or to address issues for particular groups.
C ONSU LTATION QUESTION
B3 Does the definition of de facto relationship unduly capture
relationships that are not substantively the same as marriages and
civil
unions?
Should more weight be given to the nature and extent of common
residence?
6.33 It might be more appropriate to give more weight to this factor
because of what it suggests about the nature and quality
of a relationship,
and the extent to which the partners’ lives are intertwined. Some overseas
jurisdictions have explored whether
living together in a joint household should
be a requirement.131
(LAW COM No 307, 2007) at [3.13]. Note that the Law Commission rejected the option of extending or modifying the Matrimonial Causes Act 1973 (UK) for couples that live together. In Sweden some rules apply at the end of a relationship between two people who live together permanently as a couple and with a joint household (so chores and expenses
are shared): Cohabitees Act (2003:376) (Sweden), s 1. See also Ministry of Justice, Sweden Cohabitees and their joint homes – a brief presentation of the Cohabitees Act (2012) at 1. Note that the Cohabitees Act only provides a minimum level of protection for the financially vulnerable party upon the dissolution of a cohabitee relationship, and the value of the protection depends on what property is to be shared: Margareta Brattström “The Protection of a Vulnerable Party when
a Cohabitee Relationship Ends – An Evaluation of the Swedish Cohabitees Act” in Bea Verschraegen (ed) Family Finances
may be more likely to exhibit other section 2D(2) factors (such as
financial interdependence, shared ownership and use of property and
performing household duties) than a relationship between a couple
that live in
separate houses. Such relationships may have a stronger link to the property
divided when the relationship ends, such
as the family home and chattels.
Giving more weight to this factor would recognise that, for some couples,
moving in together is
a significant step and evidences a strengthening
commitment to the relationship.
6.35 As this factor is said to probe both the quality and quantity of shared
living,132 it may also distinguish between an initial phase of
living in the same house that could be seen as “co-residential
dating”
and couples for whom living together has taken on a deeper
meaning.
6.36 The current approach to common residence may be surprising for some partners who live apart, in what are described as “Living Apart Together” (LAT) relationships. LATs are committed couples who live in separate houses for social, moral, religious or other reasons, including that it is more financially advantageous to
do so.133 There is little research about LATs in New Zealand. Most international studies agree that just under 10 per cent of adults are LAT, including studies in the United Kingdom and Australia.134 Research from the United Kingdom identified four distinct profiles of LATs, occurring at different stages in the life course.135 One profile was “seniors” (13 per cent of individuals in LAT relationships). Most seniors were aged 50 and over and most had been married.136 Seniors were most likely to be in long-term relationships and LATs out of choice, and least likely
to have intentions to live in the same house.137 This may be
a
132 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [2.12].
133 Superu (formerly Families Commission) The Kiwi Nest: 60 Years of Change in New Zealand Families (Research Report No
3/08, June 2008) at 6.
135 Rory Coulter and Yang Hu “Living Apart Together and Cohabitation Intentions in Great Britain” (2015) 1 Journal of
Family Issues 1 at 13. This research investigated 3,112 individuals in LAT relationships.
136 Rory Coulter and Yang Hu “Living Apart Together and Cohabitation Intentions in Great Britain” (2015) 1 Journal of
Family Issues at 13.
137 Rory Coulter and Yang Hu “Living Apart Together
and Cohabitation Intentions in Great Britain” (2015) 1 Journal of Family
Issues at 14-15. Note that the study did not identify whether this group also
included people who were LAT because their partner
had gone into an aged care
facility.
growing group in New Zealand given our demographics.138 The PRA’s current approach to common residence may be an issue for older New Zealanders in LAT relationships where there is no expectation of property sharing when the relationship ends, or
who do not appreciate that they may be in a de facto relationship even if
they do not live in the same house. These LATs may wish
to preserve their
independence, and may seek to protect property acquired during a previous
relationship for succession.
6.37 Giving more weight to common residence may, however, exclude relationships that should be subject to the PRA, for example
some LAT relationships where the partners live in separate houses because
of their children’s needs or work commitments,
or because they are
forced to live apart for economic reasons, or because one partner is in prison
or overseas.
C ONSU LTATION QUESTIONS
B4 Did you know that common residence is not a requirement for a de facto
relationship?
B5 Should more weight be given to the nature and extent of common
residence? If so, why?
Should more weight be given to financial dependence or interdependence and
financial support?
6.38 Giving more weight to this factor might better align the criteria for a de facto relationship with the consequences of the PRA. It may avoid perceived unfairness, for example where the general rule of equal sharing is applied to relationships where finances were not shared. It may also better align with the partners’ expectations
and the way they conducted themselves during their relationship. Using more individualised systems of money management is viewed by some as evidence of lower levels of commitment to
the relationship.139 There is precedent for this approach in other contexts. For example, financial interdependence is a prerequisite for a relationship in the nature of marriage for some benefit
purposes.140
140 Social Security Act 1964, s 63; and R
v Department of Social Welfare [1996] NZCA 487; [1997] 1 NZLR 154 (CA).
Case Study: financial independence
Aroha (55) and Justin (59) were in a relationship for just over ten years. During the relationship, they lived together in Justin’s house on Linwood Street with Aroha’s daughter Hine (13) and Justin’s son, Hayden (32). Aroha and Justin both had good jobs. Both had been married before, and kept their money completely separate. They had no joint bank account. They valued their independence and liked the feeling of equality that came from splitting all the bills evenly down the middle, including the mortgage on the Linwood Street house. Aroha and Justin had an active social life together and shared a passion for motorsport. During their relationship they bought a rally car together which Hayden and Justin used in several events, with Aroha and Hine providing crew support. They also jointly
owned several other cars, a bach and a boat. While they were together they hosted a reunion for Aroha’s whānau and Christmas dinner each year for Justin’s wider family. The Linwood Street house was dilapidated when Aroha moved in, and she did significant work to the property during the relationship including building a
garden and deck, painting the bedrooms, sewing curtains and doing all the
cleaning.
When the relationship ends, Aroha claims she was in a de facto relationship with Justin and is entitled to half of the house on Linwood Street. Justin consults his lawyer, Crystal. Crystal says that Justin and Aroha were probably in a de facto relationship because, among other things, their relationship lasted for just over ten years; they lived in the same house; they had a sexual relationship; owned and used property together; had a mutual commitment to a shared life and were considered by whānau and friends to be a couple. Crystal thinks Aroha probably has a good claim to half the relationship property. Justin is horrified that Aroha can claim half of the Linwood Street house even though they kept their money
separate during their relationship. If Aroha is successful, the house will
need to be sold, because Justin can’t afford
to buy out Aroha’s
share. Aroha’s claim would also frustrate Justin’s plans to leave
the Linwood Street house
to Hayden in his will.
6.39 However, giving more weight to this factor would risk excluding
relationships where equality and commitment are expressed
in different ways.
It may be unwise to assume that independent money management indicates a
lack of commitment without considering
what the partners are trying to achieve
by organising their money in a particular way.141 It could also
risk excluding vulnerable people in relationships that should otherwise be
captured by the PRA, for example abusive
relationships where no financial
support is provided. The Parliamentary seelct committee ruled out making
financial interdependence
a prerequisite for a de facto relationship in 2001
for this reason.142
141 Katherine J Ashby and Carole B Burgoyne “Separate financial entities? Beyond categories of money management” (2008)
37 Journal of Socio-Economics 458 at 476.
6.40 There is also an argument that the current appraoch is achieving its
aim of not unduly capturing couples that remain financially
independent.143 In C v S the Family Court observed
that:144
The lack of financial dependence or interdependence or support is not, in my view, an insignificant matter particularly when one considers that the object of the [PRA] itself is to ensure an equitable division of assets and income taking into account financial and non-financial contributions couples make in any union and it is reasonable to expect as an indicator of mutual commitment and living together as a couple that there would
be some demonstration of financial regard for the other party in some
fashion or mutual benefit even if segregation of income.
6.41 We also note there are other ways of dealing with any perceived
unfairness created by the status quo. For example, the application
of the
general rule of equal sharing to a de facto relationship characterised by
financial independence may also be addressed
by reconsidering how the PRA
classifies relationship property which we discuss in Chapter 9.
6.42 These competing arguments should be evaluated in the light of what we
know about the way couples who live together manage money.
What do we know about the way couples who live together manage
money?
6.43 Some international research suggests a tendency for married couples to
operate more or less as single economic units; whereas
unmarried
couples145 are more likely to operate largely as two separate
autonomous economic units.146 The differences in how couples manage
money appear to be more pronounced among
144 C v S FC Dunedin FAM-2005-012-157, 28 September 2006 at [105].
to married couples.149 The main exception is unmarried couples
with children, who seem to organise their money in broadly similar ways to
married couples.150 Other international research paints a more
nuanced picture.151
6.44 The available literature on money management within relationships in
Australia and New Zealand is sparse and based on older
data:152
(a) An Australian study using data from a 1997 nationally representative survey found that most unmarried couples, like most married couples, combined some
or all of their income.153 The authors suggested this indicated
that living together is somewhat institutionalised in Australia and viewed as
similar to marriage.154 Children affected how couples organised their
money, and couples with children aged under 13 were more likely to combine
their incomes
completely than couples with no children or older
children.155
(b) A New Zealand study of unmarried couples, based on
20 in-depth interviews, during the early 1990s, found that some unmarried
couples jointly managed their money.156 Joint money management was
most common among unmarried couples with children; however the
147 “Nubile” unmarried couples who live together are young, childless and have never been married.
148 “Post-marital” unmarried couples are couples who live together after one or both have experienced a marital divorce.
1993), J Lewis The End of Marriage (Edward Elgar, Cheltenham, 2001), and A Winkler “Economic decision making by cohabitors: findings regarding income pooling” (1997) 29 Applied Economics 1079.
151 For example Lars Evertsson and Charlott Nyman “Perceptions and Practices in Independent Management: Blurring the
Boundaries Between ‘Mine,’ ‘ Yours’ and ‘Ours’” (2014) 35 J Fam Econ Iss 65.
years previously when they moved in together and
prior to having children.157 This study also found that independent money management was adopted by some unmarried couples to avoid financial dependency and achieve equality and autonomy, by retaining control
over separate money and a sense of contributing equally to the
relationship.158 It was suggested that independent money management
is likely to become increasingly significant as the number of unmarried couples
continues to grow in New Zealand.159
Should more weight be given to the degree of mutual commitment to a shared
life?
6.45 Mutual commitment to a shared life is often regarded as central to the definition of de facto relationship.160 It is also the only factor
in section 2D(2) that touches on the “emotional commitment” described in R v Department of Social Welfare as one of the two prerequisites of a relationship in the nature of marriage.161
There may be a case for giving more weight to this factor because a de facto
relationship is unlikely to exist without the “mental
ingredient”,
being commitment by the partners to their relationship.
Should more weight be given to the care and support of
children?
6.46 Our preliminary view is that the existence of a child is not
conclusive evidence that his or her parents were in a de facto
relationship.
Sometimes it may be appropriate to attach significant weight to this factor, for
example where the parties have made
a planned, joint decision to have a child.
However,
160 M v P [De facto relationship] [2012] NZHC 503; [2012] NZFLR 385 (HC) at [27], referring to S v S [2006] NZFLR 1076 (HC) at [32], and Nicola
Peart “The Property (Relationships) Amendment Act 2001: A Conceptual Change” (2009) 39 VUWLR 813 at 823.
a child may not always be a reliable indicator of a relationship between two
people, for example where the child is the unplanned
result of a fleeting
association.
Should less weight be given to some section 2D(2) factors?
6.47 Giving more weight to some section 2D(2) factors requires a decision
that other factors are less important in determining
whether two people live
together as a couple. We are interested in whether some section 2D(2) factors
should be given less weight
than others. In particular:
(a) Whether or not a sexual relationship exists. The existence of a sexual relationship may be less important in 2017. Sexual mores are said to have become more liberal over time, and today a sexual relationship is
not necessarily indicative of a mutual commitment
to a shared life.162 There may be greater recognition of romantic and loving non-sexual relationships based on companionship or where one or both partners identify as asexual. Undue focus on the existence, nature or extent of a sexual relationship may also be seen as inconsistent with the PRA’s focus on how property is divided up when a relationship ends.163 It may also
raise evidential issues that may be less relevant when assessing property
entitlements.164
(b) The performance of household duties. This may be a less
important factor because of the way work is shared or outsourced in some
relationships, or because it is considered
to have less or no bearing on
whether two people live together as a couple. Giving less weight to this factor
may, however, be thought
to undervalue work in the home and may not be a good
conceptual fit with the way the PRA treats all forms of contribution to the
relationship as equal.165
C ONSU LTATION QUESTION
162 Craig v Keith [2017] NZHC 1720 at [44].
163 Property (Relationships) Act 1976, s 1C(1); and Matrimonial Property Amendment Bill 1998 and Supplementary Order
Paper No 25 2000 (109-3) (select committee report) at 5.
164 See for example D v B FC Napier FAM-2005-041-591, 17 May 2007.
165 Property (Relationships) Act 1976, s 1N(b). See King v
Church [2002] NZCA 67; [2002] NZFLR 555 (CA) at [33].
B6 Do the range of factors in section 2D(2) still reflect what should be
considerations when deciding whether two people are in
a de facto relationship?
Are any of the factors more, or less important?
Does the definition achieve the right balance between flexibility and
certainty?
6.48 McCarthy says that the “biggest criticism” levelled at the
PRA’s treatment of de facto relationships surrounds
the definition of de
facto relationship and how it has been interpreted and applied by the
courts.166 In particular:
(a) The definition is criticised for being too broad to provide effective guidance. Grainer notes that key terms and phrases like “relationship” and “live together as a
couple” are not defined in the PRA:167
The operative phrase “living together as a couple” is hardly
less vague than the term “de facto relationship.”
Nor is the matter
significantly clarified by the enumerated factors. Taken together, they convey
virtually every aspect of human
interaction.
(b) It is difficult to look to previous cases to find guidance on when two people are “living together as a couple”, or even to distil any “universal principles”.168 This is because none of the factors in section 2D(2) are prerequisites
and each case turns on its own facts.169 For example, in
PT v C the parties shared a common residence for over
20 years but were not in a de facto relationship,170 and
in G v B the partners maintained separate residences for lengthy periods but were in a de facto relationship.171
Although there were other factors at play in those cases, they illustrate the point that section 2D cases have
limited precedent value.
168 See also Simon Jefferson “De facto or ‘friends with benefits’” (2007) 5 NZFLJ 304, at 8.
169 Property (Relationships) Act 1976, s 2D(3).
170 PT v C [2009] NZFLR 514 (HC).
171 G v B (2006) 26 FRNZ 28 (HC).
(c) The discretion in the definition is an awkward fit with the
PRA’s rules-based regime. Briggs says that:172
...[t]he broad discretion in s 2D is an awkward inclusion in legislation that has stripped so many other discretions away from the judiciary. By comparison, the court has little or no discretion on the issue of the division of the
relationship property. While there are some provisions that allow a departure from equal sharing, these provisions
are designed to apply in exceptional cases only. None relates to a
discretion so central as that found in s 2D, where the court must
rule on the
status of the relationship, which in turn, either qualifies or disqualifies
entry to the [PRA’s] inflexible equal
sharing rules. Such an uncertain
access route into a rigid code can turn the process into an expensive gamble for
potential applicants.
6.49 There are however advantages in having a flexible definition of
de facto relationship. The lack of prerequisites for “living together as a couple” allows the definition to accommodate the diversity
of relationships that should be subject to the PRA’s rules, and
flexibility allows the definition to evolve through judge-made
law as
relationship formation and separation patterns change.
6.50 Some research suggests that the definition of de facto relationship is fulfilling the original aims of the parliamentary select
committee (see paragraph 6.3).173 A study from 2002 to 2009, found that an issue about whether a relationship was wholly or in part a de facto relationship arose in 43 per cent of de facto cases.174 However only 12 per cent involved questions about whether the entire relationship had crossed the threshold to
become a de facto relationship.175 Cleary said that there is
no
172 Margaret Briggs “The Formalization of Property Sharing Rights For De Facto Couples in New Zealand” in Bea Verschraegen
(ed) Family Finances (Jan Sramek Verlag, Austria, 2009) 329 at 337.
real need to change the definition unless it catches unintended
people.176 He concluded that the cases seem to suggest that the
definition is working as the Select Committee intended (see paragraph
2.3).177 This research is, however, based on data drawn from
reported cases and only gives us information about the small proportion of de
facto relationships that end in a dispute resolved by the court. These are
more likely to be contentious cases because they involve
unusual facts. We do
not know what happens in those cases that are resolved out of court, which
makes public consultation on
this issue important.
6.51 Whether the definition of de facto relationship achieves an
appropriate balance between flexibility and certainty is an important
question:
(a) The PRA has significant implications for de facto relationships. If a de facto relationship lasts for three years, the general rule of equal sharing usually applies. People should know if they are subject to the PRA so they can organise their personal affairs accordingly.
If the definition is sufficiently certain, couples can make a conscious decision whether to enter a de facto relationship. They can also make better informed
decisions about resolving any
disputes.
(b) If the definition is too uncertain, it
can:
• undermine the right to contract out of the PRA,178 if partners do not appreciate that they are drifting towards a de facto relationship or that they
are already in one, they will not have the same opportunity to exercise this
right; and
C ONSU LTATION QUESTION
B7 Does the definition of de facto relationship achieve the right balance
between flexibility and certainty?
Options for reform
6.52 If the issues identified above require reform, there are three
possible options that could achieve a better balance between
certainty and
flexibility, or would better capture the essence of what it means to be in a de
facto relationship for the purposes
of the PRA.
Option 1: Make section 2D(2) an exhaustive list of factors
6.53 One option is to limit the matters that are relevant when determining whether two people live together as a couple to the factors specified in section 2D(2). A court would no longer have the discretion to consider all the circumstances of the relationship.179 This would make section 2D(2) an exhaustive (rather than inclusive) list of factors.180
6.54 This option would increase certainty by restricting a court’s
inquiry to a known list of factors that capture what
might be
179 Property (Relationships) Act 1976, s 2D(2).
180 The current definition of de facto relationship requires a court to consider all the circumstances of the relationship,
considered to be key matters relevant to determining whether
two people live together as a couple. It is, however, unlikely to increase certainty in a significant way unless the list of factors is prioritised or reduced. This is because the list is so wide-
ranging that it is said to convey “virtually every aspect of human
interaction”.181
Option 2: Give more weight to one or more section
2D(2) factors
6.55 This option could be achieved by requiring a court to have particular regard to one or more of the section 2D(2) factors in deciding whether two people live together as a couple.182
The remaining section 2D(2) factors would remain relevant as
“indicators” to be considered, where relevant.
6.56 This option could increase certainty and give more weight to factors considered more important characteristics of a relationship to which the PRA should apply. It could address issues for particular groups. For example, giving more weight to common residence would make it harder for some couples in LAT relationships to qualify as de facto partners. It would
retain elements of section 2D and some associated case law may therefore
remain relevant. Giving more weight to some factors as opposed
to making them
requirements would retain a relatively high level of judicial discretion and
flexibility.183
Option 3: Introduce rebuttable presumption(s) that two people are in a de facto relationship
6.57 The final option we are considering is adopting one or more rebuttable
presumptions that two people are in a de facto relationship
if certain factors
are present.
partners” is an example of this approach. That definition contains
three elements:185
(a) first, a basic definition of “domestic partners” as two
unmarried people who, for a significant period, share
a primary residence and
a life together as a couple;186
(b) second, an absolute rule that two people are domestic partners where
they have maintained a common household with their
children for a set period,
such as two years;187 and
(c) third, a presumption that two people without children are domestic
partners when they have maintained a common household
for a set period, such
as three years, which is rebuttable by evidence that the parties did not share
a life together as a couple.
6.59 The American Law Institute expected that this approach would minimise
the need for detailed inquiry into couples’ lives,
as most cases would be
decided under the absolute rule or the rebuttable
presumption.188
6.60 A similar approach could be adopted in the PRA. For example, the basic definition of de facto relationship in section 2D could be retained, and new rebuttable presumption(s) could be introduced, for example:
(a) partners are presumed to be in a de facto relationship when they have
shared a primary residence and
184 The American Law Institute (ALI) is an independent organisation in the United States that produces scholarly work
to clarify, modernize and improve the law: see <www.ali.org>. In Principles of the Law of Family Dissolution: Analysis and Recommendations (LexisNexis, Newark, 2002) the ALI reviewed and analysed divorce and related family-law issues throughout the United States, and described approaches to areas such as child custody, child and spousal support, division of property, marital agreements and unmarried domestic partners. It proposed a wide range of regulations for the legal termination of domestic unions.
185 The American Law Institute Principles of the Law of Family Dissolution: Analysis and Recommendations (LexisNexis, Newark,
2002) at [6.03].
187 The American Law Institute Principles of the Law of Family Dissolution: Analysis and Recommendations (LexisNexis, Newark,
2002) at [6.03(4)]: “[p]ersons maintain a common household when they share a primary residence only with each other and family members; or when, if they share a household with other unrelated persons, they act jointly, rather than as individuals, with respect to management of the household”.
188 The American Law Institute Principles of the Law of Family Dissolution: Analysis and Recommendations (LexisNexis, Newark,
2002) at 920.
maintained a common household with a child of the
relationship for a set period, such as two years;189 and
(b) partners are presumed to be in a de facto relationship when they have
shared a primary residence and maintained a joint household
for a set period,
such as three years.
6.61 A presumption could be rebutted by evidence that the parties did not live together as a couple, to be determined by considering all the circumstances, including the factors in section 2D(2). This would retain some of the existing building blocks of section 2D while accommodating a need to give more weight to other section
2D(2) factors such as common residence.
6.62 This option could increase certainty and reduce the need for detailed inquiry where a presumption applies, while retaining an element of flexibility and judicial discretion. It would also
change which party has the burden of proof. At present the party asserting that a de facto relationship existed must generally prove that in court.190 This option would shift that burden to the party wishing to avoid the PRA’s rules where a presumption applies. This may protect a vulnerable applicant, but also has the potential to harm a vulnerable defendant, for example an older person that drifts into circumstances that satisfy a presumption unawares.
The burden of proof in PRA proceedings is discussed further in
Part H.
C ONSU LTATION QUESTION
B8 Would any of these options achieve a better balance between
flexibility and certainty, or better capture the essence of what
it means to be
in a de facto relationship?
189 We do not adopt the approach of the American Law Institute in making this an absolute rule, as this raises issues under human rights law: see New Zealand Bill of Rights Act 1990, s 19, and Human Rights Act 1993, s 21(l). We also think that it would be too great a generalisation to assume that all couples with children are in a de facto relationship.
190 See H v G FC Lower Hutt FAM-2005-032-527, 6 December 2006 at [3]; and M v B [economic disparity] (2006) 25 FRNZ
171 (CA) at [39]: “...although there is not a fully inquisitorial system, a Court needs only to be satisfied about a state of events which has existed, or which exists. Notions of onus of proof fit uncomfortably within this legislative regime”. See also RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [19.23]: “The role of the Courts under the [PRA] is to some degree an inquisitorial one to do justice between the parties rather than to consider a claim in a strictly adversarial context.”
Should any changes have retrospective or
prospective effect?
6.63 A final issue for consideration is when any changes to the definition of de facto relationship should take effect. The
general rule is that new legislation should be forward looking, or prospective, and not apply to peoples’ past actions.191 The 2001 amendments were unusual because they extended the PRA to include de facto relationships on a retrospective basis.192 This meant that the PRA applied to de facto relationships that began before the amendments came into force on 1 February 2002, and were still in existence as at that date.193 As a result, the actions
of unmarried couples before 1 February 2002 were given legal consequences
they may not have anticipated.194 There was a delay between the date
the amendments were made and the date they came into force to enable people to
learn about the
new regime and organise their affairs.195
6.64 Changing the definition of de facto relationship on a retrospective basis would follow the approach taken in 2001.196 It would
avoid the confusion and complexity associated with having
a different definition for relationships that began before any amendments came into force. It would, however, be inconsistent with the general rule that legislation should have prospective, not retrospective effect.197 Legislation should not interfere with accrued rights and duties.198 While retrospective legislation
might be appropriate where it is intended, for example, to be
entirely to the benefit of those affected,199 a new definition
of
191 Legislation Advisory Committee Guidelines on Process and Content of Legislation (2014) at 43.
192 Property (Relationships) Act 1976, s 4C.
193 Property (Relationships) Act 1976 (PRA), s 4C; and Property (Relationships) Amendment Act 2001, s 2. Note that an order cannot generally be made under the PRA for the division of relationship property in respect of a de facto relationship of short duration unless the test in s 14A is passed.
194 See Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at PR4C.01.
195 The Property (Relationships) Amendment Bill had its third reading on 29 March 2001: (29 March 2001) 591 NZPD 8640; and received Royal Assent on 3 April 2001. The relevant provisions of the Property (Relationships) Amendment Act 2001 came into force on 1 February 2002: Property (Relationships) Amendment Act 2001, s 2. Note that some contracting out provisions came into force earlier on 1 August 2001: Property (Relationships) Amendment Act 2001, ss 2 and 21(2).
197 Legislation Advisory Committee Guidelines on Process and Content of Legislation (2014) at 43.
198 Legislation Advisory Committee Guidelines on Process and Content of Legislation (2014) at 43.
199 Legislation Advisory Committee Guidelines on Process and Content of Legislation (2014) at 43.
de facto relationship may not satisfy that goal. A new definition
could disadvantage people by eroding their property rights or overturning
property arrangements made before the PRA was extended
to apply to
them.200
C ONSU LTATION QUESTION
B9 Should any new definition of de facto relationship have retrospective
or prospective
effect?
Chapter 7 – Specific
relationship
types and family arrangements
7.1 This chapter considers issues with the definition of de facto relationship that may arise for specific relationship types and family arrangements. We look at Māori customary marriage, relationships involving young people, contemporaneous relationships and relationships with and between members of the LGBTQI+ community.201 We also consider whether the PRA should be extended to include other relationship types such as
multi-partner relationships and domestic relationships (platonic,
interdependent relationships between two people who provide care
and support for
each other).
Māori customary marriages
7.2 Māori customary marriages have as their basis tikanga Māori and whānau approval. Traditionally it was the public expression of whānau approval, as opposed to a formal ceremony or cohabitation, which established a couple as married.202 The
breakdown of the relationship would bring the union to an end.203
Metge has said that Māori were “...well ahead of the rest of New
Zealand society in accepting de facto unions and non-blame
divorce”.204
7.3 As discussed in Part A, most Māori married according to their own custom until the early twentieth century.205 Successive marriage laws required Māori to conform more closely to the legal requirements for establishing marriage until, in the 1950s,
legal recognition of customary marriage was removed.206
However
201 LGBTQI+ means Lesbian, Gay, Bisexual, Transgender, Queer or Questioning, Intersex+.
202 Jacinta Ruru “Kua tutū te puehu, kia mau: Māori aspirations and family law policy” in Mark Henaghan and Bill Atkin
(eds) Family Law Policy in New Zealand (4th ed, LexisNexis, Wellington, 2013) 57 at 62.
203 Joan Metge “Succession Law: Background Issues Relating to Tikanga Maori” (paper prepared in connection with Law
Commission seminar on succession, 1994) at 4.
204 Joan Metge “Succession Law: Background Issues Relating to Tikanga Maori” (paper prepared in connection with Law
Commission seminar on succession, 1994) at 4.
205 Megan Cook “Marriage and partnering - Marriage in traditional Māori society” (4 May 2017) Te Ara — the Encyclopedia of New Zealand <https://teara.govt.nz>.
206 Law Commission Justice: The Experiences of Māori Women; Te Tikanga o te Ture: Te Mātauranga o ngā Wāhine Māori e pa ana ki tēnei (NZLC R53, 1999) at 22. Section 8(1) of the Māori Purposes Act 1951 and s 78 of the Māori Affairs Act 1953 both provided that:
subsequent law changes that eliminated the discrimination of
children based on their parents’ marital status, and the growing prevalence of de facto relationships among non-Māori, reduced pressure for Māori couples to officially register a marriage.207 It is not known how many Māori marry according to custom in
contemporary New Zealand, but two relatively recent court cases illustrate
that the practice continues.208
7.4 It likely that a Māori customary marriage would fall within the
definition of a de facto relationship.209 This means that in a
formal legal sense Māori who have married according to custom are
governed by the PRA, not by principles
of whanaungatanga.
7.5 In contrast to the law applying to de facto relationships, customary marriage does not carry with it any rights to property held by the other spouse.210 For example, it was common practice for the wife’s parents to gift land to the married couple.211 If
the land was gifted to the husband, the right to occupy could terminate on the wife’s death and the land would revert to her family as gifting only conveyed a temporary right.212
Whanaungatanga may be more important to property rights than marriage:213
... because of the emphasis they place on descent, Maori do not in general
give marriage the priority over all other relations that
it has in law. They
accept that there are times and circumstances
Every marriage to which a Māori is a party shall be celebrated in the
same manner, and its validity shall be determined by the
same law, as if each of
the parties was a European; and all provisions of the Marriage Act 1908 shall
apply accordingly.
The Māori Affairs Act also invalidated all future Māori customary marriages and any marriages entered into in the past, except as expressly provided by that Act (s 79).
207 Kay Goodger “Maintaining Sole Parent Families in New Zealand: An Historical Review” (1998) 10 Social Policy Journal of
New Zealand at 6.
209 Jacinta Ruru “Indigenous Peoples and Family Law: Issues in Aotearoa/New Zealand” (2005) 19 International Journal of
Law, Policy and the Family 327 at 335.
211 Jacinta Ruru “Implications for Māori: Historical Overview” in Nicola Peart, Margaret Briggs and Mark Henaghan
Relationship Property on Death (Brookers, Wellington, 2004) 445 at 450–451.
213 Joan Metge “Succession Law: Background Issues Relating to Tikanga Maori” (paper prepared in connection with Law
Commission seminar on succession, 1994) at 4.
descent line before his or her spouse: e.g. with regard to the
transmission of ancestral land and taonga, contribution to whanau
activities (especially in connection with tangihanga) and support
of
kin.
7.6 Ruru states that the extension of the PRA to de facto relationships allows someone in a Māori customary marriage to turn his or
her back on the nature of the relationship and, upon death or separation, claim a half-share in relationship property as an entitlement under the PRA.214 Conflict could conceivably arise between the whānau and the person claiming a half-share in property that may, under tikanga, more properly be property
of the whānau.215 However the extent to which this is an
issue may be affected by the exclusion of Māori land from the PRA’s
ambit and the
exclusion of taonga from the definition of family
chattels.216
C ONSU LTATION QUESTIONS
B10 To what extent should Māori customary marriage be subject to the
PRA?
B11 Should different rules apply to Māori customary marriage? If so,
what would those rules provide? Would they still apply
if the parties to the
Māori customary marriage also entered a marriage or civil union? Would
they be affected by the PRA’s
approach to classification of property
(discussed in Part C) (including or excluding Māori land from the PRA and
taonga from
the definition of family chattels)?
Relationships involving young people
7.7 The PRA requires that both partners in a de facto relationship be aged 18 or over.217 This has two important consequences for young people:
(a) first, a de facto relationship will not be covered by the PRA if it
ends before the youngest partner turns 18;218 and
215 Jacinta Ruru “Implications for Māori: Contemporary Legislation” in Nicola Peart, Margaret Briggs and Mark Henaghan
Relationship Property on Death (Brookers, Wellington, 2004) 467at 488.
216 Property (Relationships) Act 1976, ss 2 and 6.
217 Property (Relationships) Act 1976, s 2D(1)(a).
218 Property (Relationships) Act 1976, s 2D(1)(a).
youngest partner turns 21 will be a short-term de facto
relationship, even if the relationship was longer than three
years.219
7.8 This means that the earliest point at which a division order could be made, applying the PRA’s general rule of equal sharing, is when the youngest partner turns 21. This may disadvantage
young people in relationships that, but for the age limit, would be covered
or treated differently by the PRA. This is illustrated
in the case study
below.
Case study: Young people in a relationship
Samara (16) begins a relationship with Marcus (25) that, but for the age limit in the PRA, would immediately qualify as a de facto relationship. They have a child, Asha, who is born when Samara is 18. The relationship lasts for four years, ending when Samara is 20. But for the age limit, this would be long enough for the PRA’s general rule of equal sharing to automatically apply. However, due to the age limit, a qualifying de facto relationship only started when Samara turned 18. When
the relationship ended Samara was 20, making the relationship a short-term de facto relationship. Samara must therefore satisfy the court that failure to make an order under the PRA for the division of relationship property would cause serious injustice.220 If she can establish serious injustice, the relationship property will
be divided in accordance with each partner ’s contribution to the
relationship.221
7.9 The PRA’s age limit for de facto relationships is inconsistent with the age limit in the general definition of de facto relationship
in the Interpretation Act 1999 (18 years, or 16 or 17 years with the consent of both guardians or, if that cannot be obtained, a Family Court Judge).222 It is also different to the age for entering a marriage or civil union (18 years, or 16 or 17 years with consent of specified individuals such as guardians).223 Different treatment
based on age raises issues under human rights law.224 It may
also
220 Property (Relationships) Act 1976, s 14A(2)(b).
221 Property (Relationships) Act 1976, s 14A.
224 See Human Rights Act 1993, s 21(1)(i), and
New Zealand Bill of Rights Act 1990, s 19(1).
enable partners to escape obligations they would have had, had they been in
a marriage or civil union.
7.10 However there is another view that the higher age limit for de facto
relationships in the PRA may protect young people who
drift into a de facto
relationship, as it gives them more time to recognise that their legal status
is changing and contract out
of the PRA should they wish
to.225
7.11 Younger people are more likely to be in a de facto relationship.226
This may in part reflect the legal restriction on people marrying before age 18.227 We do not know how many young people are adversely affected by the PRA’s age limit for de facto relationships. Situations involving young people with substantial assets are likely to be rare, although that will not always be the case, for example where a young person has received an inheritance.228
There are also restrictions built into the definition of de facto
relationship itself, which limit the number of young people in a
de facto
relationship under the PRA.229
7.12 Young people may also look to the general law of contract or equity for a remedy when their relationship ends, for example a claim that a constructive trust existed over certain assets.
However those remedies may be difficult and costly to access and may lead to
a less favourable result for the claimant than would
have been the case if the
PRA applied.
7.13 An option would be to amend section 2D(1)(a) to lower the age limit
for entering into a de facto relationship. This could be
done by amending
section 2D(1)(a) to reflect the age limit for entering into a de facto
relationship under the Interpretation Act
1999 (see paragraph 7.9).
C ONSU LTATION QUESTIONS
226 See Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
229 Property
(Relationships) Act 1976, s 2D.
B12 Can the age limit of 18 years for a de facto relationship be justified, and if so, on what
grounds?
B13 Should the age limit for entering into a de facto relationship be 18 years, or 16 or 17
years with consent of both guardians or, if that cannot be obtained, a Family Court Judge?
Relationships with and between members of the LGBTQI+ community
7.14 The LGBTQI+ (Lesbian, Gay, Bisexual, Transgender, Queer or
Questioning, Intersex+) community includes:230
... people who identify as takataapui, lesbian, gay, bisexual, queer,
heterosexual, intersex, female, male, transsexual, transgender,
whakawāhine, tangata ira tane, mahu (Tahiti and Hawaii), vakasalewalewa
(Fiji), palopa (Papua New Guinea), fa’afafine
(Samoa, America Samoa and
Tokelau), akava’ine (Cook Islands), fakaleiti or leiti (the Kingdom of
Tonga), or fakafifine (Niue).
7.15 The PRA’s definition of de facto relationship clearly includes same- sex relationships that satisfy the criteria in section 2D. Under the PRA, a de facto relationship includes “... a relationship between
2 persons (whether a man and a woman, or a man and a man,
or a woman and a woman) ...”.231 The definition does not use the inclusive language now in other statutes such as the Marriage Act 1955, which defines a marriage as the union of two people “regardless of their sex, sexual orientation or gender identity”.232
The same inclusive language is proposed in the Legislation Bill
2017, which would amend the general definition of de facto relationship in the Interpretation Act 1999.233
7.16 The flexibility inherent in the PRA’s definition of de facto
relationship may work well for some members of the LGBTQI+
to their gender identity”; and a person who is transgender is defined as someone “... whose gender identity is different from their physical sex at birth”: see Human Rights Commission “Trans People: Facts and Information Resource – Terminology” <www.hrc.co.nz>. See also Elizabeth Kerekere “Part of the Whānau: The Emergence of Takatāpui Identity He Whāriki Takatāpui” (PhD Thesis, Victoria University of Wellington, 2017) for recent research on takatāpui.
231 Property (Relationships) Act 1976, s 2D(1).
233 Legislation Bill 2017
(275-1), cl 14; and Interpretation Act 1999, s 29A.
community.234 For example, some people may have trouble evidencing factors in section 2D(2) such as the reputation
and public aspects of their relationship because they have not disclosed their sexuality to friends and family.235 The Lavender Islands study found that only 35 per cent of respondents had disclosed their sexual identity to everyone in their lives, and one per cent said they had not disclosed to anyone and did not plan to do so.236 The PRA’s definition of de facto relationship may, however, be able to accommodate this. In S v M the High Court acknowledged there may be situations where a same-sex
relationship is kept private, “...[b]ut in a case such as this, where the parties mixed in the gay community, the public appearance
or reputation of their relationship may be an important factor”.237
There are also instances where a court has used the flexibility inherent in the definition to consider the clandestine nature of some relationships.238 But few cases focus on whether relationships involving members of the LGBTQI+ community are de facto relationships. We do not have information about
relationships involved in property matters resolved out of court.
7.17 We are interested in whether the definition of de facto relationship,
and the way it is applied makes “heteronormative”
assumptions.
Male and female respondents in the Lavender Islands study experienced same-sex
relationships and identity in different
ways.239 We are also
cognisant of the “...complex realities of family lives that differ from
traditional forms and norms of those headed
by
heterosexuals”.240
7.18 We have no evidence that the PRA’s three year minimum
duration requirement for long-term de facto relationships is
causing issues that
are specific to the LGBTQI+ community.241 The PRA applies
2D(3).
235 Property (Relationships) Act 1976, s 2D(2)(i).
236 Mark Henrickson and others Lavender Islands: The New Zealand Study (2007) 53(4) Journal of Homosexuality 223 at 237.
Lavender Islands: Portrait of the Whole Family (Lavender Islands) was a national study of 2,269 lesbian, gay and bisexual individuals conducted in 1994 by the School of Social and Cultural Studies, Massey University at Albany.
237 S v M HC Wellington CIV-2006-485-1940, 17 April 2007 at [27].
239 Mark Henrickson and others Lavender Islands: The New Zealand Study (2007) 53(4) Journal of Homosexuality 223.
240 See Families Commission / SuPERU We’re a Family: how lesbians and gay men are creating and maintain family in New
Zealand (Blues Skies Report No 29/09, August 2009) at 7.
241 Property (Relationships) Act 1976, ss 2E and 14–14A.
three years, and usually only applies to de facto relationships
that last for three years or more.242 The Lavender Islands study identified that the average longest same-sex relationship that respondents had (or have) was around six years.243 There was no significant difference between men and women, and many
respondents noted that their longest same-sex relationships were still
going on.244 This study suggests that same-sex relationships at
least may not be overly troubled by the three year rule.
C ONSU LTATION QUESTIONS
B14 Is the PRA working well for members of the LGBTQI+ community?
B15 Is more inclusive language required in the PRA’s definition of de
facto relationship?
B16 Does the definition of de facto relationship make
“heteronormative” assumptions?
Contemporaneous relationships
7.19 The PRA addresses some situations where a person is in two
relationships at the same time, in the form of:245
(a) a marriage or civil union and a de facto relationship; or
(b) two de facto relationships.
7.20 The PRA calls these “contemporaneous relationships”.246 The
special property division rules that can apply to contemporaneous
relationships are discussed in Part D.247
7.21 Contemporaneous relationships in the form of two marriages, or two
civil unions, are not covered by the PRA. This may be because
bigamy is an
offence under the Crimes Act 1961.248 We
242 See Property (Relationships) Act 1976 ss 1C and 14–14A. Relationships of short duration are discussed in Part E.
243 Mark Henrickson and others Lavender Islands: The New Zealand Study (2007) 53(4) Journal of Homosexuality 223 at 238.
244 Mark Henrickson and others Lavender Islands: The New Zealand Study (2007) 53(4) Journal of Homosexuality 223 at 238.
246 For example, partner A is married to partner B and at the same time is in a de facto relationship with partner C.
The contemporaneous relationships are partner A’s marriage to partner B, and partner A’s de facto relationship with partner C. Some polyamorous relationships, where a partner has intimate relationships with more than one partner, may be contemporaneous relationships for the purposes of the Property (Relationships) Act 1976 depending on the circumstances. For a recent account of polyamorous relationships in New Zealand see Eleanor Black “Polyamory and the complicated lives of those with multiple lovers” (17 September 2017) stuff <www.stuff.co.nz>.
247 Property (Relationships) Act 1976, ss 52A and 52B.
the PRA include void marriages and void civil unions.249 A void
marriage or civil union might therefore be treated as a de facto
relationship for the purposes of section 52A. But in any event
this scenario
is likely to be unusual.
7.22 Although the PRA recognises the possibility of some contemporaneous relationships, establishing a contemporaneous relationship under the PRA appears to be difficult in
practice.250 One possible reason for this is that the features of a contemporaneous de facto relationship may differ from an “orthodox” de facto relationship.251 For example, a
contemporaneous relationship may be more clandestine, making it difficult to prove the reputation and public aspects of the relationship.252 The partners may not share a common residence or be financially interdependent, particularly if the relationship
is clandestine. A contemporaneous relationship is also by its nature unlikely
to be monogamous. In M v P the High Court observed that “[t]he
statutory indicia of a shared life are broadly consistent with a substantial
degree of
exclusivity in qualifying relationships.”253 The
Court said that:254
... contemporaneous de facto relationships are not likely merely because the legislation admits their existence. A contemporaneous de facto relationship with a different partner shows that the relationship before the court lacks the character of a life lived
as a couple. The legislation governs division of the property of a relationship between two people and there must be natural limits to one’s capacity to spend the only life that one has in contemporaneous bilateral relationships with more than one
person.
ceremony is married or in a civil union.
249 Property (Relationships) Act 1976, ss 2A(1)(a) and 2AB(1)(a).
250 Property (Relationships) Act 1976, ss 52A and 52B. See for example Greig v Hutchison [2016] NZCA 479, [2016] NZFLR
905; M v P [De facto relationship] [2012] NZHC 503, [2012] NZFLR 385; and C v S FC Dunedin FAM-2005-012-157, 28
September 2006.
251 Unsuccessfully argued on appeal in Greig v Hutchison [2016] NZCA 479, [2016] NZFLR 905 at [11]. Application for leave to appeal was declined as there was no question of general or public importance such as to outweigh the cost and delay of a second appeal.
court may consider when determining whether a relationship is
a de facto relationship. They are not requirements.255 A court can take a flexible approach, and the Family Court in Greig v Hutchison noted that in contemporaneous relationships a common residence is unrealistic.256 This can be contrasted with a comment made
by the High Court in M v P, to the effect that contemporaneous
relationships may be most likely when the relationships follow an
“orthodox” format,
i.e. when “A cohabits intermittently with
each of B and C, maintaining two households on an indefinite
basis”.257
7.24 Contemporaneous relationships may also be viewed as “primary” and “secondary” relationships, particularly where one relationship is a marriage and is covered by the PRA. This approach may
make it difficult for a “secondary” relationship to qualify as a de facto relationship. In Greig v Hutchison, the High Court said that to assess the nature of contemporaneous relationships,
it is unnecessary to view each in isolation and distinct from the
other.258 Rather, it is appropriate to compare the two
relationships.259
7.25 The practical difficulties in establishing a contemporaneous relationship risks relationships falling outside the PRA because they do not follow an orthodox format. In an extreme case partner A may escape legal obligations to partners B and C by pleading
that neither relationship is sufficiently public, robust or exclusive to
qualify as a de facto relationship.260
7.26 There may be a case for changing the provisions for contemporaneous
relationships to address these practical difficulties.
We have considered
three possible options for reform:
(a) Option 1: Amend the definition of de facto relationship or enact a new definition of contemporaneous de facto relationship: We are not attracted to this option. It is difficult to see how the existing definition of de facto relationship could be any broader or more flexible than
it already is to better accommodate contemporaneous
255 Property (Relationships) Act 1976, ss 2D(2) and (3). See also S v S [2006] NZFLR 1076 (HC) at [44].
256 Greig v Hutchison [2014] NZFC 2895 at [262].
257 M v P [De facto relationship] [2012] NZHC 503, [2012] NZFLR 385 at [29].
258 Greig v Hutchison [2015] NZHC 1309, [2015] NZFLR 587 at [57].
259 Greig v Hutchison [2015] NZHC 1309. [2015] NZFLR 587 at [57].
260 See M v P [De facto relationship] [2012] NZHC 503, [2012] NZFLR 385 at [29].
de facto relationship would bring an additional layer of
complexity to the PRA to accommodate a situation that may be relatively
rare.
(b) Option 2: Provide guidance in sections 52A and 52B
on how to apply the definition of de facto relationship to a contemporaneous relationship: Guidance may direct a court to take a different approach to the factors in section 2D(2) where there is the possibility of a contemporaneous de facto relationship, for example having particular regard to some factor(s) or giving some factor(s) less weight. Alternatively, guidance
may direct a court to take a specific approach, such as considering each
relationship in isolation, avoiding a comparative approach.
(c) Option 3: Exclude contemporaneous relationships: This would simplify the PRA. It could, however, allow a person in two relationships to avoid his or her obligations to one or both partners. It may also
simply shift the point in dispute to which relationship was the qualifying
relationship, which would likely result in a bias towards
marriages and civil
unions and undermining the principle that the law should apply equally to all
relationships that are substantively
the same. It could also exclude vulnerable
people from the PRA’s protection.
C ONSU LTATION QUESTION
B17 How should contemporaneous relationships be recognised by the
PRA?
Multi-partner relationships
7.27 The definition of de facto relationship excludes relationships of
more than two people (multi-partner relationships).261 The PRA may
however cater for some contemporaneous relationships
a relationship which comprised three people may be recognised
under the PRA as a series of contemporaneous relationships. We have no
evidence as to the number of multi-partner relationships in
New Zealand,
although the number is likely to be small.
C ONSU LTATION QUESTION
B18 Should the PRA specifically recognise multi-partner relationships? If so,
how should they be defined and what property division
rules should
apply?
Domestic relationships
7.28 The PRA does not apply to domestic relationships. These are platonic,
interdependent relationships between two people who provide
care and support for
each other. Domestic relationships can include relationships between family
members such as siblings, parents
and adult children; relationships between
unrelated parties such as companions; and relationships between unpaid263
informal carers264 and those they care for. Domestic
relationships are included in property regimes in several Australian
states.265
7.29 We know little about the prevalence of domestic relationships in New
Zealand. Domestic relationships within families may be
more common due to the
increasing number of people sharing their household with members of their
extended family.266 Domestic relationships between carers and those
they care for may become more common due to the predicted increase in the
demand
262 Property (Relationships) Act 1976, ss 52A and 52B.
266 See Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 5.
population.267
Should the PRA cover domestic relationships?
7.30 There is a view that the PRA should apply to some domestic relationships. This is because some domestic relationships may be functionally similar to a marriage, civil union or de facto relationship.268 People in a domestic relationship may live in the same house and provide support and care to each other over a long period. One person may make personal sacrifices for the other to provide services as an informal carer. For example, the relationship between two adult siblings in Re C (dec’d) exhibited all of the section 2D(2) factors of a de facto relationship except
a sexual relationship and the care and support of children.269
Excluding domestic relationships functionally similar to qualifying
relationships raises questions of discrimination, equality and
fairness.270 It has also been described as a little anomalous because
of the PRA’s focus on property law rather than the nature of the
relationship.271
7.31 However, domestic relationships are different to qualifying relationships covered by the PRA. While a sexual relationship is not a prerequisite for a qualifying relationship, it is a common feature that often distinguishes it from a domestic relationship.
In addition, a domestic relationship may not give rise to the same expectation of property sharing as a qualifying relationship. For example, siblings may live together for a long period in a domestic relationship while each maintaining the hope of meeting a
partner and getting married.
267 National Advisory Committee on Health and Disability How Should we Care for the Carers, Now and into the Future?
(Ministry of Health, 2010) at 7, 8 and 45.
268 Margaret Briggs “Rethinking Relationships” (2015) 46 VUWLR 649 at 665, referring to Re C (dec’d) HC Dunedin CP18/00,
5 April 2001.
269 Re C (dec’d) HC Dunedin CP18/00, 5 April 2001; and Property (Relationships) Act 1976, s 2D.
270 Legal rights for non-sexual relationships received some political attention on this basis in 2004, where Members of
Parliament said that civil unions discriminate against non-sexual relationships: Richard Worth MP (9 December 2004)
622 NZPD 17638 (online version); and registering a relationship did not have to be a “bedroom issue”: Judy Turner MP (7
December 2004) 622 NZPD 17497 (online version). See also Supplementary Order Paper 2004 (314) Civil Union Bill 2004 (149-2) which proposed removing the provisions of the Civil Union Bill 2004 (149-2) relating to prohibited degrees of relationship. Its purpose was to “wide[n] the number of couples who will be able to register their relationship and enjoy the protection and benefits that the Relationships (Statutory References) Bill may provide.”
271 Bill Atkin and Wendy Parker “De Facto Property Developments in New Zealand: Pressures Impeded Progress” in John
Dewar and Stephen Parker (eds) Family Law Processes, Practices and Pressures: Proceedings of the Tenth World Conference of
in property law or equity, and may have difficulty finding a viable
basis for making a property claim when the relationship ends.272
If a domestic relationship ends on the death of one party, the survivor may have a claim under the Law Reform (Testamentary Promises) Act 1949 and/or the Family Protection Act 1955. Those statutes have their limitations. A successful claim under the
Law Reform (Testamentary Promises) Act requires a promise by the deceased to
reward the claimant for services by making testamentary
provision.273
A testamentary promise may be absent or difficult to prove in some
domestic relationships. A claim for provision from the deceased’s
estate
can only be made under the Family Protection Act 1955 by a partner, children,
grandchildren and, in certain circumstances,
stepchildren and parents of the
deceased.274 Siblings cannot claim.
7.33 People living in domestic relationships do however have options to secure property rights during the relationship. The parties
may change the way property is owned, for example by holding property as joint tenants,275 creating a trust, agreeing by contract on how their property is to be shared, and/or providing for
each other in their wills. However, while these options exist in theory, we
do not know how common it is for people in domestic relationships
to formalise
property sharing rights in this way.
7.34 If domestic relationships should be included in the PRA, there are
several parameters that need to be explored. In particular:
(a) The definition of domestic relationship: Definitions of caring
relationships used in some Australian states may provide a helpful starting
point. These generally require
care and support.276 Some also
require common
274 Family Protection Act 1955, s 3.
276 For example, Tasmania has a broad definition of “caring relationship” that hinges on the provision of “domestic support
where care is provided for fee or reward or on behalf
of another person or organisation are excluded.278
Other qualifying criteria, such as a minimum duration requirement, may
also be appropriate.
(b) Whether a domestic relationships regime should be opt-in or opt-out: Including domestic relationships
in the PRA on an “opt-in” basis through a registration scheme would ensure personal autonomy and take account of the assumptions some people in domestic relationships may have about property rights. Requiring independent legal advice as a prerequisite to registration could help ensure the parties make an
informed decision and protect vulnerable people from exploitation. A
registration scheme may not, however, best protect the vulnerable
because
registration rates are likely to be low and domestic partners may not see the
need to register.279
(c) Multiple relationships: People in domestic relationships may also have spouses, civil union or de facto partners.
It may be unnecessarily restrictive to prevent people in qualifying
relationships from having a secondary domestic relationship
if the PRA were
extended to domestic relationships on a registration basis. The property
classification and division rules may,
however, be complex and would require
careful consideration.
(d) Property entitlements arising at the end of a
domestic relationship: One option is to treat domestic relationships
like marriages, civil unions or de facto relationships. This would be relatively
straightforward
and would avoid a separate set of rules for domestic
relationships. Another option is a discretionary model that allows a court
to
adjust the parties’ property interests in a way that is just and
equitable in the
278 For example the definition of “caring relationship” in the Tasmanian legislation expressly excludes relationships where domestic support and personal care are provided for fee or payment, under an employment relationship or on behalf of another person or organisation: Relationships Act 2003 (Tas), s 5(2).
AJFL 121 at 146.
philosophical objection to [a discretionary model]
in the New Zealand context would be that singling- out domestic partnerships
for different treatment undermines the functional equivalence
argument”.280
C ONSU LTATION QUESTION
B19 Should the PRA apply to domestic relationships? If so, on what
basis?
280 Margaret Briggs “Rethinking Relationships”
(2015) 46 VUWLR 649 at
669.
RELATIONSHIPS
Part C – What
property should be covered by the PRA?
Chapter 8 – What property is
covered?
Introduction
8.1 The PRA provides the rules for how partners divide their property when a relationship ends. A key part of this process is to first identify what property should be divided. In this Part we focus
on the rules that determine what property should be shared and what
property should be kept separate.
8.2 In this chapter we examine the PRA’s definitions of “property”
and “owner” and consider whether they capture the right types of
property. The rest of Part C is arranged as follows:
(a) In Chapter 9 we look at how the PRA classifies property as either
relationship property (which is divided equally between the
partners) or
separate property (which is not). We also look at the classification of debts.
We then examine the basis for classification
and ask whether this remains
appropriate for contemporary New Zealand.
(b) In Chapter 10 we look at situations when a partner ’s separate
property may become relationship property.
(c) In Chapter 11 we concentrate on particular items of property and how
the PRA classifies them. This includes ACC and insurance
payments, super profits
and income- earning capacity, heirlooms and taonga. We also look at student
loan debts and inter-family
gifting and lending.
The PRA’s definitions of “property” and
“owner”
8.3 The PRA is concerned with the division of property that is owned by one or both of the partners. Its application is therefore limited by how the PRA defines “property” and “owner”.
8.4 The PRA does not define property in an exclusive manner. Instead
it lists the types of things that the PRA will include as property. The
definition has remained essentially unchanged since 19761 and it
includes:2
(a) real property;
(b) personal property;
(c) any estate or interest in any real property or personal
property;
(d) any debt or any thing in action; and
(e) any other right or interest.
8.5 An owner in respect of any property means any person who is the beneficial owner of the property under any enactment or rule of common law or equity.3 A person will normally be a beneficial owner if he or she can enjoy the fruits of that property personally and can dispose of the property for his or her own benefit, either
in the present or contingent on some future event.4 A person may be the beneficial owner of property even if the property is not
held in his or her name.5
8.6 Property that is owned by a partner in his or her capacity as trustee is not captured by the PRA because that partner is not the beneficial owner of the trust property.6 In S v S, one partner was an artist who intended to give some of his paintings to his two children.7 The paintings hung in the artist’s house until the children were ready to take possession. The Family Court was satisfied that the artist held those paintings on trust for the
benefit of his children. As a result, the artist was not the
“owner”
2 Property (Relationships) Act 1976, s 2.
3 Property (Relationships) Act 1976, s 2.
4 See discussion in RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [10.6].
5 Fuller v Fuller (1978) 1 MPC 85 (SC) per Davison CJ, discussed in RL Fisher (ed) Fisher on Matrimonial and Relationship
Property (online looseleaf ed, LexisNexis) at [10.6].
6 Property (Relationships) Act 1976, s 4B. A person cannot, however, be a trustee and the sole beneficiary under a trust:
Re Cook, Beck v Grant [1948] Ch 212 (Ch); Re Herberley (deceased) [1971] NZLR 325 (CA); Law Commission The Duties, Office and Powers of a Trustee (NZLC IP26, 2011) at [4.3]; and Richard Gray “Creation of Trusts” in Don Breaden (ed) Law of Trusts (online looseleaf ed, LexisNexis) at [2.22], all as cited in Clayton v Clayton [2015] NZCA 30, [2015] NZLR 293 at [47].
7 S v S [2012] NZFC 2685.
of the paintings and those paintings were not captured by the
PRA.8
8.7 The PRA only applies to property belonging to the partners. It does not
apply to property owned by third parties. For example,
if the partners live
together in a home owned by one of the partner ’s parents, that
property could not be divided at the
end of the relationship because it is not
“owned” by either partner. However difficulties arise where
property that
is legally owned by one or more third parties is held on trust
(either explicitly or implicitly) for the benefit of one or both
partners. In
some cases a partner ’s beneficial interest in trust property may be
captured by the PRA. Trust property is discussed
in detail in Part G.
Is the PRA limited to conventional types of property?
8.8 Although the PRA’s definition of property is broad and inclusive, in the past it has been interpreted by the courts as being a conventional definition which is essentially limited to real and personal property, and rights or interests in such property.9
The Court of Appeal in Z v Z (No 2) emphasised that the PRA uses the same property definition as a great number of other general property law statutes including the Property Law Act
1952,10 and considered that the consistent, cumulative use of that definition strongly indicated that the conventional understanding of property applied in the context of the PRA.11
In that case the Court considered whether a partner ’s income earning
capacity was covered by the PRA, but concluded that
the conventional
understanding of property was limited to rights in things, rather than rights
in respect of the person, and it
did not include “essentially personal
characteristics which are part of an individual’s overall
makeup”.12
8.9 In the more recent case of Clayton v Clayton [Vaughan Road
Property Trust] the Supreme Court emphasised the need to
8 S v S [2012] NZFC 2685 at [46].
9 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 268.
10 The Property Law Act 1952 has since been repealed and replaced with the Property Law Act 2007.
12 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 279.
interpret the meaning of property in a manner that reflects the
PRA’s statutory context.13 The Court said that, because
the PRA is social legislation, its definition of property is broader than
traditional concepts of
property, and included rights and interests even if
they are not rights or interests in property.14
8.10 It remains to be seen whether the Supreme Court’s decision
in Clayton will have wider implications for what is considered property under the PRA. In that case, the trust deed gave Mr Clayton powers to appoint and remove beneficiaries, distribute any of the trust property to any one beneficiary including himself, and bring the trust to an end. The Supreme Court said that these powers were a right that was captured within the PRA’s definition
of property. However, as we discuss in Part G, that decision turned on the
unusual and specific terms of that trust deed. Therefore
the application of
that decision may be limited.
Should the PRA apply to wider economic resources?
8.11 The PRA’s focus (at least prior to Clayton) on conventional types of property means that wider “economic resources”, from which the partners may derive financial advantages, are excluded from the PRA. Partners may have at their disposal resources which can confer on them real financial benefits even though that resource is not traditionally considered property. Probably the most significant example of an economic resource not captured by the PRA’s definition of property is a person’s capacity to earn an income (earning capacity). The current approach, following Z
v Z (No 2), is that the personal skills of an individual do not come within the PRA’s concept of property.15 We discuss how the courts have approached earning capacity in greater detail in Chapter 11. Another example of an economic resource not captured by the PRA’s definition of property is property held on trust. Trusts are
discussed in detail in Part G.
13 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [38].
14 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [38].
8.12 Several overseas jurisdictions require courts to take into account
the “financial resources” of the partners when making orders
to divide their property.16 In these jurisdictions, a court’s power to make property division orders only applies to conventional property.17 Nevertheless, the availability of wider resources from which a partner can access financial benefits is highly relevant
to the way in which the court can choose to divide the partners’ property.18 For example, in the Australian case Hall v Hall the wife’s father made provision under his will that a group of companies associated with the family should provide financial support to the wife.19 The executors of the father ’s estate, who controlled the group of companies, gave evidence that there was no legal obligation on the companies to make such provision. Nevertheless, the High Court of Australia upheld a finding that if
the wife had requested financial support, the executors were likely to have
made a voluntary payment in accordance with her father
’s testamentary
wishes. The Court said that the wife’s interest was a financial
resource.20
8.13 Similarly, in the English case Charman v Charman (No 4), the
husband established a trust under which he was a discretionary
beneficiary.21 There was a close connection between the husband and
the trust, as indicated by the husband having previously told the trustee that
he was to be considered the primary beneficiary. The Court of Appeal upheld the
High Court’s finding that if the
16 See for example Matrimonial Causes Act 1973 (UK), ss 24 and 25(2)(a); Family Law Act 1975 (Cth), ss 75 and 79; and
Family Law (Scotland) Act 1985, s 8(2)(b).
415 at [37]. Likewise, in Australia the court is given powers under s 79 of the Family Law Act 1975 (Cth) to make orders “altering the interests of the parties to the marriage in the property”. In s 4 of the Family Law Act 1975 (Cth), property is defined in conventional terms as property to which the spouses are entitled in “possession or reversion”. The High Court of Australia has, however, said that the term property had to be interpreted to conform with the purposes of the Family Law Act rather than how the term is interpreted in a general property law context: Kennon v Spry [2008] HCA 56, (2008)
[2008] HCA 56; 238 CLR 366 at [64] per French CJ and at [89] per Hayne and Gummow JJ.
husband made a request, the trustee would advance all the trust’s
assets to him.22 On that basis the Court attributed all the assets
of the trust to the husband as his financial resources, and upheld an order
that required the husband to pay a lump sum to the wife
based in part on the
assessment of his financial resources.23
8.14 The primary argument for including wider economic resources in the
PRA’s definition of property is that it would best
achieve the policy of
a just division of property in cases where those wider economic resources
constitute a significant proportion
of the partners’ combined wealth.
Failing to account for those economic resources at the end of a relationship
may fail to
achieve equal division of the true value attributable to the
relationship.
8.15 There are, however, several arguments against broadening the
definition of property to include wider economic resources:
(a) First, a novel definition of property under the PRA could create
confusion, and there would be a period of uncertainty as lawyers
and the courts
grapple with the new and unfamiliar definition. For this reason, it might be
preferable to maintain a consistent
approach to the definition of property
across different statutory contexts where possible.24 The Supreme
Court in Clayton may, however, have already signalled a departure from the
conventional categories of property in the
PRA context, as discussed at
paragraph 8.9.
(b) Second, the inclusion of earning capacity and trust property under the
PRA will raise complex questions in each case. In particular,
it might be
difficult to identify the component of those resources that should be
considered “relationship property”
and shared between
24 The Supreme Court of the United Kingdom has made similar observations in Prest v Petrodel Resources Ltd [2013] UKSC
34[2013] UKSC 34; , [2013] 2 AC 415. At [37] per Lord Sumption the Court rejected the
argument that a different definition of property should apply under
relationship property
law, concluding instead that core property law principles
should remain constant across different legal contexts:
Courts exercising family jurisdiction do not occupy a desert island in
which general legal concepts are suspended or mean something
different. If a
right of property exists, it exists in every division of the High Court and in
every jurisdiction of the county courts.
If it does not exist, it does not exist
anywhere.
Lady Hale, who agreed with the leading judgment of Lord Sumption, said at [87]–[88] that s 24(1)(a) of the Matrimonial Causes Act 1973 (UK) referred only to rights recognised by the law of property and nothing in the wording of the statute nor its history suggested a wider interpretation.
the partners.25 For example, if a partner ’s earning
capacity is divisible to the extent it has been enhanced by the relationship, how is such enhancement to be ascertained? The valuation of those resources is also likely to be a difficult exercise. The inclusion of such resources may therefore increase the contestability
of relationship property matters, undermining the principle that all questions under the PRA should be resolved as inexpensively, simply and speedily as is consistent with justice.26 We look at these questions
in greater detail in Chapter 11 when considering super profits and earning
capacity.
(c) Third, there are other ways to recognise and account for the benefits bestowed on one partner by wider economic resources. We discuss some options in
respect of trust property in Part G. We also note that the approaches taken in Australia and England and Wales described above do not go as far as dividing a partner ’s economic resources. Rather, they are taken into account as one among many factors that influence how the courts divide the partners’ conventional property.27
It would be a radical step for the PRA to deem wider economic resources as
property which is divisible between the partners.
(d) Fourth, the main criticism regarding the narrowness of PRA generally focuses on two specific economic resources that are currently not considered “property”: earning capacity and property held on trust. We discuss the issues caused by the exclusion of these resources from the PRA in subsequent parts of the Issues Paper.28
It may be unnecessary to amend the PRA’s definition of property to include economic resources generally.
Rather, it may be preferable to assess whether the
below.
26 Property (Relationships) Act 1976, s 1N(d). See Chapter 3 for a discussion of the principles of the PRA.
28 See discussion in Chapter 11 dealing with earning capacity and Part G dealing with trusts.
definition of property should be expanded to include
specific resources on a case by case basis as we do in respect of earning
capacity and trust property.
C ONSU LTATION QUESTION
C1 Should the PRA’s definition of property include wider economic
resources?
Is the definition of property future-proof ?
8.16 We have considered whether the PRA can accommodate new and emerging
types of property such as:29
(a) Cryptocurrencies (virtual currencies): Cryptocurrencies are digital representations of value that can be transferred, stored and traded electronically.30 A
person wishing to hold or trade cryptocurrency must use specific software to allow the currency to be transferred through a peer to peer online network.31
In the case of the cryptocurrency Bitcoin for example, a “virtual wallet” must be used. Cryptocurrencies are becoming increasingly common and so it is likely that partners in the future will hold some of their wealth in cryptocurrencies. Several hundred virtual currencies are in existence.32 Each has an exchange rate to
conventional currencies. These exchange rates are prone to quite considerable
fluctuation.33
(b) Digital libraries: In previous years, when partners separated they
might divide their CD and DVD collections. A modern equivalent
might be that
partners divide their digital libraries.34 A digital library
might
29 Jade Lattimore, Bryce Menzies and Joe Box “ You Sexy Thing: New Property in the 21st Century” (seminar at the National
Family Law Conference, Melbourne, 19 October 2016).
30 Judith Lee and others “Bitcoin Basics: A Primer on Virtual Currencies” (2015) 16 BLI 21 at 22.
31 Andrea Borroni “Bitcoins: Regulatory Patterns” (2016) 32 BFLR 47 at 50–51.
32 Judith Lee and others “Bitcoin Basics: A Primer on Virtual Currencies” (2015) 16 BLI 21 at 22–23.
include media collections like movies or music. It might
also include a collection of apps.35
(c) Intellectual property rights: As more people are involved with developing software, apps and other forms of
digital design, it is likely that the intellectual property rights to these
forms of work will become an issue which is more contested
when partners
separate.
(d) Other forms of intangible or digital property: It is likely that new
forms of intangible and digital property will continue
to emerge. Customer
loyalty scheme credits like frequent flyer points can have considerable value.
Even credits earned within computer
games, like a Pokémon collection in
the game Pokémon Go, can sometimes be traded for large amounts of
money.36
8.17 We think that the PRA’s definition of property, and in
particular the catch all “any other right or interest”
is wide
enough to capture all sorts of intangible things.37 For example, the
Supreme Court has recently found that digital files, such as videos,
constituted property under the Crimes Act
1961, which uses a very similar
definition of property to the PRA.38
8.18 The key question is whether the PRA’s definition of property
provides partners, lawyers and judges with sufficient guidance
on whether new
forms of property are indeed property for the
36 Pokémon Go is a game played through mobile devices. The aim is for players to capture Pokémon. The value of extensive
Pokémon collections that some players had captured through the game rose with the widespread popularity of the game. Presenters at the Australian National Family Law Conference raised the example of Pokémon Go collections: Jade Lattimore, Bryce Menzies and Joe Box “ You Sexy Thing: New Property in the 21st Century” (seminar at the National Family Law Conference, Melbourne, 19 October 2016).
rights pursuant to a building society secret ballot, fishing rights under the Fishing Act 1983, an interest in an asset in common with a third party, rights under the Accident Compensation Act, and goodwill in a professional practice.
used. In this case, the Court said it was clear that s 249 was intended to apply to circumstances like Mr Dixon’s use of the video files. The Court relied on the High Court of Australia decision in Kennon v Spry [2008] HCA 56, (2008) 238 CLR 366 at [89] for this proposition. The Supreme Court’s decision in Dixon v R suggests that the PRA’s definition is broad enough to apply to new forms of property, particularly digital files.
purposes of the PRA. As discussed above, the PRA’s definition of
property simply lists what is included as property, which is very
broad.
8.19 While court decisions (in New Zealand and overseas), academic
literature and continuing legal professional development courses
will all
provide insights into what emerging forms of property come under the PRA, this
may not avoid the need to go to court in
order to establish whether a new form
of property comes within the PRA.
8.20 The main problem with the PRA’s definition of property is that it does not explain how or why something should be treated as property.39 Lawyers may struggle to advise clients on whether emerging forms of property will be treated as property under the PRA. Consequently, valuable items may be omitted from the relationship property pool because they were overlooked.
Alternatively, partners may suffer prolonged and costly disputes over whether
an item should be treated as property.
8.21 There are also difficulties in valuing emerging forms of property.
The future trend of emerging property can be unclear. New technology may become very popular, or it can quickly fade away. These matters are difficult to predict. The value of some
emerging property is likely to fluctuate considerably. The value of
cryptocurrencies, for example, can be very volatile. Best practices
for valuing
emerging forms of property may not have developed. How, for example, should the
value of a Pokémon Go collection
be determined?
Should the PRA include a more prescriptive definition of property?
8.22 While we think that the current definition of property is broad enough to capture emerging forms of property, there may still be merit in changing the definition to provide a way to determine whether an item constitutes property. Some statutes define property with greater prescription than the PRA, although
these statutes operate in different policy areas. For example
the
it is real or personal property, and whether it is tangible or intangible property”. The Supreme Court said “[t]his is an attempt to define what the concept of ‘property’ means, unlike the definition in the PRA which is essentially an inclusive definition...”.
Criminal Proceeds (Recovery) Act 2009 defines property in a
conventional manner: property means real and personal property of any kind
and any other right or interest.40 The Act goes further, however,
and defines “interest” as:41
(a) a legal or equitable estate or interest in the property; or
(b) a right, power, or privilege in connection with the property.
8.23 These definitions are supported by section 58 of the Act which provides that where people exercise “effective control” over property, they are to be treated as though they had an interest in the property. The “effective control” definition has been applied where a person controls a corporate structure42 and trusts.43 The Act’s extended definition of interest exists to fulfil the purposes of that legislation. Principally, the definition is targeted at ensuring all “tainted property” or property to which a forfeiture order may apply comes under the Act. The extended definition also allows for the identification of appropriate parties who may wish to apply
for relief from forfeiture.44
8.24 The Property Law Act 2007, which deals with certain aspects
of the law relating to real and personal property, has adopted a different
definition of property to its predecessor legislation.45 It now
provides that property means “everything capable of being owned,
whether it is real or personal property, and whether
it is tangible or
intangible property”.46
8.25 If the PRA’s definition of property was to be amended to provide
greater guidance on what property the PRA is concerned
with, the definition
would need to be drafted to best achieve the PRA’s policy objective.
Careful consideration would be needed.
We are
40 Criminal Proceeds (Recovery) Act 2009, s 5(1), definition of “property”.
41 Criminal Proceeds (Recovery) Act 2009, s 5(1), definition of “interest”.
42 Commissioner of Police v Li [2014] NZHC 479.
43 Commissioner of Police v Ranga [2013] NZHC 745; Commissioner of Police v Clifford [2014] NZHC 181; and Commissioner of
Police v Read [2015] NZHC 2055.
44 Simon France (ed) Adams on Criminal Law – Sentencing (online looseleaf ed, Thomson Reuters) at [CP5.22.01].
2007, s 4, definition of “owner”.
currently unaware of any other legislation that would provide a
workable precedent for the PRA’s statutory purpose.
8.26 A solution may be to retain the current definition but specify particular items that ought to be included. We consider in Chapter
11 whether a partner ’s earning capacity ought to be included and we
consider in Part G whether trust property ought to be
included.
C ONSU LTATION QUESTIONS
C2 Should the PRA’s definition of property be retained so that
questions of whether the PRA applies to emerging forms of
property is left to
the courts to decide on a case by case basis?
C3 Should the PRA’s definition of property be amended so that it
defines property in greater detail? If so, is it preferable
to amend the
definition to expand the items that are included as property? Which items ought
to be included?
Exclusion of Māori land from the PRA
8.27 Land is a taonga tuku iho of special significance to Māori people.47
For that reason Te Ture Whenua Māori Act 1993 (TTWMA) promotes the retention of Māori land in the hands of its Māori owners, their whānau, their hapu, and their descendants.48
TTWMA operates as a code, and Māori land can only be sold, gifted or otherwise disposed of in accordance with its rules.49
Proposed alienations of Māori land must generally be approved by the Māori Land Court.50
8.28 Only five per cent of New Zealand’s land is Māori freehold
land and very little Māori customary land remains.51 Māori
land is typically owned in common with many other owners.52 It
is
47 Te Ture Whenua Māori Act 1993, preamble and s 2.
48 Te Ture Whenua Māori Act 1993, preamble, s 2 and pt 6. Section 2 defines Māori land as Māori customary land (held in accordance with tikanga Māori) and Māori freehold land (Māori customary land to which the beneficial ownership has been determined according to tikanga Māori by order of the Māori Land Court).
49 Te Ture Whenua Māori Act 1993, s 146. Information on Māori land is available on the Māori Land Court website <www. maorilandcourt.govt.nz>.
50 Te Ture Whenua Māori Act 1993, pts 7 and 8.
51 Statistics New Zealand He Arotahi Tatauranga: Supplementary Information (August 2014) at 10.
52 Ministry of Agriculture and Forestry Māori Agribusiness in New Zealand: a study of the Māori Freehold Land Resource
(March 2012) at 5. Te Ture Whenua Māori Act 1993 (TTWMA), part 12 provides for five types of Māori landowner
trusts that may relate to Māori land, other land classified under the TTWMA and shares in a Māori incorporation that is incorporated under part 13 of TTWMA.
largely non-arable and some is landlocked.53 The importance of
Māori land however generally lies not in its monetary value, but in
its ancestral, spiritual, cultural and historical value.54
8.29 Section 6 of the PRA provides that “[n]othing in this Act shall apply in respect of any Māori land within the meaning of [TTWMA].” As noted by the Family Court in Rawhiti v Marama, Parliament’s intention seems to have been to exclude Māori land completely from the ambit of the PRA.55 In doing so, section
6 protects the special status of Māori land and recognises the interests
of other people in that land.56
What happens when partners separate?
8.30 The exclusion of Māori land from the PRA means that if one
or both of the partners owns Māori land, that land will not fall within the pool of relationship property available for sharing upon death or separation. This remains the case even if Māori land
was used as the family home, and/or if the non-owning partner made or paid for improvements to the land, thereby increasing its value.57 Similarly, a court cannot order one partner to transfer
Māori land to the other partner for compensation purposes,
such
53 The Ministry of Agriculture and Forestry (now Ministry for Primary Industries) estimated that 80 per cent of land held in
Māori title is of non-arable class and 30 per cent is landlocked: Ministry of Agriculture and Forestry Māori Agribusiness in New Zealand: a study of the Māori Freehold Land Resource (March 2012) at 2.
accordance with tikanga”. In that case the Deputy Chief Judge exercised jurisdiction under s 44 of Te Ture Whenua Māori Act 1993 (TTWMA) to amend orders of the Court constituting a whānau trust under s 214. The respondent had failed to disclose to the Court the applicant’s potential claim under the Property (Relationships) Act 1976 (PRA) in relation to the land which was classified as general land owned by Māori under s 129 of TTWMA. The orders constituting the trust were made conditional on there being no successful PRA claim by the applicant before the Family Court: Yates v Nathan (2016) Chief Judge’s MB 223 (2016 CJ 223).
56 As discussed in Part A, Māori land was not excluded from the predecessor regime (the Matrimonial Property Act
1963). It was only upon passing of the 1976 Act that Māori land was no longer covered. There was no discussion of the change in Parliament at the time of the 1976 Bill and it seems simply to reflect the evolving paradigm of the 1970s that special rules for Māori land were thought necessary, reflecting the importance of property passing in accordance with the principle of descent in te ao Māori. See Jacinta Ruru “Implications for Māori: Historical Overview” in Nicola Peart, Margaret Briggs, and Mark Henaghan Relationship Property on Death (Brookers, Wellington, 2004) 445 at 464; and Justice Joseph Williams “The Henry Harkness Lecture: Lex Aotearoa: An Heroic Attempt to Map the Māori Dimension in Modern New Zealand Law” [2013] WkoLawRw 2; (2013) 21 Waikato L Rev 1 at 11.
as where one partner used relationship property to pay off a
personal debt.58
8.31 The rights, if any, of a non-owning partner in respect of Māori
land on separation are not covered in TTWMA, although
it does provide for a
right of occupation when one partner dies.59 Nor does the Te Ture
Whenua Māori Bill 2016, as currently drafted, appear to address the
position on separation.60 In 2008 Ruru referred to this as a
legislative gap between TTWMA and the PRA that is unacknowledged by the
judiciary and Parliament.61
8.32 Historically, owners of Māori land rarely built and resided on
their land.62 However more recently owners are increasingly being
encouraged and enabled to live and build on their land,63 which
means questions as to the rights of non-owning partners, particularly in
respect of family homes built on Māori land,
may arise more frequently in
future.
The PRA applies if the family home is a chattel
8.33 As was observed in Rawhiti v Marama,64 because Māori land
is exempt from the PRA, a family home that is fixed to Māori land
would also be exempt.65 However buildings and other improvements
that are not fixed to the land are regarded in law as chattels, and are
therefore not
excluded under section 6 of the PRA. This means that
improvements that are not fixed to Māori land, such as movable houses,
can
be classified as relationship property and divided under the
PRA.
58 Property (Relationships) Act 1976, s 20E(1)(b).
60 Te Ture Whenua Māori Bill 2016 (126-2). At the time of writing, the Bill is currently in the Committee of the Whole
House in Parliament.
61 Jacinta Ruru “Finding Solutions for the Legislative Gaps in Determining Rights to the Family Home on Colonially Defined
Indigenous Lands” (2008) 41 UBC L Rev 315 at 327.
63 See, for example, the proposals emerging from the most recent review of TTWMA: Te Ture Whenua Māori Act 1993
Review Panel Report of the panel appointed to review Te Ture Whenua Māori Act 1993 (March 2014).
64 Rawhiti v Marama (1983) 2 NZFLR 127 (FC) at 127.
8.34 The main indicators of whether a building is a fixture rather
than a chattel are the degree of annexation and the purpose
of annexation.66 The Māori Land Court used this distinction to provide relief to a non-owner of Māori land in Epiha William Hills
– Kaiapoi MR873 Blk XI Sec 71B.67 In that case the sole owner of Māori land wished to build a house for his family, but could only do so if his wife contributed $200,000 towards its construction. The wife would only do so if she could become joint owner of
the land. The Māori Land Court said that it had no jurisdiction to transfer half ownership to her, and declined to exercise its jurisdiction to change the status of the land to general land. But
if the house were built so that it could be easily transported away from
the land, the Court could make an order declaring the
house to be a chattel
owned solely by the wife.68
A claim in constructive trust
8.35 TTWMA does not prevent constructive trust claims being brought in respect of Māori land. The Māori Land Court has said that, although general principles of property law provide
that the owners of the land also own any fixtures, section 18(1) (a) of TTWMA enables the Court to recognise that someone
may separately own, by way of a beneficial interest under a constructive trust, an improvement on the land.69 The Court
has used these principles to recognise a non-owner ’s beneficial
interest in buildings fixed to Māori land.70
8.36 The leading case is Stock v Morris – Wainui 2D2B, decided by the
Māori Land Court in 2012.71 In that case the parties lived
together
66 Nga Uri a Maata Ngapo Charitable Trust v McLeod — Harataunga West 2B2A1 (2012) 49 Waikato Maniapoto MB 223 (49
WMN 223) at [41] referring to Auckland City Council v Ports of Auckland [2000] NZCA 190; [2000] 3 NZLR 614 (CA) which adopted the approach of the House of Lords in Elitestone Ltd v Morris and Anor [1997] UKHL 15; [1997] 1 WLR 687, [1997] 2 All ER 513.
67 Epiha William Hills – Kaiapoi MR 873 Blk XI Sec 71B (2005) 110 SI 85.
TTK 206) and Bennett – Estate of Ronald Clifford Bennett (2017) 156 Waiariki MB 250 (156 WAR 250) the Court found the house to be a fixture that would only become a chattel if the lender ’s right to remove the house was triggered by a default by the borrower.
69 See Nga Uri a Maata Ngapo Charitable Trust v McLeod – Harataunga West 2B2A1 (2012) 49 Waikato Maniapoto MB 223 (49
WMN 223) at [35]; Stock v Morris – Wainui 2D2B (2012) 41 Taitokerau MB 121 (41 TTK 121) at [26].
70 Stock v Morris – Wainui 2D2B (2012) 41 Taitokerau MB 121 (41 TTK 121) at [30] referring to Matenga v Bryan – Parish of
Tahawai Lot 18C-F and 181 (2003) 73 Tauranga MB 150 (73 T 150) and Brokenshaw – Te Kaha B6X2 (2003) 81 Opotiki MB
18 (81 OPO 18).
71 Stock v Morris – Wainui 2D2B (2012) 41 Taitokerau MB 121 (41 TTK 121).
for eight years on Māori land. The applicant was an owner in the
land, and the respondent a non-owner. During their relationship the respondent paid approximately $60,000 for the construction of a cottage on the land. On separation, the applicant claimed ownership of the cottage, supported by her fellow owners. The respondent sought half the value of the cottage. The Court found that the cottage (which had been built on a concrete slab) was part and parcel of the land and could not be treated as a chattel.72
It could not be uplifted, and the applicant could not afford to purchase the
respondent’s claimed half-share in the cottage.
The central issue for
the Court was how it should do justice between the parties, within the
parameters of the TTWMA.73
8.37 The Court examined the scope of its powers under section 18(1) (a) of TTWMA to hear and determine a claim in equity. It said that the Court could make orders under that section in favour
of a non-owner, and had done so in the past.74 The Court went on
to say that where a non-owner is entitled to equitable relief in relation to a
fixture on Māori land, the
Court should in the first place look to award
monetary compensation. If monetary compensation is inappropriate, the Court may
award
ownership of the fixture if it can be removed from the land. The Court
will also take into account the non-owner ’s free occupation
of the
land.75 However an order vesting interests in the land, or a right
of possession in favour of a non-owner would likely offend the kaupapa
and
provisions of TTWMA,76 although it noted that the Court of Appeal
had not completely ruled out this possibility.77
8.38 The Court in Stock v Morris concluded that the applicant was
the owner of the cottage but that the non-owner was entitled to compensation.
The order declaring
the applicant the owner was made conditional upon the
respondent paying the non-owner compensation within two years. The Court
also
issued a charging
72 Stock v Morris – Wainui 2D2B (2012) 41 Taitokerau MB 121 (41 TTK 121) at [22].
73 Stock v Morris – Wainui 2D2B (2012) 41 Taitokerau MB 121 (41 TTK 121) at [1].
75 Stock v Morris – Wainui 2D2B (2012) 41 Taitokerau MB 121 (41 TTK 121) at [70].
76 Stock v Morris – Wainui 2D2B (2012) 41 Taitokerau MB 121 (41 TTK 121) at [70]. See also Tipene v Tipene – Motatau 2
Section 49A4F (2014) 85 Taitokerau MB 2 (85 TTK 2) at [63] and Owen v Hauiti – Kiwinui A (2016) 57 Tairawhiti MB 70 (57 TRW 70) at [69].
77 Grace v Grace [1994] NZCA 276; [1995] 1 NZLR 1 (CA) at 5.
debt under section 82 of TTWMA, charging the owner ’s interest in
the home with the sum owing.78
Issues with the remedies for family homes on
Māori land
8.39 While the Māori Land Court can make an order declaring a house to be a chattel, it can only do so if the house was built so that it could be easily relocatable. If the house is a fixture,
the Court cannot say it is a chattel as it only has jurisdiction to declare
existing ownership rights and cannot transfer or create
new ownership
rights.79 The extent to which the Court can grant equitable relief in
respect of houses and other buildings that are fixtures on Māori
land
remains unclear.80
8.40 Ruru notes the reality of removable homes as a solution to the legislative gap is feasible and the concept of removable
or relocatable homes is becoming more common.81 However, removable homes can be both logistically problematic and expensive, and the solution adds another constraint on the effective utilisation of Māori land.82 It may also be the case that some homes are regarded as a taonga, imbued with a sense of tapu. In this situation, removal or relocation would be contrary to
tikanga Māori and therefore
unacceptable.83
Māori Land Law, University of Otago) at 10; Te Ture Whenua Māori Act 1993 (TTWMA), s 4, definition of “alienation”, para (a)(i), and s 146. The Court in Stock v Morris rationalised its ability to “do equity” in relation to Māori freehold land on the basis that the preamble and ss 2 and 17 set the kaupapa of TTWMA and promoted the interests of the owners, but the Court could not allow the actions of owners to cause injustice to non-owners: Stock v Morris – Wainui 2D2B (2012)
41 Taitokerau MB 121 (41 TTK 121) at [65]. However, it remains unclear what rights a constructive trust over Māori freehold land could confer that would not be contrary to TTWMA.
81 Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
82 Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
83 Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
8.41 For these reasons, there may be merit in clarifying the legal
position of non-owning partners when the family home is on
Māori land.
Options to provide for family homes on Māori land
8.42 The current legislative position reflects a policy decision that
the retention of Māori land in the bloodline is preferred over an ability of the non-owning partner to claim an interest in the land. We are not considering removing the exclusion of Māori land from the PRA. This would have significant implications for TTWMA and Māori custom law. Further we are not aware of any issues with
the exclusion of Māori land other than the issue of addressing
improvements made by the non-owning partner, particularly in respect
of family
homes.
8.43 Enabling a non-owning partner to claim an interest in the family home
but not the land on which it sits would represent an
alternative policy balance
that could be supported on the basis that it enables a just division of
property that has a connection
to the relationship, either because it is used
as the family home or because it is attributable to the relationship.84
Alternatively, the non-owning partner ’s actions or contributions to
improving the land could be recognised by way of compensation.
These options are
discussed below.
8.44 In Part H we discuss which court, or courts, should hear claims that
raise issues of importance to Māori, including
family homes on Māori
land.
Option 1: Treating the family home on Māori land as a family home
under the PRA
8.45 One option is to enable a non-owning partner to claim an interest in
Māori land by treating the family home (but not
the land on which it sits)
as a family home under the PRA.
8.46 The family home could be classified as relationship property either on the basis that it was for family use or that it was attributable
to the relationship through the efforts of the partners. The family
home could form part of the relationship property pool and a
court could make orders with respect to the family home in
accordance with the provisions of the PRA.
8.47 In practical terms this would mean that the value of the interest
in the family home is brought into the relationship property
pool and accounted
for from other relationship property, but the land itself is not.
8.48 This would provide a more equal balance between the policies
underpinning the TTWMA and PRA. However, a significant practical
limitation is
that there may be no other assets from which to satisfy the other partner
’s entitlement to a share in the
relationship property.
Option 2: Providing compensation under the PRA
8.49 Another option is to amend the PRA to provide a mechanism to compensate a non-owning partner for his or her actions in increasing the value of Māori land. This would be consistent with the policy and provisions of the TTWMA and would overcome the difficulties identified with the current approach.
It would, however, be inconsistent with the focus in the PRA on
contributions to the relationship, rather than to specific items
of
property.85
8.50 A new mechanism specifically for family homes on Māori
land would recognise the unique policy considerations at play. Amending the
PRA’s existing compensation provisions will not
achieve this and is
unlikely to be the best conceptual and practical fit in light of the underlying
ownership of the land.86
8.51 Amending the PRA’s provisions to provide compensation may
acknowledge a non-owner ’s rights but, again, such opportunities
can be
limited in practice if the owning partner has insufficient
partner by adjusting the division of other relationship property to reflect the increase in value of the land attributable to the non-landowning partner ’s actions: Josie Te Rata, “Papakāinga: Tools for Determining Rights to the Family Home in a Māori Land Context” (paper prepared for Laws 455 Māori Land Law, University of Otago) at 9.
assets from which any compensation can be drawn. Nor would
such amendments overcome the difficulties arising from land in multiple
ownership as compensation can only be drawn from an owning
partner ’s
share in the land.
8.52 Te Rata notes, however, that in trying to strike a policy balance
between retaining Māori land in the hands of its
owners while compensating
non-owning partners for their contributions, direction could be provided to
the court on how to determine
and give effect to a non-owning partner ’s
rights.87
Option 3: Remedies under Te Ture Whenua Māori Act 1993
8.53 TTWMA operates as a code for interests in Māori land. Although a
non-owner ’s interest in a family home may be a
product of a
relationship, it is arguable that any attempt to fill the legislative gap in
relation to contributions to Māori
land should more appropriately sit in
TTWMA.
8.54 There may be situations where it would be appropriate in the circumstances and in accordance with tikanga for the Māori Land Court to award an interest in land or otherwise provide compensation to a non-owner following a separation. TTWMA currently provides for rights for non-owners, including the provision of a life interest88 or a financial interest89 following the death of a partner, and the right of an owner of a beneficial interest to occupy land.90 These provisions could be adapted, or
new compensation provisions added, to recognise a non-owner ’s
contribution to the family home.
8.55 While amendments to TTWMA are outside our terms of reference, we are interested in hearing whether this is an appropriate
avenue for reform.
C ONSU LTATION QUESTIONS
C4 Do you think that the law should provide rights or recognise
interests in respect of a
88 Te Ture Whenua Māori Act 1993, ss 108(4) and 109(2).
90 Te Ture Whenua Māori Act 1993, s 328.
family home on Māori land, when one partner is not an owner of that
land?
C5 If so, what option do you prefer, and why?
Chapter 9 – Classifying
relationship property and separate property
9.1 The PRA recognises that certain types of property should be
shared between the partners at the end of the relationship, whereas other
types of property should not. The PRA calls the types of
property that should
be divided relationship property. Property that is not shared remains
each partner ’s separate property. The process of determining
whether an item of property is relationship property or separate property is
referred to as “classification”.
Relationship property, separate property and debts
Relationship Property
9.2 Section 8(1) of the PRA provides that relationship property consists
of:91
(a) the family home whenever acquired; and
(b) the family chattels whenever acquired; and
(c) all property owned jointly or in common in equal shares by the married
couple or by the partners; and
(d) all property owned by either spouse or partner immediately before
their marriage, civil union, or de facto relationship began,
if—
(i) the property was acquired in contemplation of the marriage, civil union, or de facto relationship; and
(ii) the property was intended for the common use or common benefit of
both spouses or partners; and
91 Many of the types of property listed in s 8 of the Property (Relationships) Act 1976 are defined further elsewhere in the
Act, for example the family home, the family chattels, a life insurance policy, and a superannuation scheme.
(e) subject to sections 9(2) to (6), 9A, and 10, all property
acquired by either spouse or partner after their marriage, civil union, or
de facto relationship began; and
(ee) subject to sections 9(3) to (6), 9A, and 10, all property acquired,
after the marriage, civil union, or de facto relationship
began, for the common
use or common benefit of both spouses or partners, if—
(i) the property was acquired out of property owned by either spouse or
partner or by both of them before the marriage, civil union,
or de facto
relationship began; or
(ii) the property was acquired out of the proceeds of any disposition of
any property owned by either spouse or partner or by both
of them before the
marriage, civil union, or de facto relationship began; and
(f ) [Repealed]
(g) the proportion of the value of any life insurance policy (as defined
in section 2), or of the proceeds of such a policy, that
is attributable to the
marriage, civil union, or de facto relationship; and
(h) any policy of insurance in respect of any property described in
paragraphs (a) to (ee); and
(i) the proportion of the value of any superannuation scheme entitlements
(as defined in section 2) that is attributable to the marriage,
civil union, or
de facto relationship; and
(j) all other property that is relationship property under an agreement
made under Part 6; and
(k) any other property that is relationship property by virtue of any
other provision of this Act or by virtue of any other Act;
and
(l) any income and gains derived from, the proceeds of
any disposition of, and any increase in the value of, any property
described in paragraphs (a) to (k).
Separate Property
9.3 Separate property generally falls under one of three categories: (a) Property of either partner that is not relationship
property. Section 9(1) defines separate property broadly as all property that does not fall within any of
the categories of relationship property under section
8. Section 9 goes on to provide that separate property includes:
(i) all property acquired out of separate property and the proceeds of any
disposition of separate property;92
(ii) any increase in the value of separate property, and any income or
gains derived from separate property;93
(iii) all property acquired by either partner while they are not living
together, or by the surviving partner after the death of
one of the partners,
unless the court considers it just in the circumstances to treat the property
as relationship property;94 and
(iv) all property acquired by either partner after a court has made an order
defining the partners’ respective interests in
the relationship property,
or dividing that property.95
(b) Property acquired by one partner from a third party.
Section 10 provides that separate property includes property a partner
acquires from a third person:96
(i) by succession; (ii) by survivorship; (iii) by gift; or
(iv) because the partner is the beneficiary under a trust settled by a third
person.
(c) These items of property will be classified as separate property even
if they fit the description of relationship property under section
8. The
family home and
92 Property (Relationships) Act 1976, s 9(2), which is subject to ss 8(1)(ee), 9A(3) and 10.
93 Property (Relationships) Act 1976, s 9(3), which is subject to s 9A.
94 Property (Relationships) Act 1976, s 9(4).
95 Property (Relationships) Act 1976, s 9(5). This section does not apply in respect of orders made under s 25(3).
96 Property (Relationships) Act 1976, ss 10(1) and 10(2). This includes the proceeds of a disposition of property, to which s
10(1)(a) applies, and property acquired out of property to which s 10(1)(a) applies: ss 10(1)(b) and 10(1)(c). If, however, the property listed in s 10(1) has been so intermingled with other relationship property that it is unreasonable or impracticable to regard that property or those proceeds as separate property, it may be classified as relationship property.
family chattels, however, will always be classified as
relationship property.97
(d) Special types of property recognised by the PRA: These are other items
of property that ordinarily would be relationship property,
but for which the
PRA makes specific provision. This includes property that one partner receives
by gift from the other partner.98 It also includes certain types of
chattels that would otherwise be classified as relationship property,
specifically:99
(i) chattels used wholly or principally for business purposes;
(ii) money or securities for money;
(iii) heirlooms; and
Debts
(iv) taonga.
9.4 Partners’ debts are classified under the PRA in a similar way to
relationship and separate property. A relationship debt
is a debt that has been
incurred:100
(a) by the partners jointly;
(b) in the course of a common enterprise carried on by the
partners;
(c) for the purpose of acquiring, improving, or maintaining relationship
property;
(d) for the benefit of both partners in the course of managing the affairs
of the household; or
(e) for the purpose of bringing up any child of the relationship.
9.5 A personal debt is any debt that is not a relationship
debt.101
97 Property (Relationships) Act 1976, s 9(4).
100 Property (Relationships) Act 1976, s 20(1), definition of “relationship debt”.
101 Property (Relationships) Act 1976, s 20(1), definition of “personal debt”.
9.6 The classification of debts can be equally as important as the
classification of property. This is because the value of the pool of
relationship property to be divided between the partners is
calculated by first
ascertaining the total value of the relationship property, and then deducting
from that total any relationship
debts owed by either or both partners.102
In this way, relationship debts are shared between the
partners.103
9.7 If one partner has paid a personal debt from relationship property, the
court may order that the other partner ’s share
of relationship property
be increased or that the partner who paid the debt pay compensation to the
other partner.104 There is no equivalent provision for relationship
debts that are paid from separate property.
|
||
To show how the PRA’s rules of classification work in practice, we
use the hypothet- ical example of Rebecca and Wiremu.1 Wiremu is a
successful photographer. When Wiremu and Rebecca were married, Wiremu had
already acquired a significant amount of property.
He had amassed a significant
collection of photographs, both works he created and works by other artists. He
also owned a house,
although he was still paying off the mortgage on
it.
When the partners separate, Rebecca consults her lawyer. Her lawyer says
that it is probable that the Family Court would classify
the partners’
property in the following way:
|
||
Item
|
Classification
|
Relevant section of the PRA
|
House registered in
Wiremu’s name
|
Relationship property
|
Section 8(1)(a) – the family home whenever acquired is
relationship
property
|
Rebecca’s KiwiSaver Super- annuation Policy acquired during the
relationship
|
Relationship property
|
Section 8(1)(i) – the proportion of any superannuation
attributable
to the relationship is relationship
property
|
Car registered in Wiremu’s name but mostly driven by
Rebecca
|
Relationship property
|
Section 8(1)(b) – the family chattels, which includes motor
vehicles, are
relationship property
|
102 Property (Relationships) Act 1976, s 20D.
104 Property (Relationships) Act 1976, s 20E.
Money in the partners’
bank accounts saved during the relationship
|
Relationship property
|
Section 8(1)(e) - all property ac- quired after the relationship began
is
relationship property
|
Small boat used by the partners on holidays
|
Relationship property
|
Section 8(1)(b) – the family chattels, which includes boats, are
relation-
ship property
|
Colour printer used by Wiremu for his work as a photographer and bought
prior to the relationship
|
Wiremu’s sepa- rate property
|
Section 9(1) – all property which is not relationship property is
sepa- rate property (or the printer may be considered a chattel
used principally
for business purposes and so is not a
family chattel)
|
Framed photographs bought by Wiremu prior to the relationship and
displayed in the partners’
home
|
Relationship property
|
Section 8(1)(b) – the family chattels, which include household
ornaments
|
Framed photographs bought by Wiremu prior to the relationship and dis-
played in his studio (which is separate to the family
home)
|
Wiremu’s sepa- rate property
|
Section 9(1) – all property which is not relationship property is
separate property
|
The partners’ pet dog, Monty, bought after the
relationship began
|
Relationship property
|
Section 8(1)(b) – the family chattels, which includes pets, are
relationship
property
|
Gifts of jewellery from
Wiremu to Rebecca
|
Rebecca’s sepa- rate property
|
Section 10(3) – property gifted by one spouse to the other is
separate
property
|
Mortgage over Wiremu’s house
|
Relationship debt
|
Section 20 – a debt incurred for the purpose of acquiring
relationship
property is a relationship debt.
|
Personal debt incurred by Wiremu to buy the colour printer
|
Personal debt
|
Section 20 – the debt was not in- curred for a purpose that would
classify it as a relationship debt, so it
is a personal debt.
|
The basis for classification
9.8 The classification of property is fundamental to the overall scheme of
the PRA because it determines which property is to be
divided between the
partners.
9.9 In Part A we explained why we have the PRA, and the theories and
principles on which its rules are based. To recap briefly, the
PRA treats a
qualifying relationship as a partnership or joint venture to which each partner
contributes equally, although perhaps
in different ways.105 Each
partner ’s contributions to the relationship result in an entitlement to
an equal share in the property of the relationship.
9.10 The concept of relationship property is intended to capture property that has a connection to the relationship, and which
the partners can justifiably consider “theirs”, irrespective of
strict legal title.106
9.11 The PRA classifies two types of property as relationship
property:107
(a) Property which is central to family life. This includes commonly owned
and used property such as the family home and family
chattels, whenever
acquired. We call this the “family use” approach to
classification.
(b) Property attributable to the relationship. This includes property that is directly or indirectly produced by the joint or several efforts of the partners, such as property acquired during the relationship, the proportion of
any life insurance policy or superannuation scheme attributable to the relationship and increases in the
value of separate property due to the actions of the
7 NZULR 237 at 245 and 247; Bill Atkin “Classifying Relationship Property: A Radical Re-shaping” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
107 See discussion in RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at
[11.5]–[11.6].
non-owner partner. We call this the “fruits of the
relationship” approach to classification.108
9.12 Separate property, on the other hand, is property that is
unconnected to the relationship. It is excluded from division
on the basis
that a partner ’s contributions to the relationship cannot be said to
have had any bearing on the other partner
’s separate property.
9.13 As discussed in Part A, there is no explicit principle in the PRA to explain this basis for classification. In Chapter 4 we recommended that, as a matter of good drafting practice, the implicit principles
of the PRA should be expressly stated in a comprehensive principles section,
including the principle that only property that has
a connection to the
relationship should be divided when the relationship ends.
Is the basis for classification appropriate for contemporary New
Zealand?
9.14 An important issue in this review is whether the basis for the way the
PRA classifies property remains appropriate in contemporary
New Zealand.
9.15 As discussed above, there are two approaches reflected in the
classification of relationship property. The fruits of the relationship
approach, we think, remains appropriate because it reflects the values and
norms of relationships in contemporary New Zealand.
As explained above and in
Part A, each partner is entitled to an equal share of the relationship property
as a result of the equal
contributions each makes to the relationship. The
fruits of the relationship approach focuses on the product of the
partners’
joint and several contributions. Conversely, it excludes
property which has not been produced or improved by the
relationship.
108 The term “fruits of the relationship” is commonly used in the literature. See for example Haldane v Haldane [1981] 1
NZLR 554 (CA) at 569; and Geddes v Geddes [1986] NZCA 463; [1987] 1 NZLR 303 (CA) at 307 per Somers J, “...such a construction reflects the general policy of the Matrimonial Property Act, that, save for express exceptions, matrimonial property is the fruit of the partnership.” See also Robert Fisher “Should a Property Sharing Regime be Mandatory or Optional?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming). It is also referred to as a “gains” or “acquests” approach.
9.16 The ongoing relevance of the family use approach needs to be
considered in light of New Zealand’s changing social context and
overseas trends, as we discuss below.
Does the family use approach still reflect most people’s sense of
fairness?
9.17 Under the family use approach, property that one partner brings into the relationship or receives from a third party can sometimes be classified and divided as relationship property. The most common example is where the property contributed by one partner is used as the family home or as a family chattel.109 In
such cases, the non-owning partner is entitled to an equal share in that
property if the partners separate.
9.18 This might not fit with most people’s expectations of fairness in some situations, particularly where one partner brings significantly more property to the relationship than the other.110
The family use approach might also lead to arbitrary results in some cases,
as we discuss below.
The family use approach may lead to arbitrary results
9.19 If one partner brings a piece of furniture or appliance into the family home to be used for family purposes, it is likely to be considered a family chattel and eligible for division as relationship property. If the partner had taken the same item and placed it
in his or her office away from the home, or even if it was kept
in the home but it was not available for family use, it may retain its character as separate property. In S v S, Mr S had acquired an extensive art collection prior to his relationship with Mrs S.111
As the artworks were displayed on the walls throughout their
home, the Family Court held that Mr S had used the works as
111 S v S [2012] NZFC 2685.
a household ornament and so they had become family chattels
and therefore relationship property.112 Mr S’s lawyer
pointed out that if Mr S had collected stamps and kept the collection in a
hall cupboard, the collection would
have remained separate
property.113
9.20 In Farrimond v Farrimond, the partners had lived in a home bought by Mr Farrimond two years before the relationship began.114 The partners’ relationship lasted for approximately 10 years. The home’s value when the relationship began was $280,000 but that had increased to $830,500 by the date of hearing. Nine months prior to the partners’ separation they moved into a property
they rented by the beach. Mr Farrimond argued that their former home had ceased to be the family home for the purposes of the PRA, and as a result was his separate property. The Family Court accepted this argument.115 On appeal, the High Court overturned the decision and said that, notwithstanding the family’s
relocation, the former home remained the family home within the meaning of the PRA.116 The High Court reasoned that the family had not been living away from the home for a considerable period of time,117 nor had they clearly intended to move away from the home on a permanent basis.118 Had the partners spent longer
away from the home, or had they clearly indicated an intention to permanently move away from the property, the house may have ceased to be the family home. As a result the pool of relationship property would have decreased by $830,500.119 It seems odd that such a significant difference can depend on such minor factors.
9.21 It could be said that partners who willingly share their property
for family use, rather than keep it separate, are disadvantaged
114 Farrimond v Farrimond [2017] NZHC 1450.
115 Farrimond v Farrimond [2016] NZFC 9599.
116 Farrimond v Farrimond [2017] NZHC 1450 at [35].
118 Farrimond v Farrimond [2017] NZHC 1450 at [35].
by the family use approach to classification. For example, if one
partner owns or inherits a house, and lives in that house with his or her
partner, the house will likely become relationship
property. But if that
house was rented out, and the couple lived elsewhere, that house would remain
separate property.
The family use approach and the changing social context
9.22 Changing patterns in partnering, family formation, separation and
re-partnering mean that relationships in New Zealand have
undergone
significant change since the PRA’s rules of classification were first
drafted.120
9.23 In the 1970s the paradigm relationship was one in which children were
raised and wealth was accumulated over time. Today people
are generally
marrying later in life,121 and are more likely to separate and
re-partner.122 In 1971, just 16 per cent of marriages were
remarriages.123 Since 1982 however, approximately one third of all
marriages in New Zealand have been remarriages.124 These statistics
do not capture people who enter a de facto relationship after separation. This
is likely to be a significant group.
One New Zealand study identified that 80
per cent of women who had re- partnered within five years of separation had
entered into
a de facto relationship rather than remarrying.125 That
study also found that within two years of separation from a first marriage, 30
per cent of women had re-partnered, and that
women who separated later in the
study period (1950–1995) were increasingly more
120 We discuss these changes in detail in our Study Paper, Law Commission Relationships and Families in Contemporary New
Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017).
likely to re-partner.126 While this study is now over 20 years old, it
indicates that re-partnering has become increasingly common in
New Zealand.
9.24 These social changes mean that more people are entering new relationships later in life, and are therefore more likely to have already accumulated some property. Situations where one partner brings significantly more property into a relationship (such as
a house) might be more common. There may also be a question about the extent
to which the fruits of a former relationship should
be available for division
at the end of a subsequent relationship. If the family use approach is
considered unfair in these situations,
then the issue is more significant than
it was in the 1970s, and is likely to grow in the future (although we note that
the rate
of home ownership is decreasing127).
9.25 The family use approach might also raise issues for specific groups of
people, in particular stepfamilies and older people.
The impact of the family use approach on stepfamilies
9.26 As the rate of re-partnering increases, stepfamilies have become more common. One New Zealand study identified that, in 2011, approximately 9 per cent of children were living in a stepfamily.128
Several longitudinal studies suggest that up to 18–20 per cent of all
children spend some time in a stepfamily before age
16–17
years.129
9.27 If one partner brings property into the relationship for the use of the stepfamily, it will normally be divided between the partners on separation. As we discuss in Part I, children’s interests do not
generally affect the division of property. However some people we
have spoken to in our preliminary consultation think it would be
127 In New Zealand the rate of home ownership has decreased from a record high 74 per cent in 1991 to 65 per cent in
2013: Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017), citing Families Commission The kiwi nest: 60 years of change in New Zealand families (Research Report No 3/08, 2008) at 86 and 96. If this trend continues, fewer couples will have a family home to divide when they separate.
128 Megan Gath Identifying stepfamilies in longitudinal data (Statistics New Zealand, Working Paper No 16-01, 2016) at 5.
129 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017), citing Arunachalam Dharmalingam and others Patterns of Family Formation
and Change in New Zealand (Ministry of Social Development, 2004) at 72–73; and JM Nicholson, DM Fergusson and LJ Horwood “Effects on later adjustment of living in a stepfamily during childhood and adolescence” (1999) 40 Journal of Child Psychology and Psychiatry 405 discussed in Megan Gath Identifying stepfamilies in longitudinal data (Statistics New Zealand, Working Paper No 16-01, 2016) at 7.
fairer if the partner who contributed the property is able to retain
it and use it exclusively for his or her own children. It is unfair, they
said, that a partner should be deprived of his or her
property in order to
support the other partner and that partner ’s children.
Relationships involving older people
9.28 The family use approach might also raise particular issues for older people who re-partner later in life. Older people will generally enter relationships with a greater property base than younger partners, as it will have been built over a longer period of time before the relationship. When an older person re-partners after
the death of a former partner, the property he or she holds may represent the fruits of the previous relationship. We have heard anecdotally that some older people unwittingly enter qualifying de facto relationships and later find they are obliged to divide half the equity in their home and other key items of property.
This may create particular financial hardship for older people who are
close to retirement or are no longer in paid employment and
therefore have no
sufficient income stream to acquire further property.
Trends in overseas jurisdictions
9.29 The current trend in overseas jurisdictions appears to be a move away from the family use approach and towards the fruits of the relationship approach.130 For example, British Columbia’s Family Law Act 2011 departed entirely from the previous family use approach.131 The law now excludes from division all property acquired by a spouse before the relationship began, as well as inheritances and gifts acquired from third parties. Instead, all property acquired after the relationship began is eligible for division.132 The Law Reform Commission of British Columbia
had previously recommended the change, observing that there was “widespread agreement” that spouses who bring assets into a marriage should have a greater claim to them than the law
provided.133 The Government White Paper accompanying the
130 See Chapter 3 for a wider discussion of international approaches to property division.
131 The previous legislation defined a “family asset” (the property eligible for division) as property used by a spouse for a
“family purpose”: Family Relations Act 1996 (BC) (repealed), s 58(2).
132 Family Law Act 2011 (BC), ss 84–85.
133 Law Reform Commission of British Columbia Report on Property Rights on Marriage Breakdown (LRC111, March 1990)
at 17. The Commission based this assertion on the submissions it had received on its Working Paper, the laws of other
reforms echoed that sentiment.134 The White Paper stated that
the “most compelling reasons” for the fruits of the
relationship approach over the family use approach were:135
to make the law simpler, clear, easier to apply, and easier to understand
for the people who are subject to it. The model seems to
better fit with
people’s expectations about what is fair. They “keep what is
theirs,” (such as pre-relationship
property and gifts and inheritances
given to them as individuals) but share the property and debt that accrued
during their relationship.
9.30 Similarly, the Netherlands is in the process of reforming its property division laws. Previously the Netherlands was heralded
as one of the few examples of a jurisdiction that maintained a “full
community of property”,136 meaning that on marriage all
property of either partner was subject to division. Draft legislation has
recently been approved by
both houses of the Dutch legislature that will
introduce a limited community of property, under which assets owned before the
marriage,
or inheritances and gifts, will remain separate
property.137
The case for retaining the current approach
9.31 There are however several arguments for retaining the family use
approach in connection with the family home and family chattels:
(a) First, while the family use approach may be perceived as unfair in some situations, it might still reflect most people’s values and expectations in most cases. As discussed at paragraph 9.9, the PRA treats a relationship as an equal partnership or joint venture to which
each partner contributes equally. Core assets that form an integral part of family life, like the family home, should arguably be seen as the property of the partnership. The contribution of pre-acquired property
to the relationship partnership could be seen as
Canadian provinces, and what appeared to be the “mainstream approach of the judges in the exercise of discretion with respect to the division of assets brought into marriage.”
134 Ministry of Attorney General, Justice Services Branch, Civil Policy and Legislative Office White Paper on Family Relations
Act Reform; Proposals for a new Family Law Act (July 2010).
135 Ministry of Attorney General, Justice Services Branch, Civil Policy and Legislative Office White Paper on Family Relations
Act Reform; Proposals for a new Family Law Act (July 2010) at 81.
136 Jens M Scherpe “Marital Agreements and Private Autonomy in Comparative Perspective” in Jens M Scherpe (ed) Marital
Agreements and Private Autonomy in Comparative Perspective 443 (Hart, London, 2012) at 448.
simply one among many different but ultimately equal
contributions the partners make to the relationship. It may be that in most
cases the partners treat core family assets that are
used for family purposes
as their joint property in any event, in accordance with their commitment to a
joint life together.138 The family use approach may therefore be
better at implementing the policy and principles of the PRA than a strict
fruits of the
relationship approach.
(b) Second, division of the family home and family chattels has long been a hallmark of New Zealand’s property division law.139 The equal division of core family assets, regardless of how or when they were acquired, may therefore be established in the public mind. There is
also a developed body of case law and understanding regarding the current
rules of classification.
(c) Third, the family use approach may be better at serving children’s interests. There are several provisions under the PRA which allow the court to make orders which grant relationship property, or the use of relationship property, to meet the interests of children of the relationship. Section 26, for example, provides that
the court can set aside relationship property for the benefit of the children. Section 27 allows the court to grant occupation of the family home, or other premises that are relationship property, to a partner for a certain
period. The family use approach focuses on key assets
for example, gave the court powers to make orders granting rights to a spouse to occupy the family home following divorce, regardless of which spouse held title to the property (s 57). That Act also gave the court power to make orders directing the sale of the home and dividing the proceeds between the spouses if each spouse had made a “substantial contribution” to the home, whether “in the form of money payments, or services, or prudent management, or otherwise” (s 58). Similarly, the Joint Family Homes Act 1964 initially allowed a spouse to settle a home in the joint names of
both parties to the marriage. The drafters of the Matrimonial Property Bill 1975 described the family home as being
“in a category of its own”: AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial
Property Bill 1975” [1975] II AJHR E6 at 9.
that are important to the children, such as the family
home, pets, furniture and other household items.
In some cases, this might mean a larger relationship property pool available for division, which can also indirectly benefit children. The family use approach therefore ensures that the orders the court can make for children’s interests are targeted at the appropriate
property. While sections 26 and 27 could, under a fruits of the relationship
approach, be extended to separate property in order to
address these concerns,
the courts may be less willing to make orders that have the effect of
restricting one partner ’s
enjoyment of his or her separate property for
any considerable length of time.
(d) Fourth, classification based solely on the fruits of the relationship approach presents a number of practical problems. It is more complex to assess what property the partners entered the relationship with. In the case of a lengthy relationship, it may be impractical to do
so. It is unrealistic to expect partners to have kept clear records about the origins of their property. The assets may also have become so intermingled with other property it is impossible to discern what property is
pre-relationship property and what property is the fruit of the relationship. In contrast, the default inclusion
of the family home and family chattels is a bright- line rule.140
Because the rules are clear, it is easier for vulnerable partners to prove
their relationship property entitlements.
(e) Fifth, any reform to the PRA’s rules of classification would inevitably introduce some uncertainty, at least for a short period. Other significant amendments would probably be needed to other parts of the PRA, including sections that deal with the classification of
increases in the value of separate property (section 9A), the provisions concerning situations where no family home exists (sections 11A and 11B), the homestead provisions (sections 12 and 12A), and adjustments in the case of two family homes (section 16). The fruits of
the relationship approach raises complex issues about
the treatment of debts such as mortgages. For example
it might not be appropriate to treat a pre-existing mortgage as a personal
debt when that property is used as the family home.
Careful thought would
also be needed as to how a partner ’s protected interest in the family
home under section 20B would
apply.141
9.32 In light of these arguments, we think that a credible case can be made
for retaining the PRA’s current definition of
relationship property, which
is based on both a family use approach and a fruits of the relationship
approach. While our initial
research has identified criticism of the family use
approach, we do not know how widespread that criticism is.
Options for Reform
9.33 In light of the criticisms of the family use approach to the
classification of relationship property, we consider two options
for
reform.
Option 1: Move to a pure fruits of the relationship approach
9.34 The PRA could be reformed so that relationship property is defined solely by the fruits of the relationship approach. That would
mean, in general terms, the value of property a partner brings into the relationship, and the value of any property a party inherits
or receives as a gift from a third party, will remain as separate property.
This could apply even if the property is subsequently
used as the family home
and family chattels, or if the property has been placed in the joint ownership
of the partners. Consequently,
when the partners separate, they would divide
whatever property had been acquired during the relationship.
9.35 Plainly, this approach would be a significant departure from the PRA’s current provisions. A number of other amendments to the PRA would be required, some of which we mentioned at
paragraph 9.31 above. For example, when an asset that has been
purchased from both separate property funds and relationship
property funds, how is any increase in the value of that asset to be treated? We consider this question further below in our analysis
of section 9A.
9.36 Another question is whether the PRA should impose an onus of proof
on a partner who contends for a certain classification.
For example, if a
partner argues that an asset, or part of the value of an asset, is separate
property, he or she must bear the
responsibility for demonstrating that the
property was acquired before the relationship or from an external
source.142
Option 2: Adopt different approaches depending on the length of the
relationship
9.37 Another possible option for reform is to apply different definitions of relationship property to relationships of different lengths.
The PRA could be reformed so that the relationship property of relationships
that endured for a certain length of time could be
determined on both a family
use and fruits of the relationship approach. If the relationship has not
endured for the requisite period,
the partners’ property could be
classified solely on a fruits of the relationship approach. The special rules in
the PRA that
apply to relationships of short duration could also be reformed by
incorporating them into this framework. We examine how this approach
might
apply to relationships of short duration in Part E.
9.38 The advantage of the family use approach is the certainty it provides through its bright-line rules. However the shorter the relationship, the simpler it will be to trace the separate property
a partner brings to the relationship. It is also more likely that the fruits
of the relationship approach is considered fairer in
shorter relationships.
Basing the applicable definition of relationship property on the length of the
relationship could lead to
a just division of property which is better tailored
to the circumstances of the case.143
9.39 There may however be disadvantages:
142 A similar approach is taken in British Columbia, Family Law Act 2011 (BC), s 85(2).
14–14A.
(a) First, it may be challenging to identify when the
length of a relationship has crossed the relevant point in time, especially
for de facto relationships or marriages and civil unions
that were preceded by
de facto relationships. This uncertainty may lead to more disputes.
Nevertheless, this task is not impossible;
the length of de facto relationships
is routinely assessed in PRA matters.144
(b) Second, this option requires prescribing a relationship length, according to which different relationships would be subject to different rules. There will be a degree of arbitrariness to this. There is little research
in New Zealand into relationships, particularly de facto relationships, which
makes this task difficult. Careful thought would need
to be given to what time
frames would be most appropriate for the majority of couples.
(c) Third, having multiple definitions of relationship property may create
uncertainty and potentially
confusion.
144 The difficulties in establishing when a de facto relationship commences are discussed in Part E.
C ONSU LTATION QUESTIONS
C6 Do you think the current classification of relationship property on the
basis of family use is still appropriate?
C7 Do you prefer any of the options for reform? If you prefer option 2, what length of relationship should justify different rules?
Chapter 10 – When separate
property becomes relationship property
10.1 A partner ’s separate property may not always be kept truly
separate from the relationship. The partners might use separate property for
family purposes, like the family home. It might be
combined with relationship
property. For example, the partners may use savings acquired before the
relationship to buy property
together. One partner may make contributions,
either directly or indirectly, to the other ’s separate property. The
separate
property may increase in value, or it may produce income which is then
used for family purposes. These scenarios reflect just some
of the many
different ways partners can organise their property for their joint life
together.
10.2 In this chapter we address the important issue of when a partner ’s separate property should no longer be considered separate.
The PRA currently provides that separate property may become relationship
property in a number of scenarios. In this section we
focus on two particular
provisions, section 9A and section 10(2), which apply in the following
scenarios:145
(a) where relationship property has been applied to separate property,
increasing the value of the separate property, or producing
income or gains
from the property (section 9A(1));
(b) where the actions of the non-owning partner have directly or
indirectly resulted in an increase in the value of separate property,
or income
or gains from the property (section 9A(2));
(c) where the income or gains from separate property are used to improve
or acquire relationship property (section 9A(3)); and
(d) where property received from a third party by way of
succession, survivorship, as a beneficiary under a trust or by gift has been so intermingled with relationship property that it is unreasonable or impracticable to regard that property as separate property (section
10(2)).
Increasing the value of separate property
10.3 Sections 9A(1) and 9A(2) apply when one partner contributes to the other partner ’s separate property, and this results in an increase in the value of the separate property.146 That increase
in value is relationship property. It is treated as an independent item of
property which is notionally severed from the underlying
separate
property.147
10.4 Section 9A(1) applies where there has been an intermingling
of relationship property and separate property. For example, in Mead v Graham-Mead the partners built a new milking shed on a farm which was Mr Mead’s separate property.148 The shed had
been funded by money from the relationship bank account, and therefore section 9A(1) applied.149 Under section 9A(1), if the increase in the separate property’s value is due, wholly or in
part, to the application of the relationship property, then the full increase
in value is relationship property.
10.5 Section 9A(2) applies when the actions of the non-owning partner have directly or indirectly increased the value of the separate property. In the leading case of Rose v Rose, Mrs Rose had cared
for the children and earned a significant portion of the
household
for unequal division of non-domestic relationship property assets where one partner ’s contribution had been clearly greater than the other, which has influenced how the section has been applied subsequently: Margaret Briggs and Nicola Peart “Sharing the Increase in Value of Separate Property Under the Property (Relationships) Act 1976: A Conceptual Conundrum” (2010) 24 NZULR 1.
148 Mead v Graham-Mead [2015] NZHC 825.
149 Mead v Graham-Mead [2015] NZHC 825 at [50]. The issue between the parties was the date from which the increase in value to the farm should be taken. The High Court preferred the earlier date on the basis that at that time the partners had borrowed funds which were then invested in the farming busines: at [54].
income.150 She argued that these contributions freed up Mr Rose
to work in his farming business, including developing a section of land that was his separate property. Mrs Rose’s contributions also provided Mr Rose with income that, had it not been available, would probably have caused Mr Rose to sell his land to reduce
his indebtedness. Mr Rose also funded the development of his separate
property by increasing the relationship debt. On the basis of
these indirect
contributions, the Supreme Court granted Mrs Rose’s claim under section
9A(2).151
10.6 Like section 9A(1), when a partner ’s actions have increased the value of the other partner ’s separate property, section 9(A)(2) provides that the entire increase in value is treated as relationship property.152 There is however a major difference in how the two provisions divide the increase in value. Under section 9A(1), the increase in value will be shared equally between the partners. Under section 9A(2), each partner ’s share will be determined in accordance with the contribution of each partner to the increase
in value. This rule has typically led to uneven divisions that favour the owning spouse. In Rose v Rose the Supreme Court observed that, where a portion of the increase in value was caused by inflation or a general rise in the value of a certain kind of property, “the ownership of the separate property from which
these increases in value sprang should be treated under s 9A(2)(b) as a contribution made by the owner spouse.”153 That contribution should then be evaluated, together with other contributions to
the increase in value made by the owner spouse, and weighed
against the contributions of the non-owner spouse.154 In that
case
150 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1.
property by increasing the partnership’s indebtedness and, in doing so, increasing the relationship debt. The other “very significant finding” related to the fact that, had it not been for Mrs Rose’s financial contribution, it is likely that the separate property would not have been retained, At [51] the Court said that “[w]hen these features are brought into account the wife’s case for a share of the increase is greatly strengthened.”
152 Property (Relationships) Act 1976, s 9A(2)(a).
In many, perhaps most, instances that would not, however, give adequate recognition to the fact that the property was,
and remains, separate property (only the increase being relationship property) and that, if it had not been brought into the marriage or acquired during the marriage as separate property, there would have been no asset to produce the inflationary or general gain.
Mrs Rose’s indirect contributions were considered less than Mr
Rose’s direct contributions.155 Consequently, the increase in value was divided 60:40 between Mr Rose (who owned the separate property) and Mrs Rose.156 In other cases there have been splits of
75:25157 and 80:20158 between the owner and non-owner
partner.
10.7 Both sections 9A(1) and 9A(2) require a partner to show that his or her actions or the application of relationship property caused the separate property to increase in value. Frequently, claims under section 9A fail on the basis that any increase in the value of the property was caused by something else, such as inflation or market growth. In those cases, the non-owning partner would not share in the increase in value of the separate property, even
if he or she worked extensively on the property or contributed relationship property towards it.
10.8 The differences in the section 9A(1) and 9A(2) tests are summarised in
the table below:
|
|
Section 9A(1)
|
Section 9A(2)
|
Applies to increases in the value of separate property attributable to the
application of
relationship property.
|
Applies to increases in the value of separate property attributable to the
actions of the
non-owner partner.
|
Requires direct causation between the application of relationship
property and the increase in the separate property’s value.
|
Requires either a direct or indirect causation between the
non-owning part-
ner ’s actions and the increase in the separate
property’s value.
|
Classifies the entire increase in value as relationship property and
divides it equally between the partners.
|
Classifies the entire increase in value as rela- tionship property but
divides it accordance with each partner’s contribution to the
increase in value.
|
Overlap with section 17 and section 15A
10.9 There is some common ground between section 9A, section 17 and section
15A of the PRA. Section 17 compensates a partner where
his or her actions or
the application of relationship property has sustained the separate property of
the other partner.
increase. See also Clark v Clark [2012] NZHC 3159, [2013] NZFLR 534 at [112]–[114].
155 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 at [47]–[51].
156 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 at [51].
157 Clark v Clark [2012] NZHC 3159, [2013] NZFLR 534.
158 T v W FC Papakura FAM-2009-055-432, 22 September 2011.
Applications under section 9A and section 17 will therefore often
be made together. There are, however, two important differences between the sections. First, under section 17 a partner needs
to show that the separate property was sustained, not that it increased in
value.159 This means that in many cases where a section 9A claim
fails, a section 17 claim may succeed. Second, section 9A treats the increase
in value as a type of relationship property in its own right. In contrast,
section 17 allows the court to either increase the non-owner
partner ’s
share of relationship property, or order the owner partner to pay money to the
other partner as compensation.
No new property arises.
10.10 Section 15A compensates a partner for the increase in value of the
other partner ’s separate property, when:
(a) after the relationship the owner partner ’s income and living
standards are likely to be significantly higher than the
other partner ’s,
as a result of the division of functions within the relationship; and
(b) the owner partner acted to increase the value of his or her separate
property during the relationship.
10.11 When section 15A applies the court can order the owner partner to pay
money or transfer property to the other party.160 This section deals
with the situation where one partner was “freed up” to work during
the relationship, and largely
spent that time improving the value of his or her
separate property, therefore creating an inequality at the end of the
relationship.
Does section 15A have a meaningful role?
10.12 Cases involving section 15A are rare. We have not identified any cases where an application under section 15A was successful.161
The courts have always rejected the claim, usually because the applicant has failed to show that the disparity in income and living standards between the partners was linked to the division
of functions in the relationship,162 or because the applicant
failed
160 This can come from relationship property or separate property: Property (Relationships) Act 1976, s 15A(3).
161 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR15A.04].
to show any increase in the value of the other partner ’s separate
property.163
10.13 It seems to us that in most cases where section 15A would apply, section 9A(2) would also apply, as the partners’ division of functions will have enabled one partner to devote himself or
herself to labour or expenditure which increases the value of his or her
separate property. This is precisely the scenario in Rose v Rose,
discussed at paragraphs 10.5–10.6 above.164
10.14 An application under section 9A is also likely to be simpler than an
application under section 15A, as the applicant does
not need to show a future
disparity in income and living standards as required by section
15A(1)(a).
10.15 For these reasons, our preliminary view is that section 15A should
be repealed.
C ONSU LTATION QUESTION
C8 Does section 15A perform a meaningful role? Should it be
repealed?
Issues with sections 9A(1) and 9A(2)
10.16 The different tests in sections 9A(1) and 9A(2) raise several
issues. These issues arise because of the inconsistent approach
within section
9A, and between section 9A and the wider PRA framework.
Are the different tests in sections 9A(1) and 9A(2) justified?
10.17 As noted above, there are significant differences between sections
9A(1) and 9A(2). Briggs and Peart argue that the distinction between monetary (section 9A(1)) and non-monetary (section
9A(2)) contributions contravenes the principle that all forms of contribution to the relationship are treated as equal.165 They observe that section 18(2) gives explicit effect to that principle by stating that there is no presumption that a contribution of a
monetary nature is of greater value than a contribution of a
non-
163 Beran v Beran [2004] NZFLR 127 (FC); A v F FC Manukau FAM-2006-092-2394, 23 December 2009; and J v D FC North
Shore FAM-2008-044-833, 13 May 2011.
164 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1.
3 of this Issues Paper.
monetary nature. Yet section 9A makes exactly that distinction.166
They say the distinction is without rationale and could produce bizarre
results.167 The High Court has also observed that including
indirect contributions under section 9A(2) but not section 9A(1) is a
“perplexing”
distinction.168
10.18 However Chief Justice Elias has suggested that the concern
may be overstated. This is because sections 9A(1) and 9A(2) are aimed at different circumstances.169 She explains that section
9A(1) treats the application of relationship property to separate property as
a form of intermingling, similar to that provided
for in section 10.170
Section 9A(2) on the other hand is a legislative tool designed to
recognise indirect contributions to separate property; something
the PRA failed
to recognise before section 9A(2) was introduced.171
10.19 If the different tests in sections 9A(1) and 9A(2) are not
justified, the natural next step is to ask which test should
be preferred, if
either should. Both tests present their own issues, as we discuss
below.
Is section 9A(1) inconsistent with the concept of separate
property?
10.20 Under section 9A(1), where there has been an increase in value due
to the application of relationship property, the whole
of the increase in value
is shared equally between the partners. It does not matter whether or not the
application of relationship
property was the sole cause of the increase in
value. Briggs and Peart say this approach undermines the concept of separate
property,
168 Hyde v Hyde [2010] NZHC 1356; [2011] NZFLR 35 (HC) at [33].
169 Sian Elias “Separate Property – Rose v Rose” (paper presented to the Family Court Conference, Wellington, 5 August 2011)
at 7–8.
170 Sian Elias “Separate Property – Rose v Rose” (paper presented to the Family Court Conference, Wellington, 5 August 2011)
at 7–8.
171 Sian Elias “Separate Property – Rose v Rose” (paper presented to the Family Court Conference, Wellington, 5 August 2011) at 8. Elias does, however, recognise that the division of the increases pursuant to s 9A(2)(b) is a different concept to that applied to the Property (Relationships) Act 1976 as a whole: at 8.
because it allows the non-owning partner to share in any increase
in value that is caused by inflation and the owner ’s own
actions.172
10.21 There have been cases where the application of relationship property made only a small contribution to the increase in value of separate property, but because of section 9A(1) the non- owning partner could access an equal share in the much larger, overall increase in value. A typical example is where relationship property is used for improvements to land, such as landscaping or the introduction of an irrigation system, but the dominant reason for the increase in the land’s value is market growth.173
The courts have in some cases avoided unjust results by excluding contributions that have had minimal impact on the increase
in value.174 The result is that the courts take an “all or nothing”
approach.
Is section 9A(2) inconsistent with the wider framework of the
PRA?
10.22 When separate property has increased in value due to the actions of the non-owning partner, the increase in value is shared in accordance with the contribution of each partner to that increase. This method of dividing property is not found anywhere else in the PRA. Rather, the PRA’s general rule is that
each partner is entitled to an equal share of relationship property. The entitlement is based on the principle of the PRA that all
forms of contribution to the relationship are treated as equal.
The few exceptions to this general rule require the court to divide
relationship property in accordance with the contribution of
each partner to the
relationship rather than to the property.175
10.23 When Parliament introduced the PRA’s general rule of equal
sharing, it made a deliberate decision to move away from
a contributions-based
approach. The previous test under the Matrimonial Property Act 1963 required
the court to divide
173 These were the facts in J v K [2013] NZFC 823.
partners’ property pursuant to the specific contributions each
had made to the property. As we discussed in Chapter 2, this approach was later regarded as fundamentally flawed. It required the applicant to prove specific contributions and have them quantified by the court, which was often impossible in practice and involved a considerable measure of uncertainty in every case.176 Invariably, disproportionate weight was given to monetary contributions, usually made by the husband.177 In criticising the courts’ approach under the former legislation, Woodhouse J in
Reid v Reid, called this the “hypnotic influence of
money”.178
10.24 Arguably, the approach taken under the current section 9A(2)(b)
resembles a similar downplaying of indirect and non-monetary
contributions that
the PRA was designed to avoid. As discussed at paragraph 10.6, the courts have
tended to place a higher value
on the direct work done by an owning partner
than the indirect work done by the non-owning partner.179
10.25 There are also practical issues in applying the test in section 9A(2) (b). The provision gives no guidance as to how contributions are to be weighted, and the courts have said that determining how the property is to be divided in accordance with contributions “may
be little better than a matter of general
impression”.180
Do the causal requirements in section 9A lead to unfair
outcomes?
10.26 The final issue with sections 9A(1) and 9A(2) is that both require a causal link between the work done or investment made and
the increase in value of the separate property. This may lead to unfair outcomes. A classic example is the case of a farm. One partner may have inherited the farm or purchased it before the relationship began, therefore making it separate property. The other partner could do significant farming work over many years during the relationship, performing materially similar work as the owning partner. This might result in no material changes to
the farm, but nevertheless the farm may significantly increase
177 Reid v Reid [1979] NZCA 30; [1979] 1 NZLR 572 (CA) at 581 per Woodhouse J.
178 Reid v Reid [1979] NZCA 30; [1979] 1 NZLR 572 (CA) at 581 per Woodhouse J.
179 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 at [51].
180 Clark v Clark [2012] NZHC 3159, [2013] NZFLR 534 at [114].
in value due to other factors. At the end of the relationship, due
to a lack of any causal connection, the non-owning partner may receive
nothing under section 9A(2) for the work he or she has done
while the owning
partner receives the full benefit of the increased
value.181
10.27 The causal requirement might also lead to unfair outcomes when relationship property is used to pay off debt in separate property, such as a mortgage. Section 9A(1) will not normally apply to
the payment of debts, because it has not caused the property to increase in value – it only reduces or discharges the indebtedness secured over the property.182 This means very different results under section 9A(1), depending on how the relationship property is used. For example, if one partner separately owned a rental property, and relationship property (such as either of the partners’ incomes)183 was used to make improvements to the rental property, the increased value would be shared under section
9A(1). If however relationship property was instead used to meet the
mortgage repayments on the rental, section 9A would not apply.
10.28 Section 17, discussed at paragraph 10.9 above, might provide a partial answer to these issues. Where the partner ’s actions cannot be attributed to the increase in the property’s value, the courts have sometimes found that the partner has “sustained” the property and therefore can receive compensation.184 Section
20E might also apply when relationship property has been used
to pay debt in separate property.185 However compensation under
section 17 or section 20E may not result in an award of the same size as if the
increase in value was
classified as relationship
181 This scenario is in essence what occurred in V v V [2007] NZFLR 350 (FC); O v O FC Hamilton FAM-2001-019-1355, 4 May
2006; Hodgkinson v Hodgkinson [2003] NZFLR 780 (FC); B v Adams (2005) 25 FRNZ 778 (FC); and W v W FC Wellington
FAM-2008-032-461, 6 July 2009.
2545. In that case one partner borrowed money to pay for developments to a farm that was his separate property. Those developments increased the farm’s value. The partners used relationship property to meet the loan repayments, and that was an application of relationship property that brought about the increase in value of separate property [69]. Therefore the court said that the increased value of the separate property was relationship property under s 9A(1) of the Property (Relationships) Act 1976.
183 Income earned by either partner is generally classified as relationship property under s 8(1)(e).
184 Section 17 awards were made in these circumstances in V v V [2007] NZFLR 350 (FC); O v O FC Hamilton FAM-2001-019-
1355, 4 May 2006; Hodgkinson v Hodgkinson [2003] NZFLR 780 (FC); B v Adams (2005) 25 FRNZ 778 (FC); and W v W FC Wellington FAM-2008-032-461, 6 July 2009.
property under section 9A(2). This is because these sections focus
on compensating the non-owning partner only for the amount of relationship
property spent on the separate property or personal debts.
However in some
cases, awards of up to 25 per cent of the increase in value of the separate
property have been made under section
17 as compensation.186
Options for reform
10.29 We have considered three possible options for reforming sections
9A(1) and 9A(2). These options address the issues discussed above by
removing some of the inconsistencies between the different
components of
section 9A and between section 9A and the wider PRA.
Option 1: Adopt a single contributions-based test
10.30 Option 1 is to replace sections 9A(1) and 9A(2) with a single test,
under which increases in the value of separate property
are shared between the
partners on the basis of the contributions each partner made to the
relationship. Briggs and Peart propose
the following wording for
consideration:187
(1) If any increase in the value of separate property, or any income or gains derived from separate property, were attributable wholly or in part, directly or indirectly, to the application of relationship property or the contributions of the non-owning spouse or partner, then the increase
in value or (as the case requires) the income or gains are relationship
property.
(2) In every case to which subsection (1) applies, sections
11(1), 11A, 11B and 12 do not apply and the share of each spouse or
partner in the increase in value that has become relationship
property is to be
determined in accordance with the contribution of each spouse or partner to the
relationship.
10.31 Under this test, the application of relationship property and a
non-owning partner ’s actions are treated alike, reflecting
the principle
of the PRA that all forms of contributions should be
treated as equal.188 Increases in value caused by external factors
such as inflation may be captured, but the second part of the test ensures
that the property is divided in accordance with the partners’
contributions.189 The test is also more consistent with the wider
PRA framework as it focuses on contributions to the relationship and not
contributions
to the property.190
10.32 However, this test does not resolve the inconsistency with the principle that all contributions to the relationship are to be treated as equal. This inconsistency is inherent in a contributions-based assessment, and is put in even starker
relief if the court has to assess contributions to the relationship rather than to the specific item of separate property.191 While
a similar approach is used elsewhere in the PRA, this is only where there
are exceptional circumstances which make equal sharing
repugnant to justice
(section 13), or where the partners were in a relationship that does not
qualify for the PRA’s general
rule of equal sharing because it was
shorter than three years (sections 14–14A). We have doubts as to whether
increases
in value of separate property that are the result of the application
of relationship property or the contributions of the non-owning
partner should
be treated in the same way.
10.33 Neither does this test address the practical issues that arise
when the court is required to divide property in accordance with
contributions, discussed at paragraph 10.25 above.
Option 2: Adopt a single causation-based test
10.34 The other option Briggs and Peart present is to adopt a narrow causative approach:192
(1) If any increase in the value of separate property, or any income or
gains derived from separate property, were attributable directly
or indirectly
to the application of relationship property or the contributions of the
non-
191 The contributions-based approach is already used in s 13 (exceptional circumstances), discussed in Part D, and ss 14,
14AA and 14A (relationships of short duration), discussed in Part E.
owning spouse or partner, then that part of the increase
in value or (as the case requires) the income or gains are relationship
property.
10.35 Alternatively, this test could be broadened so that it also captures
the contributions of the owning partner to the increase
in value, effectively
treating all increases other than those caused by external factors such as
inflation as relationship property.
This alternative is favoured by Fisher, who
suggests that gains on separate property during the course of the
relationship that
are attributable to the joint and several efforts of the
partners should be considered relationship property.193
10.36 Like option 1, this test removes distinctions between the current sections 9A(1) and 9A(2). Because it provides for equal sharing,
it is arguably more consistent with the PRA’s principle that all forms of contribution to the relationship are treated as equal. By only allowing increases in value to be shared equally if the
increase is attributable to the application of relationship property or the contributions of the one or both of the partners, it excludes external causative factors like inflation.194 The main disadvantage is that the task of apportioning the correct value to the respective separate property and relationship property components of
the increase in value will be complex and is also likely to be imprecise. To
achieve accuracy, the partners will probably require
considerable expert
assistance, which will increase the costs and length of resolving relationship
property matters.
Option 3: Treat all increases in value of separate property as
relationship property
10.37 This option proposes more significant reform, by expanding the
extent to which a non-owning partner can access the increase
in value or income
or gains from separate property.
10.38 Under this option the PRA would classify all increases in the value
of separate property, or income or gains derived from
separate property during
the relationship as relationship property. No causative element would be
needed. This option would probably
mean repealing sections 9A(1) and 9A(2) and introducing a new
category of relationship property under section 8.
10.39 The basis for doing so is that it is simply an extension of the rule under section 8(1)(e) that all property acquired after the relationship began is relationship property. There would be
no distinction as to whether the property acquired during the relationship was derived from separate property or any other source. The Supreme Court accepted in Rose v Rose that, except in the case of a purely passive investment, it is likely that conduct
of the non-owning partner will have had some direct or indirect influence on the value of separate property.195 The Court explained that invariably, one partner ’s actions will have allowed the
owning-partner to devote labour or expenditure to the separate property. Alternatively, the non-owning partner may have provided financial support by paying for household expenditure and thereby enabling the owner of the separate property to pay for work which increases the value of the separate property.196
If that is the case, it may be sensible to reverse the position of section
9A and deem that all increases in, or gains from, separate
property are
relationship property. An exception could be retained for cases where the
increases in the value of separate property
truly have no connection with the
relationship.
10.40 This option would also be simpler than options 1 or 2. There would
be no need to undertake the complex process of apportioning
the increased value
of the property to the different contributions of the partners or the
application of relationship property.
10.41 The main criticism of this option is likely to be that it undermines the concept of separate property as it would give no credit to a partner who contributed the separate property in the first place.
It might also increase valuation costs and the risk of valuation disputes,
as the partners would need to determine the extent to
which any separate
property increased in value during the relationship.
C ONSU LTATION QUESTIONS
C9 Is section 9A in need of reform? If so, what is the preferable option
for reform? Are there any other potential options we
have not
considered?
195 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 at [44].
196 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 at [44].
Applying separate property to relationship
property
10.42 Section 9A(3) applies where the partners have used separate property
for the acquisition or improvement of relationship property.
It provides that
any separate property197 is relationship property if it is
used:
(a) with the express or implied consent of the owning partner; and
(b) for the acquisition or improvement of relationship property, or to
increase the value of relationship property or the amount
of any partner
’s interest in any relationship property.
Does section 9A(3) have a meaningful role?
10.43 Section 9A(3) is of narrow application and is not widely used.
This is because other provisions of the PRA will usually classify the property as relationship property without relying on section
9A(3). When separate property is used to acquire or improve relationship property it will generally be converted into that relationship property.198 For example, if an item of separate property is sold and the money is used to make improvements on the family home, that money will simply become part of the
family home, which is relationship property. Also, section 9A(3) is subject
to section 10, which means the specific rules applying
to property acquired by
gift, succession or under a trust will apply to that type of property.
10.44 Since section 9A(3) was amended in 2001, there have been several
cases where the courts have said that section 9A(3) applied.
However those
courts also found the property to be relationship property for other
reasons.199
10.45 Some commentators suggest that section 9A(3) resolves conflicts
between some of the definitions of relationship property and some of the definitions of separate property.200 For example, section 9A(3) ensures that when the family home is purchased from the proceeds of separate property, the family home is still treated as relationship property despite section 9A(2) stating that all property acquired out of separate property is separate property. There may be a simpler way to approach this, for example by amending sections 8 and 9 to clarify where the provisions
defining relationship property take precedence over provisions defining
separate property, and vice versa.
C ONSU LTATION QUESTION
C10 Do you think that section 9A(3) has a meaningful? Should it be
repealed?
Does the policy of section 9A(3) lead to unfair outcomes?
10.46 Section 9A(3) is based on the presumption that when one partner
uses their separate property to acquire or improve relationship
property, it
is fair to treat the separate property as relationship property from that
point on. That might not seem fair in
some scenarios, because it gives no
credit to the partner providing the separate property. For example, if one
partner used his
or her substantial savings to pay the deposit on the family
home that deposit simply becomes part of the relationship property
pool.
10.47 If the policy of section 9A(3) no longer reflects what most people
think is fair, then this may support the option of amending
the definition of
relationship property to reflect a pure “fruits of the relationship”
approach, which we discussed in
Chapter 9. Under this approach the value of any
contributions of separate property to the relationship could be preserved. We
discuss
how this would work
below.
200 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [11.55].
Intermingling of gifts and inheritances
with relationship property
10.48 Section 10 recognises the special nature of property received from a
third party by way of succession, survivorship, as
a beneficiary under a trust
or by gift. This property will normally be separate property, as will any
proceeds from the sale of that
property, and property acquired out that
property.201 In this section we refer to these types of property as
“gifts and inheritances”.
10.49 Section 10(2) provides an exception. The gifted or inherited
property will be considered relationship property if it has,
with the express or
implied consent of the partner who received it, “been so intermingled
with other relationship property
that it is unreasonable or impracticable to
regard that property or those proceeds as separate
property”.202
10.50 In N v N, for example, the husband received a gift of 247 cattle
20 years before the relationship ended.203 The cattle had been farmed with other stock that was relationship property. The Court of Appeal upheld the High Court’s finding that, because over the
20 year period the original stock had either died, been sold or replaced,
they could not be traced. The Court of Appeal therefore
said that the cattle
were so intermingled with relationship property that it was impractical and
unreasonable to treat them as
separate property.204
10.51 The courts have noted that there is a distinction between the terms “impractical” and “unreasonable”.205 In S v W one partner had purchased a herd of animals from his separate property funds to start a farming business.206 The business was operated through a partnership between the partners which was also used to operate an art business. The farming business and art business were fully integrated. Revenues and expenses were dealt with through
the same account. The High Court observed that the
surviving
201 Property (Relationships) Act 1976, ss 10(1)(b) and 10(1)(c).
203 N v N [2004] NZCA 288; [2005] 3 NZLR 46 (CA).
204 N v N [2004] NZCA 288; [2005] 3 NZLR 46 (CA) at [115].
205 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [58].
206 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC).
animals were physically identifiable at the time of separation
and it was arguably practical to regard the surviving animals in the original herd as the partner ’s separate property. However,
the partners ran the farming business through a jointly operated partnership
which intermingled the separate property with relationship
property. The
partners saw advantages in structuring the operation in this way. The High Court
therefore said that it was unreasonable
to regard the animals as separate
property.207
The relationship between sections 8, 9, 9A and 10 is unclear
10.52 The PRA appears to treat gifts and inheritances received from a third party as a special form of separate property. Rather than include gifts and inheritances among the general types of separate property under section 9, section 10 deals with it in isolation. Section 10 also provides specific exceptions in subsections 10(2) and 10(3). It is not clear from the PRA how section 10 relates
to the general definitions of relationship property and separate property.
This is evident in a number of instances.
Gifts and inheritances acquired in the partners’ joint
names
10.53 There is some uncertainty about how to classify property that
has been acquired in the partners’ joint names but was funded by property acquired by gift or inheritance. Section 8(1)(c) provides that property owned jointly or in common in equal shares by
the partners is relationship property. However, section 10(1)(c) provides that all property acquired from a gift or inheritance is not relationship property. To confuse matters further, some items of relationship property under section 8(1) are expressly stated to be subject to section 10, but section 8(1)(c) is not so qualified. Yet, section 10(4) provides that regardless of sections 10(2) and 10(3), the family home and family chattels (under sections 8(1)(a) and
8(1)(b)) will always be classified as relationship property. It makes
no mention of section 8(1)(c).
from the account should be classified as matrimonial property.
10.54 The courts have considered the relationship between section
8(1)(c) and section 10(2) on a number of occasions, but have reached different conclusions.208 The courts are now tending to follow the High Court’s decision in S v W.209 In that case, the High Court observed that the wording of the PRA was not capable
of conclusively resolving the issue one way or the other.210
Nevertheless, the Court said that the underlying intention
behind the PRA seemed to be that section 10 alone should govern property
acquired by succession, survivorship, as a beneficiary
under a trust or by
gift. That was because the property had not been produced by the efforts of the
partners.211 On that basis, the High Court saw section 10 as
“an exclusive code”.212 While joint ownership of
property might reflect an intention to share the property equally, the Court
said that this could be displaced
where section 10
applied.213
Is section 10 subject to section 9A?
10.55 There is also some uncertainty about whether any increases in the value of property obtained by gift or inheritance from a third party can be classified as relationship property. In other words, is section 10 subject to section 9A? The wordings of the provisions give no indication of their respective priorities. The ordering of
the sections suggests that section 9A is intended as a qualification to section 9. If section 9A was meant to qualify section 10 as
well, it may have been logical for section 9A to follow section 10. Section 10(2) also provides its own grounds for when the property listed in section 10(1) may become relationship property. Section
9A is not mentioned. If section 10 is intended to be an exclusive code, as the High Court concluded in S v W, section 9A should not
apply.
June 2004; P v P (2002) 22 FRNZ 380 (FC); S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC); McDowell v McDowell (2009) 28 FRNZ 379 (FC);
B v B FC Christchurch FAM-2005-009-3163, 29 June 2009; Phair v Galland FC Oamaru FAM-2008-045-113, 8 February
2010.
209 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC).
210 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [51].
211 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [52].
212 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [52].
213 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [52].
10.56 Nevertheless, the Supreme Court has inferred that section 10 is
subject to section 9A. In Rose v Rose, one partner inherited land from his father and so it would have been separate property under section 10.214 The partner developed the land into a vineyard
using relationship property. The land increased in value. The Supreme Court
said that the increased value could be considered relationship
property under
section 9A. The Court, however, did not discuss the relationship between
section 9A and section 10. It appears simply
to have been assumed that section
9A would apply to separate property under section 10.
10.57 Accordingly, while the courts have decided how section 10 should be interpreted in relation to section 8(1) and section 9A, these interpretations are not supported by the clear wording of the PRA. In addition, the extent to which section 10 is a self-contained
code is unclear in light of the Supreme Court’s decision in Rose v
Rose.
Is reform required?
10.58 In considering whether reform is required, the primary question is what priority should be given to property that a partner acquires as a gift or inheritance from a third party. Does that
property deserve special treatment, or can it be treated as separate
property generally and therefore subject to sections 8 and
9A? More
specifically, should gifts or inheritances become relationship property when
the partners have placed that property
into their joint ownership? And should
increases in the value of a gift or inheritance that are attributable to the
relationship
be treated as relationship property?
10.59 There is little discussion in the legislative material about why the
property described in section 10(1) should be treated
differently from separate
property generally under section 9. The rationale alluded to in the case law
is that property acquired
from a third party has not been produced by the
efforts of the partners and so should not be considered relationship
property.215 But the same can equally be said of other types of
separate property that would fall under the definition in section 9, such as
property
acquired before a relationship.
214 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 at [28].
215 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [52].
10.60 One possible explanation is that property acquired by gift or
inheritance is unique because of the intentions of the third party who gave the property. It could be argued that the PRA should
not defeat or restrict a third party’s ability to gift property to a recipient of his or her choosing. For example, parents may wish that their children inherit certain family assets by way of succession. As we explain in Part G it has been common in New Zealand for families to establish trusts in order to pass family
farms to the next generation. It might be suggested that the PRA should
not disrupt such estate planning. Rather, the PRA should
distinguish between
gifted and inherited property and separate property generally in order that
gifted and inherited property is
given extra protections against
division.
10.61 The question of whether gifted or inherited property should be
treated differently by the PRA is fundamentally a value judgment.
C ONSU LTATION QUESTIONS
C11 Should the PRA give special treatment to property acquired by one partner
from a third party by succession, survivorship, gift
or because the partner is
beneficiary under a trust?
C12 If so, should such property lose its separate property status if it has
been used to acquire property in the partners’
joint names?
C13 Likewise, should such property be subject to section 9A?
Should the courts take a more robust approach to intermingling?
10.62 Some commentators criticise the intermingling exception under
section 10(2). Fisher argues that separate property such as
third party gifts
do not lose their character just because they have been intermingled.216
Nor does intermingling prevent an estimation of the respective proportions
of relationship property and separate property, even if
broad and robust
estimates are required.217 Fisher argues that it is far better to
undertake rough apportionments in the case of intermingling because it is more
consistent
with the
concept underlying the PRA, that relationship property is divided
but separate property remains separate.218
10.63 Fisher makes a valid point. It might not seem fair that the recipient of the gifted or inherited property receives no credit
for its initial contribution, just because it has been intermingled with
relationship property. It is however important to recognise
that the courts
will only refuse to account for the initial separate property input when the
intermingling has made it impractical
or unreasonable to regard the property as
separate property. This is a high threshold. The case law shows that
intermingling on
its own will not deprive a partner of the separate
property.
10.64 In Brenssell v Brenssell for example, the partners carried on a farming business together as a partnership.219 The partners initially contributed funds to begin the partnership. The wife injected a sum of money she had inherited as a bequest. The partnership soon began to generate revenue. All funds were credited to and debited from the same account. The wife used a sum of money from the partnership account to purchase shares in a company. She claimed that the money she had withdrawn was the money she had inherited. The question before the
High Court was the classification of the shares. This in turn required the Court to consider whether the purchase of the shares could be traced to the funds the wife had inherited as a bequest, or whether the funds in the partnership account were so intermingled it was impractical and unreasonable to consider
the purchase funds as the wife’s separate property. The High Court observed that at the time of the share purchase, the partnership had acquired insufficient revenue from which to fund the share purchase. Accordingly, the purchase funds must have been the from the wife’s bequest, at least in substantial part. In those circumstances, the Court said, it was logical to regard the purchase money as the withdrawal of the wife’s separate property.220 While there had been an intermingling of the bequest by depositing it in the partnership account, it was not unreasonable or impracticable
to regard the money as the wife’s separate
property.221
219 Brenssell v Brenssell [1995] 3 NZLR 320 (HC).
220 Brenssell v Brenssell [1995] 3 NZLR 320 (HC) at 330.
221 Brenssell v Brenssell [1995] 3 NZLR 320 (HC) at 330.
10.65 Even if it is practical to apportion the value of intermingled
property between the separate property and relationship property inputs,
there may be good reasons for treating intermingled property
as relationship
property where it is unreasonable to do otherwise. In the case S v W
discussed above, one partner had acquired animals from his separate
property funds. The High Court recognised, however, that the
partner derived
advantages through structuring the farming business as a partnership with the
other partner and by intermingling
property. In that case, the High Court said
it would be unreasonable to treat the animals as separate property, even though
it
was practical to treat them as such.222
10.66 In our preliminary view, the intermingling exception under section
10(2) ought to be retained in its current form. Although
it could be argued
that the courts should take a robust approach and be more willing to
apportion the value of intermingled
property, section 10(2) is intended to
operate in the truly exceptional case. We also see advantages in allowing the
court to treat
intermingled property as relationship property where it is
reasonable.
C ONSU LTATION QUESTIONS
C14 Should the intermingling exception under section 10(2) of the PRA be retained in its
current form?
C15 If not, what is a better approach for when gifts and inheritances have
been intermingled with relationship property?
Implications of moving to a “fruits of the relationship”
approach
10.67 In Chapter 9 we considered the option of moving to a pure fruits
of the relationship approach. Under that approach, the PRA would define relationship property as property which is attributable (directly or indirectly) to the relationship. Relationship property would no longer be defined based on the use to which property is put.
10.68 If the PRA is reformed by adopting a fruits of the relationship
approach, there are implications for section 9A and section
10.
222 S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [73].
How would separate property be treated under a
fruits of the relationship approach?
10.69 The fruits of the relationship approach will require the partners to
identify all property they brought into the relationship
or acquired during
the relationship from a gift or inheritance. This will generally remain
separate property even if it is used
as the family home (subject to
intermingling under section 10(2)). The questions that then arise are:
(a) First, how should increases in value, or any incomes or gains on
separate property, be treated?
(b) Second, where new property has been purchased using relationship
property funds and separate property funds, how should the
new property, and
any increases in its value, be shared?
Option 1: Share increases in value and new property purchases between the
separate property and relationship property sources
10.70 One option is to share any increases in the value of separate property, or new property purchased using separate property funds, according to the extent they were attributable to the relationship. Fisher, who favours this approach, suggests that increases in value of separate property during the course of the relationship that are attributable to the joint and several efforts of the partners should be considered relationship
property.223 However, “spontaneous increases in value”, such as those attributable to inflation or rises in the value of property, should remain separate.224 This is similar to the second option for reforming sections 9A(1) and 9A(2), discussed at paragraphs
10.34–10.36 above.
10.71 For new property that is purchased from both relationship property
funds and separate property funds, it would be necessary
to share the value of
the new property according to
the relationship property and separate property contributions,
including a proportionate share of any increase in value of the new
property.225
10.72 The advantage of this approach is that each partner is credited for the property they contribute to the relationship, including any additional value gained on that separate property. Likewise, the approach apportions the gains in value that are attributable to the relationship. The main disadvantage is that the task of
apportioning the correct value to the respective separate property and relationship property components of an asset will be complex. The task of apportioning value between the various factors, such
as the relationship, the input of separate property and inflationary gains,
is also likely to be imprecise. To achieve accuracy, the
partners will probably
require considerable expert assistance, which will increase the costs and length
of resolving relationship
property matters.
Option 2: Classify increases in the value of any property as relationship
property
10.73 A second and alternative approach is to consider any increase in
value on any property, whether relationship property or
separate property, as
relationship property. This is essentially the third option for reforming
sections 9A(1) and 9A(2), discussed
at paragraphs 10.37–10.41
above.
10.74 When new property is purchased using a combination of separate
property funds and relationship property funds, the partners
would keep an
entitlement to their separate property contributions, but any subsequent
increase in the new property’s value
would be treated as relationship
property.
10.75 The advantage of this approach is that it would be simpler.
There would be no need to undertake the complex process of apportioning the increased value of the property to the respective separate property and relationship property inputs. Instead, all gains would be relationship property. The main disadvantage
is that it would give no credit to a partner who contributes a significant amount of separate property to the purchase of an asset.
10.76 These options are illustrated in the case study below.
CASE STUDY: How should increases in value be shared?
To explore how a fruits of the relationship approach might work, we use
the hypothetical example of Brenda and Martin
Brenda and Martin decide to move in together. They purchase a house.
Brenda uses her savings of $50,000 (which is her separate
property) to fund
the deposit. The purchase price of the house is $300,000. Brenda and Martin
fund the balance of the purchase
price by a mortgage of $250,000.
Brenda and Martin meet the mortgage repayments and other expenditure of
the house from their incomes.
Three years later Martin receives a $50,000 inheritance from his
grandmother ’s estate (which is his separate property).
Martin uses this
money to build a double garage and an extra bedroom on the house.
Brenda and Martin separate a year later. Brenda and Martin have
repaid
$50,000 off the mortgage. An amount of $200,000 remains
outstanding.
A valuer tells Brenda and Martin that the market value of the house is
$450,000. However, if the house did not have the double
garage and the extra
bedroom, it would only be worth $375,000.
How should Brenda and Martin divide the value of the
house?2
DIVISION UNDER THE CURRENT RULES
The contributions of separate property by both Brenda and Martin are
treated as having been converted into the house, which is relationship
property. The market value of the house, less the mortgage, is shared
equally:
|
|||||
|
Status quo
|
Separate property and gains
|
Relationship property and gains (half share)
|
Total
|
|
Brenda
|
-
|
$125,000
|
$125,000
|
||
Martin
|
-
|
$125,000
|
$125,000
|
||
DIVISION UNDER OPTION 1
Under option 1, Brenda and Martin would need to share the value of the
house between their respective separate property and relationship
property
contributions.
First, Martin’s use of separate property to build the garage and
bedroom has increased the house’s value by $75,000. That
would mean
Martin is entitled to his initial separate property contribution ($50,000) and
gain ($25,000), totalling $75,000.
Second, the market value of the house after discounting Martin’s
separate property contribution appears to be $375,000. The
house has therefore
increased in value by $75,000. Brenda’s separate property contribution
of
$50,000 accounts for one sixth of the initial purchase price. She may
therefore be entitled to recover one sixth of the property’s
increased
value ($12,500)
as a gain on her separate property contribution. That would mean Brenda is
entitled to $62,500 representing her separate property
contribution and
gain.
Third, the remainder of the house’s market value ($312,500) would be
relationship property. From this amount, the outstanding
$200,000 mortgage
debt must be deducted because it is a relationship debt. The relationship
property eligible for equal division
between Brenda and Martin is
$112,500.
|
|||||
|
Option 1
|
Separate property and gains
|
Relationship property and gains (half share)
|
Total
|
|
Brenda
|
$62,500
|
$56,250
|
$118,750
|
||
Martin
|
$75,000
|
$56,250
|
$131,250
|
||
|
|
|
|
||
DIVISION UNDER OPTION 2
Under option 2, increases in value of all property during the relationship
would be relationship property. Accordingly, Brenda and
Martin would each be
entitled to their $50,000 separate property contributions. All increases in
the house’s value would
be relationship property, against which the
outstanding mortgage debt would be deducted. Brenda
and Martin’s respective shares would be as follows:
|
|||||
|
Option 2
|
Separate property and gains
|
Relationship property and gains (half share)
|
Total
|
|
Brenda
|
$50,000
|
$75,000
|
$125,000
|
||
Martin
|
$50,000
|
$75,000
|
$125,000
|
C ONSU LTATION QUESTION
C16 If the PRA’s definition of relationship property was based solely
on a fruits of the relationship approach, how should
increases in value be
treated? Do you prefer option 1 or option 2? Why?
How would gifts and inheritances be treated under a fruits of the
relationship approach?
10.77 Section 10(4) provides that if gifted or inherited property is used
as the family home or a family chattel, that property
will be classified as
relationship property. The PRA therefore gives primacy to the family use
approach to classification over the
special treatment given to gifted or
inherited property.
10.78 Under a fruits of the relationship approach, the family home and
family chattels would not automatically be designated as
relationship property.
Section 10(4) would need to be removed. Consequently, the special status of
gifted and inherited property
would be enhanced because there would be fewer
exceptions under section 10 for when such property could be treated as
relationship
property. If, however, gifted and inherited property was treated
like other types of property and was subject to the same rules
and exceptions
under sections 8 and 9A, a move to a fruits of the relationship approach would
not enhance the special status of
inherited and gifted property to the same
extent.
10.79 The responses we receive to the question of whether gifted and inherited property should receive special treatment will also be relevant if a fruits of the relationship approach to classification is considered.
Chapter 11 – Issues with
particular types of property &
debts
11.1 This chapter considers issues with the classification of the following
types of property and debts:
(a) ACC and insurance payments;
(b) super profits and earning capacity; (c) taonga;
(d) heirlooms;
(e) student loan debts; and
(f ) inter-family gifting and lending.
ACC and insurance payments
11.2 A partner may have a right to payments in respect of injury or illness under the Accident Compensation Act 2001 or under a private insurance policy. The courts have said that the right to payment constitutes a property right which, if accrued during the relationship, will be classified as relationship property. For ease of reference, we will refer to payments under the Accident Compensation Act 2001 and its predecessors as “ACC payments”.
We will refer to payments under an insurance policy for personal injury or
illness as “insurance payments”.
11.3 ACC payments can take several forms.226 The main ones
are:
(a) rehabilitation payments, which are intended as money and support to
facilitate the injured person’s rehabilitation;227
(b) lump sum compensation payments for permanent
impairment;228 and
(c) weekly compensation payments, which are to compensate people
incapacitated through injury for their lost earnings.229
11.4 In S v S230 and B v B231 a partner
had received lump sum ACC payments. In both cases, the courts determined that
the payments represented the recipient
partner ’s right to compensation
under accident compensation legislation. As the rights had accrued during the
relationship,
they were relationship property pursuant to section 8(1)(e) of the
PRA.
11.5 In C v C the husband suffered an illness during the course of
the relationship which left him disabled.232 His policy of insurance
provided that in the event he suffered a disability that prevented him
from working he would be paid
a monthly income, both during his notional
working life and in his retirement. The High Court said the husband’s
right to
payments was a contractual right under the insurance policy that had
crystallised during the relationship.233 All future payments the
husband would receive were attributable to this underlying property right and
were likewise relationship property.234
11.6 In contrast, if the partner ’s right to ACC or insurance
payments, either as a lump sum or as periodical payments, accrues
before the
relationship, it will be regarded as the partner ’s separate
property.235
229 Accident Compensation Act 2001, s 100(1) and sch 1, pt 2.
230 S v S (1984) 3 NZFLR 88 (DC).
231 B v B [2016] NZHC 1201, [2017] NZFLR 56. In this case there was an issue as to when the right to payments accrued.
The High Court said that, based on s 38 of the Accident Compensation Act 2001, the statutory right to payment accrues when the claimant first receives treatment for the injury, even if the injury itself was suffered and manifested some time earlier.
232 C v C HC Auckland CIV-2003-404-6892, 10 September 2004.
233 C v C HC Auckland CIV-2003-404-6892, 10 September 2004 at [32].
234 C v C HC Auckland CIV-2003-404-6892, 10 September 2004 at [39].
235 G v G [1995] NZFLR 550 (HC); and T v A FC Auckland FP 88/00, 20 November 2003.
Should a partner ’s right to ACC or insurance
payments accrued during the relationship be divided as relationship
property?
11.7 The classification of a partner ’s right to ACC or insurance
payments as relationship property may be perceived as unfair
for several
reasons.
11.8 First, ACC payments are usually made either to facilitate a person’s rehabilitation from injury or as compensation for impairment or lost earnings. Likewise, insurance payments are received in respect of insured loss to a person’s health, often as a means of ensuring income protection. The partner who receives the payments may continue to suffer the injury and loss after
the partners’ relationship has ended. Nevertheless, the courts have
said that the full value of a lump sum payment, or all
future periodic
payments, is relationship property if the right to the payments accrued during
the relationship. It could be argued
that, if the payments are to compensate for
the loss suffered after the relationship ends, this means the recipient partner
is obliged
to account for property received in respect of post-separation
losses which are unconnected with the relationship.236
11.9 Although technically all payments stem from the underlying property right,237 it could be said that this analysis is not in
keeping with classification under the PRA. The general approach is to classify property connected to the relationship as relationship property and all property unconnected with the relationship as
separate property.238 In any event, many people may not
agree
236 In some cases, the courts have recognised the difficulties in requiring a partner to share the value of ACC payments
that are intended as compensation for loss suffered after the relationship: P v P HC Nelson M8-83, 20 July 1983 at 9 per Hardie Boys J: the lump sum compensation was “entirely personal” and intended to compensate the injured husband for losses he would suffer “for the remainder of his days”; and S v S (1984) 3 NZFLR 88 (DC) at 92–93. In these cases, the courts applied the exception that extraordinary circumstances rendered equal sharing of the payments repugnant to justice. These cases were, however, decided prior to the 2001 amendments, and there was greater scope under the
legislation to depart from equal sharing in respect of property other than the family home and family chattels: see Simon
Connell and Nicola Peart “Accident Compensation Entitlements under the Property (Relationships) Act 1976” (2017)
14(3) Otago Law Review (forthcoming).
237 C v C HC Auckland CIV-2003-404-6892, 10 September 2004 at [33]–[34].
the injury for which the partner receives compensation may be permanent: Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 24. Ultimately, the Working Group did not make any firm recommendations in respect of ACC payments but expressed the view that earnings-related compensation for the period during marriage should be matrimonial property and earnings-related compensation for a period outside marriage should remain separate (at 25). We also note that s 8(1)(g) of the Property (Relationships) Act
1976 provides that the value of any life insurance policy, or of the proceeds of such a policy, is relationship property to the extent the value is attributable to the relationship. There are, however, key differences between life insurance policies, and ACC payments and other insurance policies (such as income protection policies). Life insurance policies
with the distinction made between post-separation income,
which is not relationship property, and post-separation ACC
payments or insurance payments, which are.
11.10 The law has long recognised that compensation received in respect
of bodily injury deserves special treatment.239 Throughout the
history of the accident compensation legislation, a person’s entitlements
under the legislation have always
been inalienable and have never vested in the
Official Assignee if the recipient became bankrupt.240
11.11 Second, if a partner has received or is continuing to receive ACC
or insurance payments, it may mean that his or her ability to work is affected. In some cases the payments may be income on which the partner depends if he or she cannot work. In other cases,
the payments will be necessary for the partner ’s rehabilitation. There
will be tensions and practical difficulties if the
partner is required to
account for half the payments to a former partner after separation.
11.12 The extent to which the current approach to ACC and insurance
payments may operate unfairly is best illustrated by the scenario
where, at
the end of a relationship, one partner is working full time and the other is
unable to work due to an injury sustained
during the relationship. In this
scenario, the partner working full time is not required to share his or her
future earnings, while
the partner receiving ACC or insurance payments must
share any future payments equally with his or her former partner.
Options for reform
11.13 The PRA could be amended in order to respond to these potential
issues. Section 8 could classify ACC payments as relationship
property only to
the extent that they relate to loss a partner has suffered during the
relationship. If the payments relate
to the loss a partner suffered either
before or after the relationship, those payments could be classified as separate
property.
The task of apportioning payments may be straightforward if the
payments
often can be surrendered in return for a certain payment. Life insurance policies also insure the life of a partner rather than compensate for ongoing loss a person may suffer during the course of his or her life.
240 Accident Compensation Act 2001, s 123; Accident Insurance Act 1998, s 124; Accident Rehabilitation and Compensation Insurance Act 1992, s 86; Accident Compensation Act 1982, s 89; and Accident Compensation Act 1972, s 135. See also B v N [2007] NZFLR 1146 (FC) at [23] for discussion on the effect of s 123 of the Accident Compensation Act 2001.
are made to the partner periodically. If, on the other hand, the
payments are made as a lump sum payment, the partners would have to apportion
the lump sum across the respective periods. This could
be difficult,
particularly when there is no indication of how the lump sum compensatory
payment has been calculated.
11.14 The advantages of this approach are that the classification better
reflects the nature of relationship property and separate
property. We also
believe that most New Zealanders would consider this approach to classification
to be fairer. The main disadvantage
is that it will require partners to
undertake the potentially difficult task of apportioning lump sum ACC payments
to the pre- relationship
period, relationship period and post-relationship
period.
11.15 A similar reform could be made for insurance payments made in
respect of personal injury or illness. However there may be
less basis for
doing so, as insurance payments are likely received as a result of the
deliberate choice by a couple to purchase
an insurance policy and meet the
premiums using relationship property. They may be distinguishable therefore from
the compulsory
social insurance accident compensation scheme, although partners
will still have usually contributed to the scheme through levies
on their
incomes, which will usually be relationship property.241
C ONSU LTATION QUESTIONS
C1 If a right to ACC or insurance payments arises during the relationship
(because of a personal injury or illness sustained during
the relationship),
should all those payments (including future payments) be classified as
relationship property?
C2 Should the PRA be reformed? If so, do you agree with our suggested amendment?
Should it apply to ACC and insurance payments?
Super profits and earning capacity
11.16 As discussed in Chapter 8, the courts have said that a partner
’s capacity to earn an income (earning capacity)
does not come under the
PRA’s definition of property. The leading case is the decision of the
full Court of Appeal in Z v Z (No 2).242 In that
case
242 Z v Z (No 2) [1997] 2 NZLR 258 (CA).
Mrs Z had left the labour force when she married Mr Z in order
to care for their children and look after the home. Mr Z had developed a successful career in accountancy. At the time the partners separated, Mr Z had become a partner in a successful accountancy firm. Mrs Z suffered from an illness and was unlikely to return to work. Mrs Z argued that her contributions to the marriage had enhanced Mr Z’s earning capacity, and that his enhanced earning capacity should be relationship property. Through her care for the children and the home she had
supported Mr Z through his study and the development of his career. Mrs Z
said that she should be entitled to half the value of
Mr Z’s earning
capacity.
11.17 The Court of Appeal recognised the force of Mrs Z’s arguments.243
However, the Court said that Mr Z’s earning capacity could not be considered property under the PRA. The Court noted that
the PRA’s definition of property was adopted from conventional property
law statutes and this strongly indicated the PRA only
applied to conventional
notions of property.244 The Court also said that personal
characteristics, which are part of an individual’s overall make up, cannot
constitute property
under the PRA.245
11.18 Although the Court of Appeal did not accept Mrs Z’s argument, that was not the end of the matter. The Court said that Mr Z had a “bundle of rights” that made up his interest as a partner in the accountancy firm. This interest, the Court said, did constitute
property under the PRA which should be divided between Mr and Mrs Z.246
The Court suggested that the best approach to valuing Mr Z’s
partnership interest was first to ascertain whether the profits
he received
from the partnership included an element derived from his membership of the firm
as distinct from his own earning capacity.247 The Court referred to
these excess earnings as “super profits”.
11.19 This approach to valuing a partner ’s interest in a firm has
been followed in subsequent cases. The Court of Appeal
case M v B is a
leading example.248 The husband was a partner in a large law firm.
The Court said that his interest in the partnership was relationship property,
but
only to the extent that the profits he
243 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 281.
244 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 279.
245 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 279.
246 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 286.
247 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 292.
248 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA).
derived from partnership were in excess of what his own direct
industry would command. His future maintainable earnings in the partnership were estimated at $500,000 per annum.249 In contrast, the evidence suggested he could earn at least $250,000 as a self-employed barrister.250 The Court of Appeal said that the annual differential between the husband’s actual earnings and the potential earnings from his own industry was $250,000.251
In terms of Z v Z (No 2), this was the level of “super
profit” which was available to the husband on an ongoing basis.252
The Court of Appeal described the super profits as an income stream from
an item of relationship property (the husband’s partnership
interest)
which the husband could continue to access.253
11.20 In order to arrive at an accurate valuation of the husband’s
relationship property interest in the partnership, the
Court adopted a
multiplier against which to multiply the annual amount of super profits. The
multiplier took into account the following
factors, which affected the ongoing
value of the income stream:254
(a) the husband was about 50 years old;
(b) when he ceased to be a partner in the firm, there was no residual value in the partnership to be paid out to him
by the remaining partners;
(c) the firm relied heavily on one client, which generated fees at a lower
level of remuneration than existed in many firms; and
(d) there was a degree of capture by the firm of its partners because of
the relatively restricted nature of the work undertaken.
11.21 The Court decided that a multiplier of three was appropriate. In other words, the value of the husband’s relationship property interest in the partnership (the “super profit”) was three times
his future maintainable earnings, less what was attributable to his personal industry and commitment.255 Having calculated the value
of the husband’s interest in the partnership (the “super
profit”)
249 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [88].
250 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [77].
251 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [89].
252 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [89].
253 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [89].
254 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [93].
255 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [94].
at $750,000, the Court of Appeal made a discount for the tax
payable on that income.256 The net value was $450,000 and that was the sum at which the Court valued the relationship property interest in the partnership.257 The wife was accordingly entitled
to $225,000, being an equal share of that item of relationship
property.
11.22 The courts’ approach to analysing the relationship property
component of a partnership interest in a firm has become
a significant topic of
debate. This is largely because the issue has been dealt with in a number of
appellate cases, such as Z v Z (No 2) and M v B. A number of
issues are raised in the discussions around these cases which are worth
highlighting.
Issue 1: The distinction between earning capacity and super profits may be
difficult to understand
11.23 The exclusion of earning capacity and the focus instead on super profits from the partnership interest may be difficult to understand. The courts’ approach can be understood by
following the Court of Appeal’s reasoning in Z v Z (No 2). However most people will not be aware of the Court’s decision. Instead, most people are unlikely to distinguish between the income attributable to a partner ’s personal efforts and skills as against
the excess income from a partnership interest. Also, as the Court of Appeal accepted in Z v Z (No 2),258 there is logic in the view that a partner ’s earning capacity is “human capital” into which both parties in a relationship have invested. Arguably it is sensible that all income derived from that human capital be
shared. Consequently, the exclusion of income attributable to the partner
’s individual skills and industry may appear arbitrary.
11.24 The analysis may also lead to differing and seemingly anomalous results between similar cases. For example, there could be instances where two individuals have the same interest in a partnership under the firm’s partnership deed. If assessed under the PRA, their respective interests might be valued at different levels depending on the level of income a court says should
be attributed to the partners’ personal industry and skill.259
To
256 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [94].
257 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [94].
258 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 280-281.
259 This observation was made by William Young P in M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [167].
take another example, a court may find that if an individual
was self-employed he or she could command an income at a similar or greater
level to that which he or she in fact receives from
the interest in the
partnership. In that scenario, the court will probably say that there are no
super profits arising from the
partnership interest, even if the partner does
receive income derived from his or her partnership
interest.260
Issue 2: Valuation of super profits is complex
11.25 The valuation of a partnership interest based on the super profits approach can be complex. The assessment requires a sophisticated analysis of what income should be attributed to a partner ’s personal skills and industry. The court must then decide on an appropriate multiplier which reflects the peculiarities of, among other things, the nature of the firm’s business, the specific terms of the partnership deed, and contingencies relating to the individual partner in question, such as proximity to retirement
or other factors affecting work output. In cases where the partnership interest is relatively modest, there are concerns as to whether the costs and depth of analysis can be justified. The case T v T provides an interesting example.261 That case involved what the court described as a “modest trucking business”.262 The central issue was how the trucking business partnership should
be valued and divided. The Family Court expressed dissatisfaction that the resolution of this issue had turned into “an astonishingly convoluted legal process”.263 The wife, in attempting to claim a relationship property interest in the partnership, had relied on evidence of the husband’s earnings from the business following separation. She presented accounting evidence that, after a fair remuneration from these earnings was deducted, there was a super profit for each financial year.264 The Court considered that this argument lacked the proper analysis. Rather, the Court focused on the operations of the trucking business. The success
of the business was due to the husband’s personal relationship with the business’s major contractor and the husband’s proven reliability. The Court therefore said that the profits generated by
the business were almost certainly due to the husband’s
“singular
260 This observation was made by William Young P in M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [167].
261 T v T [2007] NZFLR 754 (FC).
262 T v T [2007] NZFLR 754 (FC) at [1].
263 T v T [2007] NZFLR 754 (FC) at [6].
264 T v T [2007] NZFLR 754 (FC) at [51].
commitment and energy”.265 This case suggests that sophisticated
legal and valuation analysis is needed to effectively present a
claim for a relationship property interest in a partnership interest, even if
the interest in question is relatively modest.
Issue 3: The super profits analysis may blur the line between income and
capital
11.26 Atkin says that the super profits analysis unhelpfully blurs the distinction between income and capital.266 As a general rule, the income a partner earns following separation will not be relationship property.267 The super profits analysis, however, focuses on the future income a partner will receive
after separation. As explained above, the analysis is based on
a partnership interest being relationship property. The income generated from
it is likewise relationship property. It is analogous
to dividends received on
company shares when the shares themselves are classified as relationship
property.268
11.27 It not always easy to determine when post-relationship income is generated from an item of relationship property. An example is C v C, discussed at paragraph 11.5 above. In that case the husband suffered an illness during the course of the marriage which left him disabled.269 His insurance policy provided that in the event
of disability that prevented him from working he would be paid a monthly income, both during his notional working life and in his retirement. The wife claimed that the insurance payments the husband received after separation should be classified as relationship property. In response the husband argued, among other things, that the insurance payments related to his earning capacity and, in accordance with Z v Z (No 2), were not property. The High Court said that the property interest at issue was the husband’s contractual right to payments under the insurance policy.270 As the right had crystallised during the course of the relationship when the husband became disabled, that right was
relationship property. All future payments the husband
would
265 T v T [2007] NZFLR 754 (FC) at [60].
266 Bill Atkin “What Kind of Property is ‘Relationship Property’?” (2016) 47 VUWLR 345 at 355.
267 Property (Relationships) Act 1976, s 9(4).
268 Scott v Williams [2016] NZCA 356, [2016] NZFLR 499 at [50].
269 C v C HC Auckland CIV-2003-404-6892, 10 September 2004.
270 C v C HC Auckland CIV-2003-404-6892, 10 September 2004 at [32].
receive were attributable to this underlying property right and
were likewise relationship property.271
11.28 The decision in C v C demonstrates the sophisticated legal
analysis needed when analysing property rights and income. Many people may
struggle to understand
the distinction between income received from
someone’s personal efforts or employment and income received pursuant to
some
other contractual entitlement, such as a partnership interest or a right
under an insurance policy. Atkin’s observation about
the blurred
distinction holds some weight.
Issue 4: The super profits approach singles out people in partnerships and
their partners
11.29 A further issue is that the super profits approach will only apply
in the small number of cases where a partner has a partnership
interest, for
example in an accounting or law firm.272 Not dividing a partner
’s earning capacity, but dividing super profits, creates a different set
of rules that unfairly favours
people whose partners have had the opportunity
to obtain a partnership interest and disadvantages the partners who have a
partnership
interest.
11.30 Take an example of two different relationships: Couple A and Couple B. In both relationships one partner stops working to take on the role of supporting the career of the other partner, through such things as child care and housework. In Couple A the working partner develops a successful career in management, and at the time of separation is the chief executive of a large company. In Couple B the working partner trains as a lawyer, and at the time of separation is a partner in a large law firm. The supporting partner in Couple A would have no relationship property interest in the human capital of the working partner. In contrast, the supporting partner in Couple B would have a relationship property interest
in the partnership interest, at least to the extent of the super profits. In both relationships the supporting partners made the same level of contributions and support to the relationships, and
the working partners may even be earning the same income.
Yet
271 C v C HC Auckland CIV-2003-404-6892, 10 September 2004 at [39].
the supporting partners’ entitlements under the PRA are very
different as are the effects on the working partners.
Should a partner ’s enhanced earning capacity be considered
relationship property?
11.31 The question of how earning capacity and super profits should be
dealt with is a complex one. There are no simple solutions.
A possible, though
perhaps equally problematic, solution is to move away from super profits and
instead deem a partner ’s
earning capacity as an item of property. The
extent to which that earning capacity has been enhanced by the relationship
could then
be classified as relationship property.
11.32 We have already considered in Chapter 8 whether earning capacity should be captured within the definition of property for the purposes of the PRA as a wider “economic resource”. We now consider the advantages and disadvantages of including a
partner ’s enhanced earning capacity within the PRA’s concept of
relationship property.
Advantages of including enhanced earning capacity within the PRA’s
definition of relationship property
11.33 First, treating a partner ’s earning capacity as relationship property to the extent it has been enhanced by the relationship is consistent with the principles of the PRA. It would recognise
that one partner may make a significant contribution to the other partner ’s earning capacity and this constitutes a contribution
to the relationship. This contribution may result in one partner sacrificing his or her own career, expecting that the investment
in the other partner ’s career will provide financial returns. As the
Court of Appeal noted in Z v Z (No 2):273
it is difficult to refute the contention that excluding a wife whose contribution to the matrimonial partnership has been the management of the home and the care of the children from
sharing in the husband’s increased earning power, which they had jointly worked for, perpetuates the injustice the Act was aimed at
remedying.
273 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 280.
11.34 Second, treating enhanced earning capacity as relationship
property removes the distinction the current law makes between people who
have partnership interests and those who do not. Every
partner ’s
income-earning potential would be assessed, whether it was attributable to the
partner ’s personal skills
and experience or a super-profit derived from a
partnership.
Disadvantages of including enhanced earning capacity within the
PRA’s definition of relationship property
11.35 First, if a partner ’s earning capacity is treated as property under the PRA, and that capacity is to be relationship property to the extent it has been enhanced by the relationship, it will encourage partners to focus their disputes on their personal characteristics. Separation is generally a time of emotional upheaval, and
recently separated partners are often on bad terms. There are therefore
good reasons why relationship property issues should be
depersonalised as much
as possible
11.36 Second, treating earning capacity as property likely presents more problems than it solves. Concern is often expressed at the difficulty of valuing earning capacity. It is generally acknowledged that the value of an earning capacity is the net present value
of the partner ’s future income stream.274 A valuation therefore requires estimations of the partner ’s projected future earnings. These estimations can be imprecise as they rely on speculations about things like the partner ’s projected career path, the duration of the partner ’s working life, inflation rates, taxation and other
contingencies.275 Valuation evidence could become more
critical
of the method used to measure it. It concludes that a rule characterising earning capacity as marital property is really a rule that treats future earnings as marital property. American Law Institute Principles of the Law of Family Dissolution: Analysis and Recommendations (LexisNexis, Washington, 2000) at 694. Calculating this value can be challenging as it requires speculation on the likely income the partner will obtain and possible contingencies.
275 The uncertainty and arbitrariness of valuing earning capacity was one of the principal reasons the Working Group in
1988 recommended against including earning capacity as a potentially
divisible item of property under the Matrimonial Property Act
1976: Department
of Justice Report of the Working Group on Matrimonial Property and Family
Protection (October 1988) at 9.
In New York, until recently the courts treated a partner ’s
professional qualifications as property. Reviewing the law, the
New York City
Bar Association expressed concerns on valuing enhanced earning capacity: New
York City Bar Association “Report
to the New York State Law Revision
Commission by the Domestic Violence Committee, Family Court and Family Law
Committee, Matrimonial
Law Committee and Sex and Law Committee” (November,
2011) at 6–7:
As history has shown, this is...a difficult, imprecise and costly endeavor. It requires assumptions on assumptions: first,
project the earnings (especially hard with newly acquired skills, degrees or licenses when hypothetical figures must be used); second, project work-life expectancies, real earnings growth, inflation rates, and taxes; and, third, determine the appropriate interest rates to be used to reduce the figure to present value. As we have seen in recent years of economic upheaval, these assumptions often do not pan out. The result of this analysis is that the payor is held to the resulting number (often paid
at the time of the divorce judgment) even if the actual income is not reached or the employment life is reduced (this is
and, probably as a result, more contestable. This is likely to
increase the costs and delay in resolving relationship property
matters.276
11.37 Third, it may be a complex task to identify the relationship property component of a partner ’s earning capacity. As explained in Chapter 9, relationship property is property that is either used for family purposes, like the family home and family chattels,
or property that has been acquired through the partners’ joint and several efforts during the relationship (the “fruit” of the relationship). For example, the partners’ income acquired during the relationship is usually relationship property,277 and the proportion or value of a partner ’s superannuation scheme entitlements “attributable to the relationship” is relationship property.278 It follows that a partner ’s income earning capacity
would likewise fall under this “fruit of the relationship”
category. A partner ’s income earning capacity should
therefore only be
relationship property to the extent the earning capacity has been enhanced by
the relationship. Therefore:
(a) the partner ’s income earning capacity must be identified at the point when the relationship began;
(b) it may then be necessary to identify and discount the value of future
income likely to be derived from
true even if the results were not due to the actions of the titled spouse). Thus, the payor may be forced to stay in work or employment positions even if it is not a good decision (or sometimes even if it is an unhealthy decision) just in order to pay off the award or the results of the award which cannot be modified.
Henaghan suggests several “simple and cost-effective” calculations that could be used to ascertain the “amount of
earning capacity to be counted as relationship property”. His principal suggestion is for an “income equalisation payment”. The partners’ respective future incomes for the 12 month period after their relationship ends are calculated and then added together to arrive at the total combined annual income. This is then divided equally, similar to the division of relationship property. In practical terms, it would mean the partner with the larger income earning capacity would
need to pay the other partner in order to equalise their incomes. The
amount the partner would need to pay the other based on an
annual figure would
then be multiplied by half the number of years the partners had been together,
up to a maximum of 10 years: see
Mark Henaghan “Sharing Family Finances
at the end of a Relationship” in Jessica Palmer, Nicola Peart, Margaret
Briggs
and Mark Henaghan (eds) Modern Family Finances – Legal
Perspectives (2017, Intersentia, Cambridge) (forthcoming).
However, neither of these approaches isolate the relationship property component of a partner ’s earning capacity, namely the extent to which it has been enhanced by the relationship. Henaghan for example proposes instead to treat both partners’ entire income earning capacity as relationship property.
277 Property (Relationships) Act 1976, s 8(1)(e).
278 Property (Relationships) Act 1976, s 8(1)(i).
enhancements that occurred after the relationship
ended, such as any subsequent training or experience;279
(c) there may be suggestions that income attributable to the partner
’s innate talent should be excluded; and
(d) it may also be appropriate to recognise that the partner must
undertake the work; earning capacity alone is not enough.
11.38 The task of identifying the relationship property component of a
partner ’s earning capacity can therefore be challenging.
It could be so
cumbersome and uncertain that the advantages of designating income earning
capacity as property are lost.
11.39 Fourth, designating enhanced earning capacity as relationship property may unfairly affect the autonomy of a partner by forcing him or her to continue to work to produce that income stream. One response to this is that property must be valued on the basis that the property will be put to its highest and best use. Otherwise one partner could devalue the partners’ relationship property by his or her personal preferences. If that view was followed then partners who do not wish to put their enhanced earning powers
to best use should have to pay for that choice.
11.40 Finally, it is rare that overseas jurisdictions treat enhanced
earning capacity as property. In earlier years, courts in the State of New York pioneered the treatment of professional qualifications and educational degrees as divisible items of property.280 However, in 2015 the New York State Assembly amended the law to bar
the courts from considering as marital property “the value of a spouse’s enhanced earning capacity arising from a license, degree, celebrity goodwill, or career enhancement”.281 In making its recommendations for reform, the New York State Law Revision Commission recommended “based on widespread consensus” that “one party’s “increased earning capacity” no longer be considered as a marital asset in equitable distribution.” The Commission
noted that:282
280 O’Brien v O’Brien 489 N.E.2d 712, 713-714, 716 (N.Y. 1985).
281 Domestic Relations Law (New York), § 236, as amended by Bill A7645, effective from 23 January 2016.
282 New York State Law Revision Commission “Final Report on Maintenance Awards in Divorce Proceedings” (May, 2013).
The New York State Law Revision Commission was created by Chapter 597 of the Laws of 1934 which enacted Article
4-A of the Legislative Law. It consists of the chairpersons of the Committees on the Judiciary and Codes of the Senate
The concept of an “increased earning capacity” has much
dissatisfaction and litigation because of the asset’s intangible
nature, the speculative nature of its “value” as
well as the costs
associated with valuations, and problems of double counting increased earnings
in awards of post-divorce income
and child support.
11.41 On balance, our preliminary view is that deeming a partner ’s enhanced earning capacity as relationship property is not
a feasible option. We look at the point again in Part F when considering
options to address situations where the economic advantages
and disadvantages
flowing from the roles each partner took in the relationship are not fairly
shared after the relationship ends.
C ONSU LTATION QUESTION
C3 Is the law regarding earning capacity and super profits
problematic?
C4 Do you agree with our preliminary view that it is not feasible to deem
a partner’s income earning capacity as enhanced
by the relationship as
relationship property?
Taonga
11.42 In 2001 taonga were excluded from the PRA’s definition of family chattels. While there was no discussion of Parliament’s intention in making this special rule for taonga, it followed the recommendation in 1988 of a Working Group established to review the Matrimonial Property Act 1976.283 The Working Group recommended the exclusion of taonga and heirlooms (discussed below) for the following reasons:284
(1) Heirlooms and taonga are of a special nature as much of their value
lies in their individuality; as a family treasure they cannot
be replaced by
another, although in other ways identical, object. Where an object’s value
lies partly in the fact that it has
been passed down from
earlier
and Assembly and five members appointed by the Governor. Its role is to examine the common law and statutes of New York State and current judicial decisions for the purpose of recommending law reform: see website at <lawrevision.state. ny.us>.
284 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
18.
generations its special character is lost if it passes to
someone outside the family or tribal group.
(2) Other property acquired by succession or survivorship, or under a
trust, which does not fall within the category of family chattels,
is separate
property by virtue of s10. The group is of the opinion that the special nature
of heirlooms and taonga outweighs the
special nature of family chattels in
relation to other types of property.
(3) Taonga have a special cultural and ancestral significance for Maori tribes as well as for individual Maori to whom the property may pass. Maori argue that individuals are not seen as owning such property and therefore able to dispose of it as they wish. Instead, a person in possession of taonga is more of a guardian of taonga for the rest of
the tribe and for future generations. Maori thus argue that the
matrimonial property regime should not apply to such property in order
that the
property may pass according to custom.
11.43 The special significance of taonga was also recognised in a 1996 working paper prepared by Hohepa and Williams for the Law Commission’s review of the law of succession.285 In that paper Williams discussed whether tikanga Māori should govern the succession of items defined by general law as personal property, “on the basis that the items are not the personal property of
the deceased but are taonga of the [hapū] for which the new kaitiaki
may well be a person outside the immediate family of
the
deceased”.286
Taonga are subject to the PRA
11.44 Unlike Māori land, discussed in Chapter 8, taonga are still subject to the PRA, even if they are excluded from the definition of family chattels. This means that taonga that are chattels will generally
be treated as one partner ’s separate property.287 As separate property, taonga are subject to the PRA’s ordinary rules about
when separate property becomes relationship property,
including
285 Pat Hohepa and David Williams The Taking into Account of Te Ao Māori in Relation to Reform of the Law of Succession
(NZLC MP6, 1996) at 46.
286 Pat Hohepa and David Williams The Taking into Account of Te Ao Māori in Relation to Reform of the Law of Succession
(NZLC MP6, 1996) at 46 (emphasis in original).
through intermingling,288 or where the value of the taonga has
increased or income or gains have been made from as a result of the
application of relationship property.289
11.45 Taonga that are not chattels are not excluded from the defintion of relationship property. Rather, they are treated like any other item of property that needs to be classified as either relationship property or separate property according to the PRA’s rules of classification. For example, land with general title status that nonetheless has ancestral significance is not excluded from
the pool of relationship property on the basis that it is taonga, although
it may still be separate property under section 9 or section
10. On this point,
Ruru suggests that: 290
If whanaungatanga is operative, it should be for the whānau (not
necessarily the nuclear family) to appoint the successive kaitiaki
(guardian) of
the property, here, ancestral land. However, the placement of taonga in the
family chattels definition does not permit
such a practice to be given
effect.
11.46 Taonga that are in the posession of one partner might, in some
circumstances, be regarded by the court as being held on
trust, in which case
the taonga would be excluded from the PRA entirely.291
C ONSU LTATION QUESTIONS
C5 Should the PRA exclude taonga which fall outside of the definition of family chattels
(e.g. land of ancestral significance which is not Māori land)?
C6 Should the PRA provide that taonga which is initially separate property
cannot become relationship property in any
circumstances?
289 Property (Relationshps) Act 1976, s 9A.
290 Jacinta Ruru “Implications for Māori: Contemporary Legislation” in Nicola Peart, Margaret Briggs, and Mark Henaghan
Relationship Property on Death (Brookers, Wellington, 2004) 467 at 482 (footnotes omitted).
his death. That was because the deceased had, six years prior to his death, entrusted the taonga to his parents to care for, and in doing so entrusted his parents to make a decision as to how they should be ultimately dealt with after his death: at [151] and [161].
The courts’ interpretation of taonga
11.47 Taonga is not defined in the PRA, but its interpretation in the
context of the PRA has been explored in a series of cases.292
11.48 Initially the courts took a broad approach to the concept of
taonga. In Page v Page the High Court considered taonga in the context
of the PRA for the first time.293 That case concerned the status of
a piece of artwork painted by one partner ’s mother. Neither partner was
Māori. The
case was decided in 2001, shortly before taonga was excluded
from the definition of family chattels. With that legislative change
on the
horizon the High Court observed that the “ordinary and everyday use [of
the term taonga] would encompass without
difficulty the artworks of the mother
in this case.”294
11.49 In Perry v West the District Court and High Court had to determine whether a Colin McCahon painting was taonga.295 Both Courts agreed that the concept of taonga could be applied to describe
the relationship between an item of property and a person of any ethnic or
cultural background.296 The High Court set out two ways in which an
item could attain the status of taonga:297
The first is where the object is acquired by an individual because it has a special significance to that individual. The second is where the object assumes the special status of taonga because others
also ascribe to it or bestow upon it a special significance.
11.50 Both Courts found that the husband had failed to establish that the painting was a taonga but for different reasons. The District Court said it could not be a taonga to the husband if he was willing to sell it to realise cash for other routine purposes,298
while the High Court said it could not be a taonga to the husband because he had failed to consistently maintain his personal attachment to it, having only made a claim to the painting nearly
a decade after the divorce.299
Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and
Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
293 Page v Page [2001] NZHC 592; (2001) 21 FRNZ 275 (HC).
294 Page v Page [2001] NZHC 592; (2001) 21 FRNZ 275 (HC) at [46].
295 Perry v West DC Waitakere FP 239/01, 25 March 2003; Perry v West [2004] NZFLR 515 (HC).
296 Perry v West DC Waitakere FP 239/01, 25 March 2003 at [89]; Perry v West [2004] NZFLR 515 (HC) at [37].
297 Perry v West [2004] NZFLR 515 (HC) at [37].
298 Perry v West DC Waitakere FP 239/01, 25 March 2003 at [95].
299 Perry v West [2004] NZFLR 515 (HC) at [37(b)].
11.51 In a 2004 article Ruru expressed concern at an emerging
precedent by which an item could be classified as taonga although it is not
owned or held by a Māori person, was not made by
a Māori person and
has no Māori association or content.300 In reference to the
judicial approaches in Perry v West Ruru noted
that:301
(a) Neither Court had attempted a particularly comprehensive definition of
taonga.
(b) Each Court relied on broad concepts of taonga as employed by the
Waitangi Tribunal, but failed to acknowledge that the Tribunal’s
approach
to taonga, while broad, is necessarily still Māori-specific.
(c) Jurisprudence on taonga in other contexts recognises it as a
Māori-specific term (as does jurisprudence on Māori
concepts in
other statutes, for instance, “kaitiaki” under the Resource
Management Act 1990).
(d) Each Court noted the importance of the existence of a relationship with
the object in question, but placed importance on a personal
attachment. Under
tikanga, personal attachment to the taonga is largely irrelevant; more
important is the kaitiakitanga exercised
over the taonga for the purposes of
wider family expectations.
(e) The Courts did not discuss Parliament’s likely intention in
making the special rule for taonga, and did not refer to
the 1988 Working
Group’s reasons for recommending the exclusion of taonga, which referred
specifically to the Māori cultural
significance of taonga.
(f ) The Courts did not consider the effect of the broad interpretation of taonga on the meaning of “heirloom”.
If taonga is so broadly interpreted, arguably the separate category for
heirlooms becomes superfluous.
11.52 In subsequent cases the courts have restricted the interpretation of taonga.302 In Kininmonth v Kininmonth the husband argued
that his interest in a family bach was taonga and was
therefore
300 Jacinta Ruru “Taonga and family chattels” [2004] NZLJ 297.
301 Jacinta Ruru “Taonga and family chattels” [2004] NZLJ 297 at 298–299.
302 Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
excluded from the pool of relationship property.303 The Family
Court, referring to Ruru’s article, did not accept that the concept of
taonga could be relied upon in respect of a non-Māori
asset such as an
interest in a bach.304
11.53 In S v S, the husband, an artist, claimed that his art collection was a taonga, and thus was excluded from the definition of family chattels in the PRA.305 The Family Court observed that case law to date provided no definitive definition of taonga.306 It
concluded that the term should be defined within a tikanga Māori construct, noting the reference of the 1988 Working Group to taonga as a Māori concept and the need to avoid interpreting the term through a Pākeha lens. However, it found that the concept
of taonga, as defined within a tikanga Māori construct, could be
applied “pan-culturally”:307
[P]rovided the central elements of Tikanga Māori can be shown to
exist on the evidence before the Court, there can be no sound
basis as to why a
particular item of property could not be classified as taonga, notwithstanding
that the parties to the proceedings
are non-Māori.
11.54 To help identify what made a chattel a “taonga”, the
Court relied on writings of Professor Paul Tapsell (who
also gave evidence in
the proceedings) and concluded that:308
... for an item to become taonga it must be accompanied, through a marae or marae like setting, with elements of whakapapa, mana, tapu and korero. For an item to become taonga it must therefore be presented, either by a group or an individual (but
only on behalf of a kin group/tribal group) to another, in a marae like
setting. It must additionally have accompanying it a history
or whakapapa, some
particular significance or mana, and be presented in the context of an oration
or korero. Professor Tapsell accepted
that application of taonga using this
definition could involve non-Māori.
11.55 Applying that definition, the husband’s art collection were
not taonga as there was no evidence that he had acquired the paintings in
a marae like setting, no evidence of any particular
speech or history
associated with the paintings and no evidence
303 Kininmonth v Kininmonth FC Auckland FAM-2004-004-509, 27 August 2008.
304 Kininmonth v Kininmonth FC Auckland FAM-2004-004-509, 27 August 2008 at [26].
305 S v S [2012] NZFC 2685.
306 S v S [2012] NZFC 2685 at [48].
307 S v S [2012] NZFC 2685 at [54(b)].
308 S v S [2012] NZFC 2685 at [57].
that the paintings were received on behalf of others who were
representatives of a wider group.309
11.56 Ruru has observed that the Court’s decision in S v S has provided
“a more Māori aligned precedent for understanding
taonga”.310
Should taonga be defined in the PRA?
11.57 Ruru has previously suggested that it would be prudent for Parliament to engage with Māori about a possible definition of taonga for the PRA.311 This was echoed by the Family Court in S v S.312 The decision in that case however may have “reduced any
urgency for the legislature to clarify its intent to confine taonga to
Māori generational treasures.”313
11.58 If Parliament opts not to define taonga, Ruru stresses that there
must be ways for evidence from experts on tikanga to
be obtained and applied
by a court that has a working knowledge of tikanga.314
11.59 The use of expert evidence on tikanga was evident in S v S, discussed above, and was also demonstrated in the recent High Court case of B v P.315 While this case did not involve a claim under the PRA, the High Court had to decide whether taonga belonging to the deceased should go to his surviving partner or to his parents (with both the surviving partner and the parents intending to ultimately pass them on to the deceased’s three sons). The Court heard evidence from two kuia. The evidence confirmed that, according to tikanga, taonga had a guardian
instead of an owner. If the taonga were entrusted into the care of someone, those people were responsible for protecting and caring for them and for making decisions about what would happen to them. The Court concluded that in the circumstances, the taonga
were held on trust by the deceased’s parents. At least in
this
309 S v S [2012] NZFC 2685 at [59].
310 Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
311 Jacinta Ruru “Taonga and family chattels” [2004] NZLJ 297 at 299.
312 S v S [2012] NZFC 2685 at [48].
313 Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
314 Jacinta Ruru “Taonga and family chattels” [2004] NZLJ 297 at 300.
315 B v P [2017] NZHC 338. The facts of this case are summarised above at n 293.
instance, the Court had little trouble resolving the issue with the
assistance of the expert evidence from the kuia.316
C ONSU LTATION QUESTIONS
C7 Should the concept of taonga be defined in the PRA? Or should it be left
to be considered on a case by case basis with evidence
called as necessary in
each case?
Heirlooms
11.60 The definition of “family chattels” under section 2 of
the PRA excludes heirlooms. That means an heirloom that
is a family chattel
will not be considered relationship property and it will be excluded from
division under the PRA. An heirloom
that is not a family chattel is likely to
be classified as separate property under section 10.
11.61 The PRA does not define what an heirloom is. The Family Court has
said that in order to be an heirloom, an item of property
must:317
(a) be passed down from one generation to another in accordance with some
special family custom;
(b) have unique characteristics or be of particular importance; and
(c) have been in the partner ’s family for generations.
11.62 The PRA was amended to exclude heirlooms in 2001. This was
in response to an earlier recommendation of the Working Group established to
review the Matrimonial Property Act 1976. In 1988 the
Working Group recommended
that heirlooms (and taonga, discussed above) be excluded from the definition
of family chattels in recognition
of the special nature of heirlooms, which
outweighed the special nature of family chattels.318 The Working
Group’s reasons for recommending the exclusion of heirlooms are set out in
full at paragraph 11.42 above.
316 Note also the discussion in John Chadwick “Whanautanga and the Family Court” (2002) 4 Butterworths Family Law Journal 91 at 94 where the author noted that whanautanga prevails over the law in relation to matrimonial property because Māori, as a rule, do not have the same emotional attachment to property like family chattels.
317 Humphrey v Humphrey FC Christchurch FAM-2003-009-3044, 25 May 2005 at [112]. See also H v F FC Auckland FAM
2005-004-1312, 27 January 2006 at [48] and Stuart v Stuart FC Christchurch FAM 2003-00-5175, 16 March 2005 at [19].
318 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
18.
11.63 In our view, these reasons remain valid and justify the exclusion
of heirlooms from the definition of family chattels. In our research and
preliminary consultation we have not come across any significant
concerns about
excluding heirlooms from the PRA’s equal sharing regime.
Should the PRA exclude other property with special significance?
11.64 There may be items of property that do not fall within the
definition of heirloom but should be exempt from the PRA regime
because of
the special significance the property holds.
11.65 Ruru suggests that the interpretation of heirloom as being something which is handed down the generations may explain attempts to categorise non-Māori items of property, such as an art collection, as taonga.319 It is significant that all the cases arising
to date where one partner has sought to rely on the exclusion for taonga
have not involved separating Māori couples or traditionally
treasured
Māori items.320 This may suggest a legislative gap for items of
special significance other than heirlooms or taonga.321
11.66 It may, however, be challenging to describe with precision
what types of property ought to escape division under the PRA. Partners
will no doubt attribute value and significance to a diverse
range of property.
The unique characteristics and importance that makes an item of property
significant are likely to be intangible
and subjective.
11.67 We suggest two categories of property that, like heirlooms, might deserve to be expressly excluded from the definition of family chattels:322
(a) First, property that has special meaning for a partner and is
irreplaceable. Such property might include:
319 Jacinta Ruru “Taonga and family chattels” [2004] NZLJ 297 at 299.
320 Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
321 Jacinta Ruru “Taonga and family chattels” [2004] NZLJ 297 at 299.
definition of family chattels in addition to heirlooms and taonga, moving away from a family use approach could achieve a similar outcome.
(i) a gift from a close friend or family member who has
died; or
(ii) a trophy or ornament awarded for a particular achievement, like
winning a sporting event or a long-service award from a workplace.
(b) Second, property which is in the nominal ownership of one of the partners but, owing to its wider cultural significance, should not form part of the partners’ relationship property pool. The traditional construct of property rights, which undoubtedly the PRA’s definition of property embodies, may appear alien to
or be unsuited for different cultural groups within New Zealand. It may be
appropriate for the PRA to make exceptions for other property
of cultural
significance.
C ONSU LTATION QUESTIONS
C8 Should the PRA expressly exclude property with special significance from
the definition of family chattels in addition to heirlooms?
If so, what types of
property ought to be exempt?
Student loans
11.68 The PRA treats student loans like any other debt. That means the classification of a student loan as either a personal debt or a relationship debt under section 20 will depend on the purpose for which the debt has been incurred.323 The cases show that a
student loan incurred before the relationship began will generally be classified as a personal debt.324 That is because the debt cannot have been incurred for relationship purposes, such as a common enterprise between the partners, or for the purposes of acquiring,
improving or maintaining relationship property.325
324 O’Connor v O’Connor FC Christchurch FP 1720/94, 16 December 1996; and Kauwhata v Kauwhata [2000] NZFLR 755 (HC).
See also Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR20.01].
325 Shaws v Reed [2016] NZFC 7925, [2017] NZFLR 243 at [51].
11.69 If, however, a partner incurred a student loan during the course
of the relationship, the position may be different. A student loan may comprise a debt that was partly used to pay the partner ’s course fees and partly used to pay for the family’s living costs. In some cases, the courts have classified the component of the debt that relates to course fees as the partner ’s personal debt. But the courts have classified the component of the debt that relates to the family’s living costs as a relationship debt.326 Similarly, if a partner has undertaken the study as part of a common enterprise
of the partners, or for the benefit of both partners, the courts have classified the entire student loan as a relationship debt.327 For example, in Jayachandran v Daswani the partners were married
in India but came to New Zealand to live, study and work.328 The husband incurred a student loan to enable him to study in New Zealand. The Family Court accepted that the entire debt should be classified as a relationship debt.329 It said that the husband’s study and accompanying loan had been incurred as part of the partners’ common enterprise to relocate to New Zealand. It had
also provided both partners with benefits as, among other things, the
husband’s study allowed the wife to obtain a work visa.
11.70 If a student loan is classified as a relationship debt, the net
value of the partners’ relationship property will be calculated by deducting the student loan debt.330 That will mean both partners share the debt equally. On the other hand, if a partner ’s student loan is classified as a personal debt the amount of that debt will not be shared equally between both partners. If the partner has paid back some of the loan with relationship property, such
as with his or her salary, section 20E will apply. Section 20E provides that a partner who has paid his or her personal debt from relationship property is obliged to compensate the other partner. The recent case Shaws v Reed provides a good example.331
Ms Reed had completed her degree shortly before her relationship with Mr Shaws began. She had incurred a student loan of
$49,643.04. Her qualification allowed her to secure specialist
employment during the course of the relationship from which
327 S v S [2012] NZFC 4050.
328 Jayachandran v Daswani [2015] NZFC 5238.
329 Jayachandran v Daswani [2015] NZFC 5238 at [44]–[45].
330 Property (Relationships) Act 1976, s 20D.
331 Shaws v Reed [2016] NZFC 7925, [2017] NZFLR 243.
she received considerable remuneration. Her income was pooled
with Mr Shaws’ income. From that income, Ms Reed repaid her student loan. Mr Shaws sought compensation under section
20E on the grounds Ms Reed had paid her personal debt with relationship
property. The Family Court agreed and awarded Mr Shaws compensation.332
The Court recognised, however, that Mr Shaws had received the benefit
of Ms Reed’s income during the relationship and
that should be
recognised in the compensation to which he was entitled.333 The Court
therefore awarded Mr Shaws a “broad brush” sum of $10,000.
11.71 Student loans are likely to be an increasingly common debt, particularly for younger partners. As at 30 June 2016, there were
731,754 borrowers in the Student Loan Scheme.334 The average student loan amount for all borrowers in 2016 was $20,983, which has increased from $19,731 in 2011.335 Of the total borrowers,
30 per cent are inactive, mostly because their income is below the repayment threshold which means they do not have any repayment obligations.336 The median repayment time for all borrowers who left study in 2014 is projected to be 8.4 years.337
This is longer than the median repayment time of 7 years for borrowers who
left study in 2011.338 Females make up a greater proportion of
borrowers than males and are projected to take slightly longer to fully repay
their loans.339
11.72 Given the prevalence of student loans, we are interested in views on
whether the PRA should provide any special rules for
dealing with them.340
In particular, we are interested in whether there could be better
provision for two likely scenarios.
332 Shaws v Reed [2016] NZFC 7925, [2017] NZFLR 243 at [52].
333 Shaws v Reed [2016] NZFC 7925, [2017] NZFLR 243 at [56].
728,354 respectively.
335 The Ministry of Education “Student Loan Scheme Annual Report 2015/16” (December 2016) at 34.
2016) at 35.
337 The Ministry of Education “Student Loan Scheme Annual Report 2015/16” (December 2016) at 37.
338 The Ministry of Education “Student Loan Scheme Annual Report 2015/16” (December 2016) at 37. The Ministry notes at 36 that many factors may affect times for repayment, such as the government policy towards student loans and the strength of the labour market.
11.73 The first is where a partner has repaid a student loan that is
classified as a personal debt from relationship property. This is likely to
be the most common scenario, as a student loan borrower
must make repayments
when the borrower ’s income reaches a certain level,341 and
a borrower ’s repayments will be automatically deducted from employment
income.342 Consequently, in most cases a partner will pay back a
student loan, at least in part, through his or her earnings, which will
generally
be classified as relationship property under section 8(e). Section
20E will apply, and the partner will need to pay compensation
to account for the
relationship property he or she has applied to a personal debt. The matter may
become more complicated if the
court is required to calculate a discount to
reflect the benefit the other partner has received from the partner ’s
qualification
and enhanced earning capacity. We are also conscious that the
rules relating to the classification and allocation of debts may
be overly
complex.
11.74 The second scenario relates to the division of functions in a relationship. One partner may have maintained steady employment and made significant repayments to his or her student loan. The other partner may have performed other contributions to the relationship that limited his or her capacity for paid employment. For example, the other partner may have cared for children at home. In contrast to the employed partner, it may be unlikely that this partner can make meaningful repayments to his or her student loan. The result may be that,
if the relationship ends, one partner has discharged his or her student loan
whereas the other partner ’s student loan remains
unpaid. Even if the
employed partner is obliged to pay compensation for applying relationship
property to his or her student loan,
it can be argued that the non-employed
partner is still at a disadvantage.
Option for reform
11.75 A possible reform option could be to classify a student loan
that either partner brings into the relationship as a relationship debt. The
classification could be subject to limited exceptions,
such as if the
classification of the student loan as a relationship
debt is repugnant to justice.343 The advantage of this approach
is that it avoids difficult assessments of whether a student loan is a
personal debt or a relationship debt. It also avoids complex
accounting
exercises to determine the level of compensation that should be payable under
section 20E. In addition, it obliges both
partners to share the burden of their
respective student loans if one partner has been unable to repay his or her
loan owing to
the division of functions within the relationship.
11.76 On the other hand, the current rules arguably provide for a more nuanced approach. Student loans will be incurred in different circumstances and for different reasons. It may be unfair to classify all student loans as relationship debts, particularly if
one partner ’s loan is sizeable and provides little benefit for the partners. Moreover, if the PRA treats student loans differently from other debts, student loans may be seen as an anomaly. It
is unclear whether the potential issues we have identified above justify
special treatment.
C ONSU LTATION QUESTION
C9 Are the current rules regarding the treatment of student loans adequate? Could
the rules be improved? For example, should all student loans whenever
acquired be treated as a relationship debt?
Family gifting and lending
11.77 We have learned through our research and preliminary consultation
that transfers of property between family members may be
increasingly common.
This is partly attributable to the fact that New Zealand may be becoming more
culturally diverse and intergenerational
wealth transfers may be more prominent
among different cultures.344 It may also reflect the increasing
financial assistance partners require in order to buy their first
home.345
11.78 While intergenerational transfers of wealth themselves do not appear
to create significant legal problems, disputes can
arise when it is unclear
whether the transfer was intended as a gift or
344 See Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017).
345 See Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017).
a loan. The distinction is important when determining property
interests at the end of a relationship. If, for example, the parents of one
partner gift property to that partner to help him or
her purchase a first home,
the gift would constitute relationship property if that home is used as the
family home.346 If, on the other hand, the transfer is a loan to
help purchase a home, the loan is likely to be a relationship debt which is
then
deducted from the partners’ relationship property.
11.79 Some legal rules attempt to simplify the process of determining whether a transfer is a gift or loan. The law presumes that when parents transfer property to their children they intend to do so as a gift.347 This rule is sometimes called the “presumption of
advancement”. Consequently, if a partner argues that the advance was a
loan, he or she must prove that the advance was indeed
intended as a
loan.
11.80 In Speller v Chong the husband, who was from Hong Kong, and the wife, who was a New Zealander of European descent, separated.348
The husband’s family members had advanced the partners money which was used to buy a house. The issue before the Family Court was whether the advance was a gift or a loan. The husband argued that in Chinese culture there was a very clear expectation that these types of advances were loans. The Family Court accepted that the transactions should not be evaluated in terms of the expectations of a New Zealand lawyer.349 Rather, the formalities
of the transactions reflected the cultural context in which they
occurred.350 The Court said that on the evidence there was no doubt
that there was an obligation and the husband was expected to repay the advances
made.
11.81 Similarly, in Zhou v Yu the husband argued that the fact that
the advance took place in a Chinese family was enough for the court to be
satisfied the advance
was not intended to be a gift.351
In
346 Assuming that no contracting out agreement under pt 6 of the Property (Relationships) Act 1976 classifies the advance.
349 Speller v Chong [2003] NZFLR 385 (FC) at [8].
350 Speller v Chong [2003] NZFLR 385 (FC) at [8].
351 Zhou v Yu [2015] NZFC 7668, [2016] NZFLR 338 at [400].
that case the husband’s parents had made an advance to him. The
husband produced evidence that in Chinese culture there was
an expectation that an advance is treated as a loan.352 The Family
Court did not directly decide whether or not the presumption
of advancement should be rebutted when the advance occurred within a
Chinese family. The Court said however that in this particular
case there was
a lack of surrounding evidence supporting the husband’s assertion that
the advance was a loan.353
11.82 As we think it probable that family gifting and lending will increase in New Zealand, it is appropriate to consider whether any reform to the PRA is needed to respond to these types of transactions. In particular, we are interested in views on whether the PRA should provide that the presumption of advancement does not apply.354 Removing the presumption could better
reflect current (and potentially future) practices in New Zealand,
particularly among some sections of society. On the other hand,
it could make
situations where the nature of an advance is unclear more contestable. That
would potentially stimulate disputes
between partners and wider family members.
It could also be contrary to the principle that questions arising under the PRA
should
be resolved as inexpensively, simply, and speedily as is consistent
with justice.
C ONSU LTATION QUESTION
C10 Is reform to the PRA needed to respond to the rise in family gifting and lending?
Should the presumption of advancement be expressly excluded by the
PRA?
352 Zhou v Yu [2015] NZFC 7668, [2016] NZFLR 338 at [407].
353 Zhou v Yu [2015] NZFC 7668, [2016] NZFLR 338 at [428].
Part D –
How should property be divided?
Chapter 12 – The general rule of
equal sharing and exceptions
Introduction
12.1 The division of property is the PRA’s main purpose. It is characterised by the general rule that each partner is entitled to an equal share of the couple’s relationship property. The focus
of this chapter is whether the general rule of equal sharing, and the
exceptions to it, remain appropriate in contemporary New Zealand.
The rest of
Part D is arranged as follows:
(a) In Chapter 13 we look at how property is valued under the PRA. We
examine the various approaches to valuation and the issues
that might arise in
PRA proceedings.
(b) In Chapter 14 we focus on how the courts implement a division of
property. We look at the range of orders a court can make
and whether there are
any restrictions which limit a court’s ability to implement a just
division of property.
Equal sharing
12.2 Section 11 provides that on the division of relationship property
under the PRA, each partner is entitled to share equally
in:
(a) the family home;
(b) the family chattels; and
(c) any other relationship property.1
12.3 Section 11 is the centrepiece of the PRA’s framework. It
characterises the PRA as an “equal sharing regime”.
It is
important
a presumption of equal sharing. That property could be divided according to the contributions each spouse had made to the relationship, if one spouse’s contributions had clearly been greater than that of the other spouse: Matrimonial Property Act 1976, s 15.
to note, however, that the general rule of equal sharing is not
absolute. Section 11 is subject to other provisions that govern the
division of property which we discuss further in paragraph
12.7.
12.4 A partner ’s entitlement to share equally in relationship
property will not necessarily result in the equal division
of every specific
item of relationship property. Rather, a court has a wide discretion to decide
how the division of the partners’
shares in relationship property should
be implemented.2 We examine the types of orders a court can make, and
what issues may arise, in Chapter 14.
12.5 A court will usually determine the partners’ shares in the relationship property as at the date their relationship ended.3
If the partners’ relationship has not ended, the date will be the date
of the application to the court.4 The property will usually be valued
as at the date of the application to the court.5
Does the rule of equal sharing remain appropriate in contemporary New
Zealand?
12.6 Our preliminary view is that the general rule of equal sharing
remains appropriate in contemporary New Zealand, for three
reasons:
(a) First, we think equal sharing reflects the values we should
attribute to relationships. As we explain in Part A, the PRA
sees a qualifying
relationship as a partnership or a joint venture.6 Key principles of
the PRA include that men and women have equal status, and that all forms of
contribution to the relationship
are treated as equal.7 The PRA
therefore treats non- monetary contributions as having equal worth to monetary
contributions. When the relationship ends,
the PRA grants each partner an
entitlement to an equal share of relationship property based on the equal
contributions each partner
has made to the
2 Principally, ss 25 and 33 Property (Relationships) Act 1976.
3 Property (Relationships) Act 1976, s 2F(1)(b).
4 Property (Relationships) Act 1976, s 2F(1)(a).
6 See Part A, paragraph [3.6] and [4.7]–[4.11].
7 The principles of the Property (Relationships) Act 1976 are discussed in Chapter 3.
relationship. Historically, women tended to make non-
monetary contributions to relationships which, prior to the PRA, made it
difficult to claim interests in property when relationships
ended. The PRA
overcomes this difficulty by recognising the true value each partner contributes
to the relationship partnership.
In doing so the PRA promotes gender equality.
We think this view of relationships, and the values and norms it reflects, is
now
firmly established and accepted in New Zealand.
(b) Second, through our research and preliminary consultation we have been struck by the extent to which the equal sharing rule is familiar to the public. We believe that many if not most people are generally aware that when a relationship ends the partners are required to divide their relationship property equally.
Because the PRA is social legislation and affects so many people, there is a
great deal of value in public awareness of the law.
(c) Third, the equal sharing rule is easy to understand and simple to apply which in turn makes the law more predictable. It provides a “bright-line” test for determining each partner ’s share of the relationship
property. This helps partners to understand their rights and empowers them to resolve property matters out
of court, which is central to the principle that disputes should be
resolved inexpensively, simply and speedily as is consistent
with
justice.8
Exceptions to equal sharing
12.7 The general rule of equal sharing is not absolute. The PRA gives a
court powers to depart from equal sharing in several
different situations,
including where:9
(a) there are extraordinary circumstances that make the equal sharing of property repugnant to justice (section
13);
8 Property (Relationships) Act 1976, s 1N.
(b) the partners’ relationship was shorter than three years
(sections 14–14A);
(c) the income and living standards of one partner are likely to be
significantly higher than the other partner because of the
effects of the
division of functions in the relationship (section 15);
(d) one partner made contributions to the relationship or dissipations of
relationship property after the relationship ended (section
18B and section
18C); and
(e) there are successive and contemporaneous relationships
(sections 52A and 52B).
12.8 Short-term relationships are considered in Part E, and section 15 adjustments for economic disparity are considered in Part F. In the rest of this chapter we explore issues identified with some of
the other exceptions to equal sharing. We also discuss the limited effect
of misconduct on the division of relationship property.
Extraordinary circumstances
12.9 If a court considers there are “extraordinary
circumstances” that would make equal sharing “repugnant to
justice”, section 13 provides that a court may order that each partner
’s share of the relationship property be determined
in accordance with
their contributions to the relationship.10
12.10 Section 13 sets a high threshold for departing from equal sharing. The courts have repeatedly remarked on the strength and stringency of the words “extraordinary circumstances” and
“repugnant to justice”.11 This is premised on the view that in most cases relationship property should be shared equally.12 It may be easier to establish an exception to equal sharing if the relationship has only marginally satisfied the technical criteria for equal sharing.13 For example, section 13 might apply if a relationship
is only just longer than three years, or if property has only been
10 Section 18 of the Property (Relationships) Act 1976 lists the types of contributions the court will take into account.
‘repugnant to justice’ to emphasise the stringency of the test which has to be satisfied in order to justify departure from the equal sharing regime.”
12 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.28].
13 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.29]–[12.30].
used as a family home or family chattel for a very short period of
time.
12.11 Section 13 is largely unchanged from when it was first introduced in
1976.14 It might have been thought that the courts would be more
willing to apply section 13 following the 2001 amendments, which brought
more
property within the general rule of equal sharing.15 The courts
have, however, confirmed the test remains as rigorous as it did before
2001.16
12.12 The courts have found that there were extraordinary circumstances
that would have made equal sharing repugnant to justice
in situations
where:
(a) one partner contributed $129,000 to the relationship that he had
received as a beneficiary under a trust six months before
the partners
separated;17
(b) one partner contributed all the deposit for the family home, paid the
mortgage from her salary and supported the other partner
through his mental
illness, which limited his contribution to the
relationship;18
(c) the partners were married for just over three years, and the husband
had contributed almost all of the property to the relationship
(even the
wife’s income was derived from selling art work produced by the
husband);19
(d) one partner concealed his own property and contributed very little
property to the relationship;20 and
(e) the relationship lasted for three years and two days, one partner
contributed all capital assets to the relationship and the
partners acquired
no relationship property during the relationship.21
14 Section 13 of the Property (Relationships) Act 1976 was originally enacted as s 14 of the Matrimonial Property Act 1976.
16 De Malmanche v De Malmanche [2002] 2 NZLR 838 (HC) at [138].
18 P v P [1980] 2 NZLR 278 (CA).
19 S v S [2012] NZFC 2685 (FC).
21 B v B [2016] NZHC 1201, [2017] NZFLR 56.
12.13 A court might also consider that there are extraordinary
circumstances that make equal sharing repugnant to justice when
children’s interests are involved, however we have not
identified any
successful cases of this kind.22
12.14 If a court is satisfied that section 13 applies, it will then look
at the contributions each partner made to the relationship and divide the
relationship property based on those contributions. Section
18(1) provides
that contributions to the relationship are all or any of the following:
(a) the care of—
(i) any child of the marriage, civil union, or de facto
relationship:
(ii) any aged or infirm relative or dependant of either spouse or
partner:
(b) the management of the household and the performance of household
duties:
(c) the provision of money, including the earning of income, for the
purposes of the marriage, civil union, or de facto relationship:
(d) the acquisition or creation of relationship property, including the
payment of money for those purposes:
(e) the payment of money to maintain or increase the value
of—
(i) the relationship property or any part of that property;
or
(ii) the separate property of the other spouse or partner or any part of
that property:
(f ) the performance of work or services in respect of—
(i) the relationship property or any part of that property;
or
(ii) the separate property of the other spouse or partner or any part of that property:
(g) the forgoing of a higher standard of living than would otherwise have
been available:
(h) the giving of assistance or support to the other spouse or
partner (whether or not of a material kind), including the giving of
assistance or support that—
(i) enables the other spouse or partner to acquire qualifications;
or
(ii) aids the other spouse or partner in the carrying on of his or her
occupation or business.
12.15 There is no presumption that financial contributions are of greater
value than non-financial contributions.23
The continued role of section 13 in the PRA
framework
12.16 In our view, there remains a need for a provision that permits a court to depart from equal sharing in appropriate cases. The circumstances of each relationship differ so greatly that it
is impossible to draft general rules of property division that will achieve a just division of property in every case. This is particularly so given that relationships in New Zealand are becoming more diverse.24 We therefore consider if section 13, or
an equivalent provision, should have a continuing role in the PRA.
12.17 We also think that there should be a high threshold for departing
from the general rule of equal sharing, in order to
preserve the principles of
the PRA, discussed at paragraph (a) above and in more detail in Chapter
3.
12.18 It is difficult, however, to say precisely what the test ought to be for departing from the equal sharing rule. This is because section
13 operates as an exception that applies when the general rules in the PRA will not achieve a just division of property. In this Issues Paper we are considering reform of some of the PRA’s general rules, such as the rules for the classification of property. Therefore it will not be clear what the precise role of section 13, or an equivalent provision, should be until there is greater clarity about
how the PRA’s general rules ought to
operate.
23 Property (Relationships) Act 1976, s 18(2).
24 See Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Introduction.
Is the section 13 test uncertain?
12.19 Nonetheless, we have concerns about the test used in section
13. The phrase “extraordinary circumstances” requires a court to test the case at hand against a whole range of relationships
to determine whether it can be characterised as extraordinary.25
But as relationships continue to diversify, it is increasingly difficult to
identify what are “ordinary” circumstances.
We are therefore
concerned that deciding what constitutes “extraordinary circumstances
that make equal sharing repugnant
to justice” will become more
difficult in the years to come.
12.20 Options for reform might include prescribing in greater detail
the matters a court should take into account when deciding
whether section 13
should apply, setting out examples in the PRA of how the exception is intended
to operate,26 or replacing the test in section 13 with a new
formula. As noted above, any options for reform will need to be considered in
light
of any reforms to the PRA’s general rules.
C ONSU LTATION QUESTIONS
D1 Should the PRA continue to have an exception provision like section
13?
D2 Is the current wording of section 13 satisfactory? If not, how might the
test for departing from equal sharing be formulated?
Misconduct
12.21 The misconduct of one partner has very little influence on the
division of property under the PRA. We noted in Chapter 3
that an implicit
principle of the PRA is that misconduct during a relationship is generally
irrelevant to the division of property.
Section 18A makes this position
clear.
12.22 Section 18A(1) provides that “a court may not take any misconduct of a spouse or partner into account in proceedings under this Act”, except as permitted in sections 18A(1) and
18A(2).This general rule influences how the PRA’s rules of division
are to be interpreted. For example, the courts have said that
25 J v J [1993] NZCA 318; (1993) 10 FRNZ 302 (CA) at 307.
26 See for example Copyright Act 1994, s 122A; Personal Property Securities Act 1999, s 41; and Accident Compensation Act
2001, s 114 as amended by the Interest on Money Claims Act 2016, s 29 which will come into effect on 1 January 2018. The Property (Relationships) Act 1976 itself contains some examples in ss 2B and 2BAA.
because of section 18A(1), misconduct is not an “extraordinary
circumstance” that will allow a departure from the general rule of
equal sharing under section 13.27
12.23 Section 18A(2) provides that a court can only take into account a
partner ’s misconduct when deciding:
(a) a partner ’s contributions to the relationship under section
18;28
(b) whether to make an order under section 26 to settle relationship
property for the benefit of children;
(c) whether to make an order postponing division,29 granting one
partner the right to occupy the family home or a home rented by the
family,30 or granting one partner the temporary use of furniture or
household items;31 or
(d) whether to make an ancillary order under section
33.32
12.24 Importantly, section 18A(3) provides that a court may only take misconduct into account that is “gross and palpable” and has “significantly affected the extent or value of relationship property”. Misconduct that has no effect on the relationship property will
be irrelevant, regardless of how severe the misconduct may have been. For example, in W v G there was evidence that one partner had committed “gross and repeated” violence to his partner over a long period of time, including both physical and sexual abuse.33
However because the District Court found no causative link between that conduct and the value of the relationship property, the partner ’s misconduct had no impact on the division of
property.34
29 Property (Relationships) Act 1976, s 26A.
30 Property (Relationships) Act 1976, ss 27–28.
31 Property (Relationships) Act 1976, ss 28B–28C.
33 W v G DC Wellington FP 558/92, 16 August 1995.
34 W v G DC Wellington FP 558/92, 16 August 1995 at 12–13.
12.25 The effect of section 18A is that misconduct will generally not
affect a partner ’s share of relationship property, even if that
misconduct was gross and palpable and significantly affected
the value of the
relationship property. Misconduct will only have a bearing on a partner ’s
share of relationship property
when there are other exceptional circumstances
that make equal division repugnant to justice under section 13, or when the
relationship
is a short-term relationship.35
12.26 There have, however, been cases when a court has taken misconduct into account as a question of fact when considering other provisions of the PRA. For example in N v N the Family Court accepted that if one partner ’s violent conduct causes the other partner to take on more of the childcare responsibilities, or prevents them from taking on employment, then that violence may result in a division of functions for the purposes of section
15.36
12.27 A court can also make orders where one partner has taken
“deliberate action or inaction” that has “materially
diminished” the other partner ’s separate property (section 17A) or
the relationship property after separation (section
18C).
Should misconduct have more weight in the division of relationship property?
12.28 There have been calls for a partner ’s misconduct to have a
greater bearing on the division of relationship property,
particularly in cases
of family violence.37
36 N v N [2004] NZFLR 942 (FC) at [98]. Section 15 of the Property (Relationships) Act 1976 is discussed in Part F.
12.29 New Zealand has the highest reported rate of intimate partner
violence38 in the developed world.39 The consequences
of family violence can be devastating for the victims and their families.
Discussing intimate partner violence,
Cohen writes:40
Terrible and tragic things happen within the contexts of battering relationships, even beyond the violence and resultant injury
itself. These tragedies include the death of the battered victim; the
physical and psychological abuse of others, especially children,
within the
household; the destruction of employment situations and opportunities; the
withering away of basic trust, particularly
trust in intimacy; and, often, the
waste of what might, and should, have been rewarding and productive
lives.
12.30 Several reasons have been given why family violence should have a
greater bearing on the division of relationship property:
(a) Family violence can be seen as a repudiation and a negation of the violent partner ’s commitment to the relationship.41 As we discussed in Chapter 3, the PRA is built on the theory that a qualifying relationship is an equal partnership or joint venture, to which partners contribute in different but equal ways. Misconduct
of this severity has the effect of undermining that partnership and should
have consequences.
(b) Family violence can have significant ongoing economic consequences that
may not be reflected in the reduced value of relationship
property. For example,
a partner who has suffered physical or psychological abuse may experience a
deterioration of his or her
performance at work or in study.42 A
partner will therefore potentially suffer a drop in work productivity, inhibited
career advancement, or even loss of employment
and loss of
38 Law Commission Understanding Family Violence: Reforming the Criminal Law Relating to Homicide (NZLC R139, 2016) at
187 describes “intimate partner violence” as “[a]ny behaviour within an intimate relationship (including current and/ or past live-in relationships or dating relationships) that causes physical, psychological or sexual harm to those in the relationship”.
39 Ministry of Justice Strengthening New Zealand’s legislative response to family violence: A public discussion document
(Wellington, August 2015) at 4–5.
40 Law Commission Understanding Family Violence: Reforming the Criminal Law Relating to Homicide (NZLC R139, 2016) citing
Jane Maslow Cohen “Regimes of Private Tyranny: What Do They Mean to Morality and for the Criminal Law?” (1995) 57
U Pitt L Rev 757 at 762.
41 G v G [1998] NZFLR 807 (FC) at 814.
42 Geraldine Callister “Domestic Violence and the Division of Relationship Property under the Property (Relationships) Act
income. These consequences are not reflected in the
PRA’s division of property.43
(c) There is an increasing awareness of the damaging effects of family
violence, the need for perpetrators to take responsibility
for their actions
and the need to discourage family violence.44
12.31 To date Parliament has resisted calls to give misconduct greater weight in the division of property. In the lead up to the 2001 amendments the Select Committee responded to these calls by saying it was undesirable to introduce fault or misconduct as a basis for division.45 The Committee explained it would represent a significant departure from the current scheme and it could lead to pressure for other fault-based conduct to be taken into account.46
The Committee concluded that issues concerning the impact of family
violence are most appropriately addressed in the context of
the Domestic
Violence Act 1995 and general criminal law.47
12.32 Under the Domestic Violence Act 1995 a court can make orders that affect the partners’ property. For example, a court can grant
an applicant the right to personally occupy a house,48 or to
possess furniture, household appliances and household
effects.49
12.33 We recognise the important considerations on both sides of
this issue. We are aware of the grave effects of family violence.50
Family violence should be firmly discouraged and the perpetrators should
face consequences.
48 Domestic Violence Act 1995, s 53(1).
49 Domestic Violence Act 1995, s 67(1).
12.34 We acknowledge, however, the merits of dividing partners’
property without reference to the moral failings of each partner. It is undesirable to enable or encourage disputes that focus on fault and misconduct, particularly at separation, which is the most dangerous time for victims of family violence.51 This is also in keeping with the principle that questions under the PRA about
relationship property should be resolved as inexpensively, simply, and
speedily as is consistent with justice.
12.35 There might also be practical difficulties in proving misconduct
and its economic impact on the relationship property.
Questions about the
interaction of the PRA and criminal proceedings, and what standard of proof
would be required, would also need
to be given careful
thought.52
Options for reform
12.36 If the PRA is to be reformed to give greater prominence to the
effects of misconduct in a relationship, the question would
be how to achieve
this. We have explored two options for reform.
Option 1: Provide for misconduct to be considered an
“extraordinary circumstance”
12.37 One option is to amend section 18(2) to provide that a court can take into account a partner ’s misconduct when deciding whether there are extraordinary circumstances which make equal sharing repugnant to justice under section 13. The result would be that misconduct could be taken into account in deciding how the relationship property should be divided, if the test in section 13
is met. Section 18A(3) would ensure that only misconduct that is “gross and palpable” and has “significantly affected the extent or value of relationship property” could be considered under section
13. The court would retain a discretion to decide whether the misconduct satisfies the test under section 13 in the particular
circumstances of each case. This option relies on the courts
to
develop an approach to determining when misconduct satisfies
the test under section 13.
Option 2: A specific exception for family violence
12.38 Parker explains that family violence may not be so uncommon as to constitute “extraordinary circumstances”, and argues there should be no requirement that the violence be extraordinary before the PRA responds.53 Neither should the victim have to prove that the misconduct was gross and palpable and devalued property.54 Rather, she says that the violence should be seen
as an injustice in its own right which should, as a standalone exception, displace the general rule of equal sharing.55 Therefore another option would be a new provision alongside section 13
that specifically deemed family violence as a standalone exception to equal
division.56
C ONSU LTATION QUESTIONS
D3 Should misconduct, and in particular family violence, have a greater
bearing on how property is divided between the partners?
D4 If it should, do you have a preferred option for reform? Are there viable options for
reform we have not considered?
Dissipations of relationship property
12.39 If a partner ’s “deliberate action or inaction” after separation has
“materially diminished” the value of relationship property, section
18C permits a court to order that partner to compensate the other
partner.57 Compensation can be in the form of a payment of a sum of
money or a transfer of relationship or separate property.
53 Wendy Parker “Family Violence and Matrimonial Property” [1999] NZLJ 151 at 154. See also S v S DC Whangarei FP
888/218/82, 22 April 1991. A husband had been abusive in the past on four specific occasions. The District Court noted the time that had elapsed between each episode, the fact that assault is regrettably not so uncommon in relationships and that the husband had generally been a good father and provider. The Court said that no extraordinary circumstances existed.
54 Wendy Parker “Family Violence and Matrimonial Property” [1999] NZLJ 151 at 154.
55 Wendy Parker “Family Violence and Matrimonial Property” [1999] NZLJ 151 at 154.
56 Wendy Parker “Family Violence and Matrimonial Property” [1999] NZLJ 151 at 154. Callister also supports this approach: see Geraldine Callister “Domestic Violence and the Division of Relationship Property under the Property (Relationships) Act 1976: The Case for Specific Consideration” (LLB (Hons) Dissertation, University of Waikato, 2003) at 39.
57 Property (Relationships) Act 1976, s 18C.
12.40 Section 18C sets a high threshold. The partner must have
deliberately acted or failed to act in order to reduce the value of the
property.58 This can be difficult for the other partner to
prove.
12.41 Examples of the courts awarding compensation under section 18C
include where:
(a) one partner made significant drawings for personal expenditure on a
company in which both partners were shareholders, which
led to the value of the
company decreasing;59 and
(b) one partner sold an item of relationship property at
undervalue.60
Does the PRA deal adequately with the dissipation of property during a
relationship?
12.42 The PRA may not deal adequately with the dissipation of property
during a relationship, when that property would have been
characterised as
relationship property and would have otherwise been available for division on
separation.
12.43 We have been told that it is common for one partner during the
course of the relationship to use significant amounts of
relationship property
for personal use, such as gambling, or to incur personal debts, such as credit
card debts, for which both partners
are liable.61 We have also heard
stories of one partner draining the partners’ joint bank accounts before
or immediately on separation.
12.44 Section 18C will not apply in these circumstances. It only applies when a partner has deliberately reduced the value of relationship property after the relationship has ended.
12.45 Rather, section 19 provides that, unless the PRA provides
otherwise, nothing affects the power of either partner to deal
59 S v S [2012] NZFC 4050.
60 C v C FC Auckland FAM-2002-004-2658, 8 September 2004.
with or dispose of property as if the PRA had not been enacted. So
while the partners remain together, they may each deal with their property
without any obligation to recognise the rights the other
partner may have under
the PRA if the relationship was to end. There are, however, a number of
provisions in the PRA which can affect
this general rule.
Section 44
12.46 The courts have sometimes relied on section 44. Section 44 provides that when a partner has disposed of property in order to defeat the other partner ’s claim or rights under the PRA, a court may order that the property be transferred back, or that the person who received the property pay compensation. In N v
R, for example, one of the partners in a de facto relationship had died.62 In the years prior to the partner ’s death, he had suffered from Alzheimer ’s disease. During this period the other partner
had transferred significant amounts of money from the partner to her own
account. In the Family Court proceeding she would not explain
what had happened
to this money. The Family Court said that section 44 applied. The Court
ordered that the partner repay the
unaccounted sums to the deceased partner
’s estate.
12.47 Section 44 is not usually the appropriate tool to use in circumstances where a partner has dissipated property. Partners who have been disadvantaged by the disposition of property bear the burden of proving that the partner who made the disposition intended to defeat his or her claim or rights under the PRA.63 In some cases this can be difficult.64 The other major problem with section 44 is its remedies. It provides that the
person who receives the property must return the property or pay compensation for it. In cases where one partner has repeatedly dissipated property on a number of occasions to a number of third parties, such as by gambling over an extended period of time, it
is not possible for an affected partner to recover the property. The third party who receives the property will not be ordered to return
the property or pay compensation if the property was received
in
62 N v R [2014] NZFC 5380.
64 See our comments regarding s 44 of the Property (Relationships) Act 1976 in Part D.
good faith and for consideration.65 For most third party suppliers
or service providers, such as casinos, shops or bars, the third party will
have a good defence to the recovery of the property.
Section 20E
12.48 The courts sometimes rely on section 20E to treat the expenditure as personal debts that have been paid from relationship property. In W v W, after the partners had separated a wife had spent approximately $38,000 on what the Family Court described as “clothing, toys and trinketry”.66 The Court said that, unlike things like groceries, the wife’s purchases could not be regarded as expenditure reasonably required for her maintenance. Rather, the Court said that the expenditure was used to meet her personal debts.67 The Court ordered the wife to pay compensation to
the husband for two-thirds of the amount of the expenditure. Although the expenditure in this case had occurred after the partners had separated, the Court noted that section 20E does not specify any time limits for when the partner paid his or her personal debt from relationship property. Consequently, section
20E could be applied.
12.49 In B v B a husband said that in the last 18 months of the partners’
marriage, his wife incurred considerable personal expenditure on personal items.68 He argued that this expenditure should be considered the wife’s personal debts that she had paid from the partners’ relationship property. The Court said that section 20E
did not apply in this instance. The wife’s expenditure was no more than
normal everyday expenditure tacitly approved and expected
in most
relationships.69
12.50 We consider that section 20E does not provide a suitable remedy in
these types of cases. The transactions in these cases
involved a
contemporaneous exchange of cash for the item that was purchased. They cannot
properly be described as a debt.70
65 Property (Relationships) Act 1976, ss 44(2) and 44(4).
66 W v W FC New Plymouth FAM-2004-043-891, 18 April 2007 at [49].
67 W v W FC New Plymouth FAM-2004-043-891, 18 April 2007 at [49].
68 B v B FC Christchurch FAM-2004-009-3656, 13 July 2006.
70 Allied Concrete Ltd v Meltzer [2015] NZSC 7, [2016] 1 NZLR 141 at [18] and [186].
Consequently, section 20E is arguably the wrong provision to use
in cases of one partner ’s excessive expenditure of relationship
property.
12.51 Furthermore, section 20E only applies to situations where the
personal debts of one partner have been paid from relationship
property. It does
not apply to situations where one partner pays the other ’s personal
debts from separate property.
12.52 In light of the shortcomings we have identified with these various
provisions, the question arises whether the PRA should
be better equipped to
deal with one partner ’s excessive personal expenditure or other
dissipation of relationship property
during the relationship. Any change would
need to clearly exclude normal expenditure that is reasonably incurred and
discourage
partners from scrutinising and disputing each other ’s spending
during and after the relationship, except in truly inappropriate
circumstances.
C ONSU LTATION QUESTIONS
D5 Does the excessive expenditure or dissipation of relationship property by
one partner during or after the relationship often
lead to an unjust division
of property?
D6 Are the current provisions of the PRA adequate to deal with excessive
personal expenditure or the dissipation of relationship
property?
Successive and contemporaneous relationships
12.53 The PRA provides special rules of division in sections 52A and 52B
for successive and contemporaneous relationships.71 These rules apply
when competing claims are made in respect of the same relationship property but
in relation to different relationships
and there is insufficient property to
satisfy the claims.72
It was not developed to address a scenario where all three partners are still alive, where the relationships were successive but not contemporaneous, or where one relationship ends and the other continues.
72 Sections 52A and 52B of the Property (Relationships) Act 1976 apply when two or more formal claims have been filed in court for orders under ss 25–31 or 33: s 52A(4); and [LC] v D (FC) Waitakere FAM-2008-090-000304, 20 September 2011 at [53].
12.54 Successive relationships are those that occur one after the other,
with no period of overlap. For example, after partner A’s marriage to
partner B ends, she enters into a de facto relationship
with partner C. Section
52A applies if partner A and partner B do not resolve their property matters
before partner A’s new
de facto relationship with partner C ends, and
partner C seeks a division of property under the PRA. If partner A and partner
B
had been in a de facto relationship rather than married, then section 52B
would apply.
12.55 Contemporaneous relationships arise when one person is in two or more relationships at the same time. For example, partner A
is married to partner B and at the same time is also in a de facto
relationship with partner C. Contemporaneous relationships were
discussed
further in Part B.
12.56 If the relationships are successive, the relationship property is divided in accordance with the chronological order of the relationships.73 This recognises that the first relationship will generally stop accumulating relationship property when it ends. The common partner will only take property into his or her second relationship that is not claimable by the first partner.74
This means that the first partner ’s claim is determined first, in
order to ascertain the balance of property available to
satisfy the second
partner ’s claim. The rules for successive relationships are not a true
exception to the general rule
of equal sharing as they simply set out a
mechanism for determining the priority of claims. The general rule of equal
sharing
still applies to the division of property between the partners to each
relationship.
12.57 If the relationships were contemporaneous, then there is a two stage
process:
(a) to the extent possible, the claims must be satisfied from the
property attributable to each relationship (stage one); and
(b) to the extent that it is not possible to attribute property to either
relationship, the property is to be divided in accordance
with the contribution
of each relationship to the acquisition of the property (stage
two).
73 Property (Relationships) Act 1976, ss 52A and 52B.
74 See Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39 1997) at C204.
12.58 The rules for contemporaneous relationships are an exception to
the general rule of equal sharing. They are also an exception to the general approach of examining contributions to the relationship, which is the approach that applies when there are exceptional circumstances under section 13 and when the relationship is a short-term relationship.75 The approach in sections 52A and 52B
is attractive in this context as it avoids comparing the worth of the two
contemporaneous relationships.76 Such value judgements would be
difficult to make and inconsistent with the principles on which the PRA is
based.77
12.59 There is limited case law on sections 52A and 52B. This may be
because it is relatively rare for competing claims from different
relationships to be made. It may also be due to the difficulty of establishing a
contemporaneous relationship (discussed in Part
B). Nonetheless we have
identified several potential issues with how sections 52A and 52B operate in
practice.
Issues with sections 52A and 52B
12.60 The issues we have identified are with the way sections 52A and
52B work both generally and for contemporaneous relationships. We have not
identified any material issues that are unique to the
way sections 52A and 52B
work for successive relationships.
12.61 The issues are:
(a) The rules are unclear. Reid says that the main problem with sections 52A and 52B is their lack of clarity.78
For example, it is unclear at what stage of proceedings
sections 52A and 52B apply79 and how a court will
75 Property (Relationships) Act 1976, ss 14–14A.
77 See Chapter 3 for a discussion of the principles of the Property (Relationships) Act 1976. These include the principle
that men and women have equal status and their equality should be maintained and enhanced, and the principle that all forms of contribution to the relationship are treated as equal.
determine which property is “attributable” to which
relationship.80
(b) The rules favour the common partner. This is because, however property is divided between contemporaneous relationships, if the general rule of equal sharing applies within each relationship, the common partner will receive half of the relationship property divided under section 52A or 52B, which amounts to half of the total.81
Reid says that:82
...sections 52A and 52B inevitably bring a result that is incongruous with the rest of the [PRA], with the common partner retaining half of the property while the other partners share the remainder in
a way that it is hard to predict. It seems that the common partner is allowed to have their cake
and eat it too, while the others must fight over the crumbs.
12.62 The rules may be used strategically to defeat or reduce one partner ’s claim. For example, if only one of the relationships
has ended, it is in the interests of the partner to the continuing
relationship to bring a claim under section 52A or 52B to preserve
as much
property as possible for the continuing relationship.
12.63 The rules are difficult to reconcile with the PRA’s rules around misconduct. In the lead up to the 2001 reforms the Principal Family Court Judge highlighted the difficulty for the courts in reconciling section 18A with sections 52A and 52B.83 Section 18A allows “gross and palpable” misconduct that has “significantly affected the extent or value of relationship property” to be
taken into account in determining a partner ’s contribution to the relationship. Such conduct can also be taken into account
in determining what order to make under particular provisions
it too: The Treatment of Contemporaneous Relationships under the Property (Relationships) Act 1976” (LLB (Hons) Dissertation, University of Otago, 2007) at 7 makes the point that stage one of the test is redundant because “all property that is relationship property of a relationship is attributable to that relationship.”
81 See Adrianne Reid “Have your cake and eat it too: The Treatment of Contemporaneous Relationships under the Property
(Relationships) Act 1976” (LLB (Hons) Dissertation, University of Otago, 2007) at 36.
82 Adrianne Reid “Have your cake and eat it too: The Treatment of Contemporaneous Relationships under the Property
(Relationships) Act 1976” (LLB (Hons) Dissertation, University of Otago, 2007) at 60.
83 Principal Judge Mahoney “Submission to the Justice and Electoral Committee on the Matrimonial Property Amendment
Bill 1998 and Supplementary Order Paper No 25 2000” at 6.
of the PRA.84 The Judge gave the example of a husband who
throughout the marriage supports a clandestine relationship with
considerable financial contributions sourced from relationship
property, for
example earnings.85 Henaghan says that there is an argument that a
clandestine contemporaneous relationship may in fact satisfy the misconduct test
in certain circumstances.86
12.64 The existing rules do not clearly cater for situations involving
more than two contemporaneous relationships. For example,
partner A is married
to partner B and is also in de facto relationships with partner C and partner D
at the same time. However this
scenario may be unusual in practice.
C ONSU LTATION QUESTIONS
D7 Are there any issues with the way sections 52A and 52B work for
successive relationships?
D8 Do the rules for contemporaneous relationships have the potential to lead
to an unjust result? If so, in what circumstances?
Options for reform
12.65 Our preliminary view is that there is a need for provisions setting out the priority of claims when there are successive or contemporaneous relationships. The rules already provide mechanical clarity for successive relationships, but not for
contemporaneous relationships. As relationships in New Zealand are becoming
more diverse, there may be an increasing need to better
provide for
contemporaneous relationships.
12.66 We consider several options for reform below. However we also note that some of the issues with sections 52A and 52B may
be less acute if the PRA’s rules of classification are changed.
As we have discussed in Chapter 9, one option is to move to a pure “fruits of the relationship” approach to the classification of property, which would likely reduce the pool of relationship
property that is divided between the partners in many cases. This may reduce the risk that sections 52A and 52B lead to an unjust
result when applied to contemporaneous relationships.
84 Property (Relationships) Act 1976, s 18A(2)(b). However see [12.25] above.
85 Principal Judge Mahoney “Submission to the Justice and Electoral Committee on the Matrimonial Property Amendment
Bill 1998 and Supplementary Order Paper No 25 2000” at 6.
86 Mark Henaghan “The three of us” (paper presented to the New Zealand Law Society Family Law Conference, 2001) at
9-10.
Option 1: Amend sections 52A and 52B to address their lack of
clarity
12.67 This option would accept that the policy underpinning sections
52A and 52B is basically sound. It would retain attractive aspects of the
current rules, for example the nuanced approach and the
focus on contributions
to the property as opposed to contributions to the relationship. Careful
consideration would be needed as
to what directions the provisions could give to
determine when property is attributable to a relationship.
Option 2: Divide all relationship property equally between all partners
entitled to share it
12.68 Option 2 is to replace sections 52A and 52B with a new provision that
says property that is relationship property of more
than one relationship
contemporaneously be divided equally between all the partners entitled to share
in it.87
12.69 There is some precedent for this approach in the Administration
Act 1969, which contains rules that apply when the deceased
is survived by multiple partners who are entitled to succeed on intestacy.88 Those rules provide that the partners share equally what one of them would have received if only one partner had survived the deceased.89 This approach would have the advantage of clarity, but may in some circumstances deliver “rough justice” as opposed to a just result. An option to address this would be
to include an element of judicial discretion, for example giving a court
flexibility to depart from the rule to avoid serious
injustice.90
Option 3: Amend the PRA to better reconcile the rules around misconduct
with the rules for contemporaneous relationships
12.70 Another option is to amend sections 13, 18A and/or 52A and 52B to
expressly recognise clandestine or unsanctioned contemporaneous
relationship(s)
that significantly affect the
87 Adrianne Reid “Have your cake and eat it too: The Treatment of Contemporaneous Relationships under the Property
(Relationships) Act 1976” (LLB (Hons) Dissertation, University of Otago, 2007) at 58.
88 Administration Act 1969, s 77C.
89 Administration Act 1969, s 77C.
90 A “serious injustice” test is already used in other provisions of the Property (Relationships) Act 1976, for example ss 14A and 21J. See also Adrianne Reid “Have your cake and eat it too: The Treatment of Contemporaneous Relationships under the Property (Relationships) Act 1976” (LLB (Hons) Dissertation, University of Otago, 2007) at 57–58.
extent or value of the relationship property attributable to each
relationship as a form of misconduct that renders equal sharing repugnant to justice. This option has some similarities with option
1 under misconduct, discussed at paragraph 12.37 above.
12.71 Under this option the common partner ’s share of relationship
property could be reduced and the share of the other
partner(s) increased. This
could mean that the common partner bears greater responsibility for the
property consequences of maintaining
contemporaneous relationships.
C ONSU LTATION QUESTIONS
D9 Do the rules for contemporaneous relationships require reform? If so,
which of the options we have identified (if any) do you
prefer and why?
D10 How should sections 52A and 52B relate to the rules on misconduct in section 18A?
Chapter 13: Valuation
Valuation of Property in the PRA’s overall
Scheme
13.1 Usually relationship property is divided as a global division. This means a court will first determine the value of individual items of relationship property to assess the total relationship property value. The valuation of property is integral to ensuring that each
partner obtains an equal share of the global relationship property
pool.91 As the Court of Appeal explained in Reid v
Reid:92
[T]he overall purpose of having various assets valued is to produce in a
global sense a fair estimation of the worth of the matrimonial
property so that
its subsequent division will be achieved in a way which will be just as between
the husband and wife.
13.2 The valuation of relationship debts is similarly important because
those debts are deducted from the total value of the partners’
relationship property. It is only the remaining net value of the relationship
property that is divided between the partners.93
13.3 Once a court has calculated the net value of relationship property
it will then decide which assets go to each partner,
with monetary adjustments
to ensure equal sharing of all relationship property.94
Valuation and compensation
13.4 In certain cases a court must also value contributions and items
of separate property in order to calculate compensation payments or adjustments to the global division of relationship property.
The PRA has several provisions that allow a court to order one
partner to pay compensation to the other.95 In each case, a
court
92 Reid v Reid [1980] 2 NZLR 270 (CA) at 272, judgment of Woodhouse and Richardson JJ delivered by Woodhouse J.
93 Property (Relationships) Act 1976, s 20D.
94 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [10.9].
would have to assess the value of certain things. Under section
15 for example, a court must determine the likely economic disparity between the partners to quantify the appropriate level of compensation. Under sections 17 and 18B, a court must consider the value of a partner ’s contributions. If a partner has taken care
of the partners’ children after separation and a court determines that
compensation under section 18B is appropriate, it could
receive valuation
evidence of the costs of providing a nanny in lieu of the care the partner
provided.96
Determining Value
What is value?
13.5 The PRA is silent on what the term “value” means.
Instead, its interpretation has been left to the courts to
decide.97
We note four points regarding the courts’ approach to
valuation.
13.6 First, valuation of property is a separate exercise to the initial
exercise of taking stock of the partners’ property.
The PRA will only
apply to items that fall within the definitions of “property” and
“owner” under section
2.98 A valuer might be able to
ascribe a value to a particular item, but that item would not be property for
the purposes of the PRA.
For example, a person’s earning capacity is not
property although the present value of a partner ’s future income can
be
determined.99
13.7 Second, a court must determine the appropriate standard of value.
The PRA frequently refers to the word “value”. It can, however,
have several meanings because, as a matter of valuation
practice, different
standards of value are applied in different instances. In
partner, to pay compensation: s 17; a court may recognise a partner ’s contributions to the relationship after separation by requiring that a partner compensate the partner who made the contributions: s 18B and if one partner has materially diminished the value of relationship property after separation, the court can order that partner to pay compensation to the other: s 18C.
NZLR 85 (CA). The Court of Appeal’s decision was later upheld on appeal: Holt v Holt [1990] UKPC 34; [1990] 3 NZLR 401 (PC).
98 See Chapter 8 for a discussion of these terms.
Haldane v Haldane, the Court of Appeal explained that “value”
could refer to the market value of the property, its intrinsic value to the owner, or its replacement cost.100 The Court concluded that ordinarily a just division of property under the PRA will require
a court to use the “fair market value” of the property.101 This is determined by assuming a hypothetical sale between a willing but not anxious seller and a willing but not anxious buyer.102 It
should be noted, however, that a court may not always adopt a fair market
value standard. In some cases the courts have considered
whether to use an
alternative standard of value.103
13.8 Third, the PRA gives no guidance on the methodology to determine value. The courts have said no specific methodology should be elevated into a test for what value means, rather that valuation methodologies are aids.104 Some assets are simple
to value. For example, a fair market value of a family car can be appraised by a second-hand car dealer.105 The task is more complex when a court must determine the present value of an asset that will produce future income. The most common example of such assets in relationship property cases are company shares and superannuation scheme entitlements. The courts will usually accept a valuation based on a discounted cash flow analysis.106
This involves working out a present value by assessing future
100 Haldane v Haldane [1981] 1 NZLR 554 (CA) at 562 per Richardson J.
v Walker [2007] NZCA 30; [2007] 2 NZLR 261 (CA) at [37-40]) (in other words, what a willing but not anxious purchaser would pay for the debt). The fair market value of the debt may differ from the book value of the debt depending on several factors, such as the debtor ’s ability to repay the debt.
income streams from the property and discounting for risks and
contingencies.107 Valuations based on complex methodologies will
often require high level expert input. Sometimes expert valuers undertake
extensive
analysis and present that evidence in court. Issues around the value
of property or debt can therefore increase the costs and time
to resolve a
dispute.108 Valuers will also need access to information about the
property which can be difficult to obtain.
13.9 Fourth, if a court takes a fair market value approach, it will not usually consider the personal intentions or sentiments of the partners regarding the property. Instead, a court will make certain assumptions regarding the hypothetical market that may not accord with the facts of the case.109 In Holt v Holt, the partners could not agree on how the husband’s shares in a company should be valued.110 The company was used to carry on the business of
a family farm. The husband said he intended to bequeath his shareholding to his children so that the farm would stay in the family. The husband argued this intention should diminish the value of the shares. The Court of Appeal said that in hypothetical negotiations between the willing buyer and seller, purely sentimental matters and questions of personal financial need
or wealth had to be put aside.111 As the husband was under no obligation to bequeath his shares, the Court said it had to ignore the husband’s assertion. Instead, the Court said that the notional vendor and purchaser are arriving at a commercial bargain
uninfluenced by generosity or the prospect of
generosity.112
110 Holt v Holt [1987] 1 NZLR 85 (CA). The Court of Appeal’s decision was later upheld on appeal: Holt v Holt [1990] 3 NZLR
401 (PC).
111 Holt v Holt [1987] 1 NZLR 85 (CA) at 90.
At which date should property be
valued?
13.10 The date at which the property’s value should be assessed is often a contentious issue in relationship property disputes. That is because the value of property can fluctuate. The date at which the property’s value is assessed will therefore determine the extent
to which the partners’ share in any increases or decreases in the
property’s value.
13.11 Section 2G(1) lays down a general rule that the value of any
property to which an application under the PRA relates is
determined at the
date of the hearing by the court of first instance.113 Section
2G(2), however, provides that a court may decide that the value of the
property be determined as at another date.
13.12 The basis of the general rule in section 2G(1) is that a contemporary valuation of the property will usually provide a just division of that property.114 If the property has increased in value since the partners separated because of the market inflation, it
is usually considered fair that the partners share equally in the increase. In De Malmanche v De Malmanche, the family home had a value of $500,000 at the date the partners separated.115 By the hearing date, the property had increased in value to $640,000. The evidence before the Court showed that the increase in the property’s value was attributable to market forces rather than the efforts of either partner. The High Court said that the property
should be valued as at the hearing date. The Court said it would be unjust
to deny each partner an equal share of the advantages
of the post-separation
increase in value.116
13.13 If the post-separation increase or decrease in value is attributable
to the actions of one partner, it may not be just to
share those increases or
decreases equally. Prior to the 2001 amendments, a court was limited in its
ability to take the post-separation
actions of one partner into account. Its
primary tool was to adjust the
113 The court of first instance is the court that hears the party’s application for the first time. This will usually be the Family Court although some cases are heard for the first time by the High Court. The appellate courts (the Court of Appeal and the Supreme Court) will not be the courts of first instance.
115 De Malmanche v De Malmanche [2002] 2 NZLR 838 (HC).
116 De Malmanche v De Malmanche [2002] 2 NZLR 838 (HC) at [148].
date of valuation so as to exclude the increases or decreases
attributable to one partner alone.117
13.14 Following the 2001 amendments, a court’s discretion to adopt a different valuation date under section 2G(2) is of less significance. That is because a court may now award compensation to a partner under section 18B for contributions the partner has made to
the relationship after separation. Likewise, a court can award compensation under section 18C against a partner who has materially diminished the value of the partners’ relationship property through deliberate action or inaction. The courts have said that the valuation date should not be changed under section
2G(2) if section 18B or section 18C applies.118
13.15 If one partner has retained use and enjoyment of the property after
separation, but the property has depreciated, section
2G(2) may be
relevant.119
Evidence of value
13.16 A court will usually determine the value of property by relying on
the evidence each partner presents to the court. The most
common way partners
give evidence of value is to rely on an expert valuer.
13.17 How expert valuers give evidence in court proceedings is governed by the rules of evidence, which are found under the Evidence Act
2006 and the relevant court rules.120 We will not examine these
rules but simply mention a few important aspects.
13.18 First, experts are under an overriding duty to assist the court.121
This reflects the position that expert evidence assists the
fact-
118 Fowler v Wills (2003) 23 FRNZ 703 (CA); and more recently Walker v Walker [2007] NZCA 30, [2007] NZFLR 772. See also
Burgess v Beaven [2012] NZSC 71, [2013] 1 NZLR 129 at [25].
119 Nichola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR2G.03] relying on
G v G (2002) 22 FRNZ 990 (FC); and Loader v Loader [2003] NZFLR 553 (FC).
121 High Court Rules 2016, r 9.43 and sch 4 (Code of conduct for expert witnesses), cl 1. The Code of conduct is incorporated into the District Court Rules 2014: r 9.34. All expert witnesses in the Family Court are expected to comply with the Code of conduct in preparing any witness statement or in giving any evidence in court: Nichola Peart (ed) Brookers Family Law
— Family Procedure (online looseleaf ed, Thomson Reuters) at [EF4.1.03].
finder in a court case.122 In the PRA context, the role of expert
valuers is to assist the court in finding the correct value of the property.
A court will weigh the opinions presented by the expert.
This will normally
require a court to scrutinise the qualifications and credibility of the expert,
and the reasons for each opinion
and the facts and other matters relied on by
the expert.123
13.19 Second, a court can manage how expert evidence is given. A court can direct a conference of experts in order for them to try to reach agreement on certain matters, and prepare joint statements on
the matters on which they agree and do not agree.124 A court can also direct that experts give evidence at the same time and in each other ’s presence.125 This process has become known as “hot tubbing”.126 A judge can ask the same questions to both experts at the same time. A judge effectively facilitates debate between the
two experts. This process may be more efficient than if each party called
their own expert and the other party cross-examined
that expert.
13.20 Third, a court can appoint its own expert. This ability is found in both the court rules127 and the PRA itself.128 Under section 38 of the PRA a court may appoint a person to inquire into the matters of fact in issue between the parties. The provision has occasionally been used by a court to determine the value of property.129 Section
38 inquiries are discussed further in Chapter
26.
125 The procedure is available under High Court Rules 2016, r 9.46.
127 High Court Rules 2016, r 9.36; and District Court Rules 2014, r 9.27.
128 Property (Relationships) Act 1976, s 38.
129 See for example Johnson v Johnson [2005] NZFLR 301 (HC); and Cleland v Dixon HC Hamilton CIV-2006-419-571, 21
July 2006 cited in Nichola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at
[PR38.02(1)].
Issues and options for reform
Valuation disputes contribute costs and delay to the resolution of property
matters
13.21 When all relationship property is to be sold and the proceeds shared, valuation disputes rarely arise. But sometimes one partner may want to retain a particular item of relationship property,
such as the family home or company shares. In other cases the property cannot actually be sold, such as a partnership interest in a professional firm or company shares that are subject to sale restrictions. Partners will often disagree on the value of these items of property. That is because the value ascribed to these
items will determine how much property the other partner should receive, either from the remaining pool of relationship property
or by way of a monetary payment from the partner who keeps the
property.
13.22 We have no way of determining what proportion of property disputes involve issues over the valuation of property because many disputes are resolved out of court. From our research and our preliminary consultation with lawyers we have heard that disputes over the value of property are common, especially when the valuation exercise is complex. The partners may seek extensive expert evidence to support their preferred valuation.
This can cause delay to the resolution of disputes and the partners may incur considerable cost. Prolonged disputes may contradict the principle in section 1N(d) that questions arising under the PRA should be resolved as inexpensively, simply, and speedily as
is consistent with justice.
13.23 The complexities and contest over valuation evidence is often seen in the courts’ decisions. A recent example is T v T, where the Family Court had to ascertain the value of shares in a tourist business negatively affected by the Canterbury earthquakes.130
The partners presented valuations of the shares which were approximately $680,000 apart. The experts could not agree on
the correct valuation methodology, including what underlying
assumptions to make about the future outlook of the business.
The hearing took four days and numerous valuation reports and updates to
those reports were presented to the Family Court.
13.24 If disputed valuations are adding costs and delay to the resolution of property matters, the question that arises is whether any improvements to the PRA’s rules can be made. The PRA does not prescribe the standard and methodologies that should be used when assessing the value of property. Instead, the courts are left
to adopt a value that reflects a just division of that property. In our preliminary view, much can be said for providing a court with this flexibility. Some property will be inherently difficult to value. The value will depend on many factors that are specific to the case.
In T v T, the value of the company in question had been affected by the unprecedented effects of the Canterbury earthquakes on the tourism industry.131 The present value of the shares was based on the future income streams to the company which depended
on the recovery of Christchurch from the earthquakes. The Family Court acknowledged that the valuation of the shares was a “speculative exercise”.132 Valuers can legitimately hold different
opinions on these matters.133 As the Court of Appeal explained in
Holt v Holt:134
The valuation of shares in a family company is notoriously difficult. If
the valuation of the appellant’s shares had been submitted
to five
valuers, it would not be unlikely that five different answers would have
resulted.
13.25 It is not apparent to us whether any measures could be taken to help partners agree the value of their property out of court. We anticipate that in most cases, the majority of the partners’ property will be fairly easy to value, such as vehicles, furniture, savings and residential property. For these types of property, we are unsure whether reform is required to assist the partners and advisers. Rather, disputes over valuation that end up in court tend to arise where the value of the asset in question depends on estimated future income flow, such as shares or partnership
interests in professional firms. Such valuations are often difficult
and depend on many factors.
131 T v T [2014] NZFC 5335, [2015] NZFLR 185.
132 T v T [2014] NZFC 5335, [2015] NZFLR 185 at [185].
134 Holt v Holt [1987] 1 NZLR 85 (CA) at 95 per McMullin J.
13.26 The main option for reform we can see is to introduce rules
into the PRA that prescribe in greater detail how property should be
valued. We are unsure, however, whether this would reduce
valuation disputes.
The rules must still be applied to the circumstances of each case. There would
probably still be scope for
argument. In M v B (Economic Disparity), the
husband and wife each engaged expert valuers to value the husband’s
interest in a law firm.135 Both valuers were given the same set of
instructions on how the interest should be valued. The valuer engaged by the
wife arrived
at a value of $1.341 million whereas for the husband the valuer
gave a value of $182,000.136
13.27 If the rules were too prescriptive and inflexible, they could
jeopardise a court’s ability to arrive at a value that
is fair in the
circumstances of each case.
13.28 Instead of amendments to the PRA, an alternative approach could be to reform the procedure around expert valuation evidence. Jefferson and Moriarty suggest that the courts could make greater use of expert conferences.137 These conferences could be like mediations between the experts. They could assist a court by assisting the experts to identify on which matters they agree or
do not agree. Also, the courts could better use the powers under section 38
of the PRA to appoint a single expert to undertake a
valuation.138
13.29 Again, we are unsure whether reforms of this nature would be effective at minimising the length and costs of disputes around valuation. Jefferson and Moriarty suggest that if a court appoints a single expert, the partners may well retain their own “shadow experts” to challenge any report from the single expert.139
Similarly, if each partner ’s expert must attend a conference of
experts, the time and cost to each partner could be
significant.
135 M v B (Economic Disparity) [2006] NZCA 535; [2006] 3 NZLR 660 (CA).
136 M v B (Economic Disparity) [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [59]–[60].
13.30 Finally, some people we spoke with in our preliminary
consultation suggested there may be greater scope to offer partners tools that calculate an approximate value of their property. For example, online calculators could be developed to provide approximate valuations for things like superannuation scheme entitlements and company share valuations. Such tools would give partners a rough idea of the value of their property without engaging expensive expert assistance. The valuations given would have no binding effect; the calculation tools would
be for estimation only.140 If the partners have available a means
of determining the approximate value of their property, they may be better
equipped to resolve
property matters themselves.
13.31 We have doubts about the efficacy of such tools. As we have noted,
disputes over value mostly arise where the asset’s
value is likely to be
high but reasonable experts may differ on applying an appropriate methodology.
We are unsure whether measures
such as online calculators would assist with
complex share valuations, or dissuade the partners from retaining their own
experts
and contesting the issue.
C ONSU LTATION QUESTIONS
D11 How often will a dispute between the partners involve a contest over the
value of property?
D12 Are there any ways the PRA and/or dispute resolution processes could be
improved to avoid disputes regarding valuation?
Is the fair market value standard relied on too often?
13.32 As we have noted, the PRA does not define what value means.
There are however many standards against which property can
be valued. Usually valuers will be instructed to determine the fair market value of property. As we explained above, this requires an analysis of what price a willing but not anxious buyer would pay for the property and at what price a willing but not anxious seller would sell.
13.33 Through our preliminary consultation we have heard that in the vast
majority of cases lawyers will instruct valuers to value
140 The Inland Revenue’s online Child Support – Liability/Entitlement Calculator serves a similar function. See Inland
Revenue “Child Support Liability/Entitlement Calculator” <www.ird.govt.nz>.
property on a fair market basis without considering whether an
alternative standard may be appropriate. Sometimes a fair market value
standard may not be the best approach because the fictitious
willing buyer and
willing seller analysis ignores the reality of the partners’
circumstances.141
13.34 A good example is the way the courts sometimes value shares in a
company. Where a small company is run as a partnership
between two shareholders,
and the shareholders fall out, one shareholder may buy the other shareholder
’s shares. In these
circumstances a fair value of the shares may not be
captured by assuming a hypothetical arm’s length transaction. For
instance,
on a market value approach, there would usually be a discount for the
shareholder ’s minority interest in the company, whereas
in reality the
remaining shareholder would obtain a majority interest in the company. The
outgoing shareholder will also give up
a great deal losing his or her interest
in the quasi-partnership. Again, this loss may not be accurately reflected in a
willing but
not anxious seller analogy.
13.35 In these circumstances the courts sometimes adopt a fair value
standard rather than a fair market value standard. Under a
fair value approach,
the value the court endeavours to ascertain is a value that is fair as between
the vendor and purchaser.142 A court does this by recognising what
the seller gives up in value and what the buyer acquires through the
transaction.143 The fair value approach realises that the market
value of the property is not actually the real or intrinsic value of the
property.144
13.36 We are interested in responses to whether the courts should be more
willing to value property against a different standard
than the market value of
the property. We can identify several items of property that may have greater
intrinsic value to the
partners over the property’s market value. The
partners may have great affection and attachment to a family pet or a work of
art. As part of the division of the partners’ relationship property, a
court could order that the pet or artwork vest in
one partner. That partner
must
141 Allan McRae and Jai Basrur “Valuations of Unlisted Shares – is there a difference between Fair Market Value and Fair
Value?” NZ Lawyer (online ed, Auckland, 15 November 2011).
143 Re James Davern Ltd [1996] NZCA 417; (1996) 9 PRNZ 456 (CA) at 459.
144 Allan McRae and Jai Basrur “Valuations of Unlisted Shares – is there a difference between Fair Market Value and Fair
Value?” NZ Lawyer (online ed, Auckland, 15 November 2011).
then account for half the property’s value to the other partner.145
The price a third party would be likely to pay for the pet or
artwork in a hypothetical arm’s length transaction may not reflect the
sentimental value the partner accords to the property
but is forced to give up.
Division of the property’s fair market value may not be a just
division.
13.37 To take another example, the partners may have carried on business
together through a company in which both partners held
shares. As part of the
division of the partners’ relationship property, one partner may allow
the other to acquire his or
her shares. Based on our discussion above, this may
be a case where the remaining shareholder would have to account for the fair
value of the outgoing partner ’s shares rather than the fair market
value. The issue was considered by the Family Court in
Foley v
Foley.146 There the expert valuers had disagreed on whether the
shares in the company through which the partners conducted a farming business
should be valued at a fair value or fair market value. The Family Court noted
that the concepts had never been fully analysed in
any prior decision.147
Ultimately, the Court did not express a preference on the standard of
value. The Court did, however, value the shares based on what
the husband
would obtain by acquiring the wife’s shares in the actual circumstances
of the case rather than on a hypothetical
market price.148
13.38 However we also see the advantages of valuing property by fair market
value. A fair market value can be determined objectively,
and the courts do not
have to consider a partner ’s subjective intentions and sentiments
regarding the property. This means
that one partner cannot unfairly skew the
valuation by what may sometimes be spurious or subjective claims about the
property.
C ONSU LTATION QUESTIONS
D13 Should the courts be more willing to value property against a different
standard than the market value of the property?
D14 In what circumstances should property be valued under an
alternative standard of value?
145 See discussion on pets below in Chapter 14.
146 Foley v Foley FC Christchurch FAM-2009-009-2141, 25 August 2011.
147 Foley v Foley FC Christchurch FAM-2009-009-2141, 25 August 2011 at [29].
148 Foley v Foley FC Christchurch FAM-2009-009-2141, 25 August 2011 at [44].
Chapter 14 – How a court
implements a division of property
14.1 In Chapter 12 we looked at each partner ’s right to an equal share in relationship property. That does not mean that every asset is literally halved. As explained in Chapter 13, the partners share
in the value of the global pool of relationship property, after the value of
relationship debts has been deducted. Once the net value
of each partner
’s half share is ascertained, the court will make orders allocating
certain items of relationship property
(or a portion of their sale proceeds)
to each partner.
14.2 In this chapter we focus on this process. We consider the orders a
court can make to implement or facilitate the division
of relationship property
(division orders), and the court’s powers to grant interim distributions
of property.
14.3 We also look at other orders a court can make that grant a partner
certain temporary rights to property, but do not divide
that property. We call
these orders non-division orders. They include:
(a) occupation orders (section 27); (b) tenancy orders (section 28); and
(c) orders for furniture required to equip another household (section
28C).
14.4 Finally, we consider the PRA provisions that protect a partner
’s rights before the relationship property is divided.
Division orders
14.5 Although the PRA has very clear rules about each partner ’s
right to an equal share of relationship property, the PRA
is less prescriptive
about how a court implements or facilitates a division of the property.
14.6 Section 25 is the key provision that enables a court to make any order it considers just, deciding the respective shares of each partner in the relationship property or dividing relationship property between the partners.
14.7 A court can make a range of orders to implement a decision
it makes about property division under section 25. These are
“ancillary” orders because they must only give effect
to a
court’s decision under section 25.149
14.8 The court’s primary source of power to make ancillary orders is
set out in section 33. Section 33(1) gives a court a
general power to:
... make all such orders and give such directions as may be necessary or
expedient to give effect, or better effect, to any order
made under any of the
provisions of sections 25 to 32.
14.9 The ancillary powers under section 33 can also be exercised in
relation to orders under other provisions of the PRA, such
as sections 44 and
44C.150 Section 33(3) sets out a non-exhaustive list of examples of
powers a court could employ to carry out this task.
14.10 A court may exercise its powers under section 33 more than once in
the same court proceeding. For example, section 33 can
be used where there has
been or will be an attempt to give effect to the court’s substantive
order, but that has not or may
not achieve the intended result.151
However a court cannot reopen its substantive findings and decisions on
property shares and their division in a later application
under section
33.152 The powers in section 33 can also implement a contracting out
agreement and consent orders, but cannot be used to alter their
terms.153
14.11 The PRA also gives a court specific powers to divide particular types
of property:
(a) hire purchase agreements (section 29); (b) insurance policies (section 30); and
(c) superannuation rights (section 31).
14.12 Finally, a court has powers to make certain orders to provide for
children:
149 Coxhead v Coxhead [1993] 2 NZLR 397 (CA), at 408.
151 Lee v Lee [1987] NZHC 1209; (1987) 3 FRNZ 310 (HC) at 315.
152 Weir v Weir [1987] NZHC 1956; (1987) 3 FRNZ 289 (HC) at 293.
153 See for example Belt v Belt (1989) 5 FRNZ 258 (FC); and C v C FC Waitakere FAM-2006-090-1281, 18 June 2008 at [57].
(a) settling relationship property for the benefit of children
(section 26);
(b) postponing vesting any share in relationship property
(section 26A); and
(c) making or varying any order regarding maintenance and child support
(section 32).
14.13 We discuss orders under sections 26 and 26A in Part I of this
Issues Paper.
Can a court make orders about property owned by a third party?
14.14 Section 25(3) provides that a court: “may at any time make any order or declaration relating to the status, ownership, vesting, or possession of any specific property as it considers just.” This suggests that a court can make orders or declarations regarding
any property, regardless of ownership. However the courts have said that
section 25(3) is supplementary to section 25(1), which
limits a court to orders
regarding relationship property and other orders it is empowered to make under
the PRA.154 Section 25(3) is simply intended to better empower a
court to make appropriate orders within the general scheme and framework of
the PRA.155
14.15 It is unclear whether, within the general scheme of the PRA, a court has the power to make orders regarding third party property. Sometimes the partners will have an interest in property that appears to be owned by a third party. A common example is a trust.156 In Yeoman v Public Trust the High Court explained that if a third party disputes a partner ’s property interest claim, a court has no jurisdiction under the PRA to determine the issue.157 Instead, the claim would need to be determined in separate proceedings.
As we explain in Part H, this issue often comes up when a partner
claims that a trust connected with the relationship is
invalid.158
154 ANZ Banking Group (NZ) Ltd v Wrightson (1992) 9 FRNZ 1 (HC) at 8, referring to Hall v Hall (1989) 5 FRNZ 309 (FC) at 313.
155 ANZ Banking Group (NZ) Ltd v Wrightson (1992) 9 FRNZ 1 (HC) at 8, referring to Hall v Hall (1989) 5 FRNZ 309 (FC) at 313.
156 Another example is family homes built on Māori land. Māori land typically has multiple owners or is held on trust
for the descendants of a common tipuna. Māori land is excluded from the Property (Relationships) Act 1976, but the position in respect of family homes that sit on the land is unclear. See the discussion in Chapter 8.
157 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [39]. In Jew v Jew [2003] 1 NZLR 708 (HC), the High Court
went further. It held that it was inconceivable that the Family Court had jurisdiction under s 25(3) of the Property
(Relationships) Act 1976 to make declarations as to ownership in respect of property owned by third parties.
158 See Part H.
14.16 It is also unclear whether any decision under the PRA about a
partner ’s interest in property which appears to be owned by a third
party binds that third party. Again, in Yeoman v Public Trust the High
Court explained that a decision under the PRA cannot bind third
parties.159
14.17 These issues tie into the overall jurisdiction of the Family Court to
consider claims that determine the rights of third
parties. There is no
settled view among the cases.160 We discuss these problems in
relation to trusts in Part G and in relation to the jurisdiction of the Family
Court in Part H.
Can the court vary trusts?
14.18 There is also uncertainty about a court’s ancillary powers regarding trusts. Section 33(3)(m) provides that a court can make “an order varying the terms of any trust or settlement, other than a trust under a will or other testamentary disposition”. This appears to
give a court broad powers to vary a trust deed, including to add or remove
trustees or beneficiaries, vary the final distribution
date or give one partner
an interest in income of the trust.
14.19 However, there are several limitations on a court’s use of section
33(3)(m):
(a) First, as discussed at paragraphs 14.78–14.910 above, section 33
does not provide originating jurisdiction regarding
trusts. The power to vary a
trust can only be exercised if it is necessary or expedient to give effect or
better effect to orders
made under another provision of the
PRA.161
(b) Second, if trust property is not beneficially owned by one or both of
the partners, it will be outside the jurisdiction of
the PRA unless the PRA
provides the court with specific powers to make orders in
respect
161 G v R FC Porirua FAM-2007-091-892, 4 September 2008; B v M [2005] NZFLR 730 (HC) at [223]; P v P (No 4) (2005) 25
FRNZ 320 (FC); and C v C HC Auckland CIV-2005-404-7124, 27 November 2006.
of the trust property.162 This appears to limit section
33(3)(m) to cases where sections 44 and 44C apply.163
However section 33(3)(m) does not expressly refer to those provisions. Section 33(3)(m) might also be used where the purported transfer of property to a trust
is invalid or ineffective, but this is unclear given the uncertainty around
the extent of a court’s jurisdiction under the
PRA, discussed
above.164
(c) Third, as we discussed above it does not appear that a court can make orders under the PRA binding on third parties, including trustees.165 While trustees may be joined as third parties in PRA proceedings under section
37,166 the courts have observed this does not entitle a court
to make an order affecting that party’s property
entitlements.167
14.20 For these reasons we think that the application of section 33(3) (m)
would benefit from clarification.
14.21 A further issue with section 33(3)(m) is that there is no
requirement to consider the interests of the other beneficiaries.
While a court
would likely do so, it is desirable that this be clarified in the PRA.
C ONSU LTATION QUESTION
D15 Have we identified all of the issues with the operation of section
33(3)(m) to vary trusts?
note the problems identified at [14.15]–[14.16] above. See also Nicola Peart (ed) Brookers Family Law — Family Property
(online looseleaf ed, Thomson Reuters) at [PR33.13]; and C v C (No 2) [2006] NZFLR 908.
163 As discussed at [14.9], s 33 of the Property (Relationships) Act 1976 applies to ss 44 and 44C by virtue of s 25(1)(b). See
S v M FC Tauranga FAM-2004-070-823, 16 November 2006 at [54]. The Family Court relied on the High Court’s decision in McGill v Crozier (2001) 21 FRNZ 157 (HC) whereby section 33(3)(m) was used to vary the terms of the trust in relation to a yacht. However, the High Court in McGill v Crozier determined at [41] that the powers given by s 33(3)(m) had been invoked by the Family Court after it had acted under s 25 to determine that the wife’s half share remained relationship property. The Family Court in S v M instead used the s 33(3)(m) powers, via s 25(1)(b), to directly order the trustees to sell a home if the husband was unable to otherwise pay compensation due under s 44C.
164 See McGill v Crozier (2001) 21 FRNZ 157 (HC). In that case there were no third party trustees so the purported transfer
“must have been ineffective to convey title in those circumstances: at [41].”
165 See discussion in Part H; Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [39] to [45]; and F v F [2015] NZHC 2693 at
[102-103].
823, 16 November 2006, discussed above, to make the order.
Is there a need for clear guidance on when a court can vary trusts under
that provision?
D16 Are there any other issues with the operation of section 25 or section 33
we have not identified?
Problems dividing particular types of property
Superannuation scheme entitlements
14.22 Under section 8(1)(i) of the PRA “the proportion of the value
of any superannuation scheme entitlements ... that is
attributable to the
relationship” is relationship property. A “superannuation scheme
entitlement” is defined in
section 2 and only includes superannuation
schemes where the benefit derives from contributions made by the person or an
employer.
It does not apply to State pension benefits.168
14.23 Applying the PRA to superannuation is complex when it comes to valuing and dividing the benefits from a scheme. Usually
the benefit will not accrue until some point in the future. The Court of Appeal has suggested that to achieve a clean break, the best option may be for one partner to pay a lump sum to the other from other property to account for the value of the
superannuation scheme entitlement.169 The courts have, however, acknowledged that there will be cases where a lump sum payment is not suitable, particularly when the contributing partner does
not have enough assets available to make the payment.170 In this
situation there are two options under the PRA. One is to provide for a deferred
payment. The other option is to make an order
under section 31.
14.24 Section 31 enables a court to make an order requiring the
superannuation scheme manager to pay the non-contributing partner
out of that
scheme. The court’s order is conditional on the partners entering a deed
or arrangement which binds the manager
of the
scheme.
169 Haldane v Haldane [1981] 1 NZLR 554 (CA) at 557.
170 Haldane v Haldane [1981] 1 NZLR 554 (CA) at 556.
14.25 Atkin says that section 31 does not seem necessary.171 This is
because section 33(3)(l) and section 33(6) provide a court with the required
powers to make orders to distribute payments from superannuation
schemes.172 It is difficult to reconcile the broader, general
powers in these sections with the more limited, specific power in section 31.
We
think this should be clarified.
14.26 Problems also arise under section 31 where there are other possible beneficiaries of the partner ’s superannuation scheme entitlement. For example, when the contributing partner enters a new relationship the new partner may have rights to the fund on the death of the contributing partner. This scenario arose in Sidon v Sidon.173 There the High Court made no section 31 order because it considered it would be inappropriate to alter the rights that
the former partner and the new partner had under the scheme. Instead, the Court ordered that the value of the contributing partner ’s future scheme entitlements should be quantified as
at the date of separation, but payment of half that value to the former
partner could be deferred. The rights the new partner had
on the death of the
contributing partner were left unaffected.
14.27 It is not clear whether a section 31 order impacts on the way a superannuation entitlement is valued. In theory, when a section
31 order is made there should be no deduction for contingencies or the present value of money. That is because the non- contributing partner will only receive the money from the scheme at the later date and will take on the risk of the contingencies
and the cost of not having the money until retirement. Cases in which a section 31 order is made have not included reductions for contingencies in valuing the superannuation scheme.174
Sometimes an award has been made to the value of the scheme at separation
date (including contingencies) plus interest.175
14.28 There are also issues with the process contemplated under section
31. The benefit in requiring the parties to enter an arrangement or deed is
unclear. Evidence about the superannuation scheme and
contributions to the
scheme would need to be provided to
171 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.39].
172 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.39].
173 Sidon v Sidon (1991) 7 FRNZ 351 (HC).
175 Brown v Brown (1994) 12 FRNZ 633 (DC).
a court to identify the proportion of superannuation funds that
constitute relationship property under section 2 and section
8(1)(i), and their value. In addition, evidence may need to be provided to
the court to ensure consistency between the terms of
a superannuation scheme and
any agreement regarding contributions, including where there are other
beneficiaries to the scheme.176 It would therefore seem more
efficient to include the terms of the agreement about superannuation rights
within the order itself
and not require parties to enter any subsequent
arrangement or deed.
14.29 The chief significance of a deed as contemplated by section 31 is
that it appears to provide an additional mechanism for
the partner concerned to
enforce their rights against the superannuation fund manager.177
However, it is not clear if the extra protection a deed would provide,
over a court order containing the terms of the arrangement,
warrants the extra
resource required.
14.30 A court order detailing the agreement would also minimise any risk
that a later arrangement or deed made under section 31(1)
contradicts
directions in the order. There is a requirement to serve the arrangement or deed
on the superannuation scheme provider
under section 31(2) but not the order made
under section 31(1). This should also be addressed.
C ONSU LTATION QUESTIONS
D17 Is it preferable for a court to have a specific power to deal with
superannuation scheme entitlements rather than use its generic
powers under
section 33?
D18 Is the requirement under section 31 for a deed or arrangement useful or
would a court order on its own be enough for the division
of superannuation
rights under the PRA?
KiwiSaver
14.31 KiwiSaver is similar to private superannuation schemes because both comprise a combination of employer and employee contributions and are often only accessible on turning the age
of 65. However in some cases it may be incorrect to describe a
KiwiSaver account as a superannuation scheme. This is because people can
withdraw money from their KiwiSaver scheme before
177 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.39].
the age of 65 in certain circumstances, for example, to fund
the purchase of their first home or when they are experiencing significant
financial hardship.
14.32 The Court of Appeal has said that the definition of a superannuation scheme entitlement in section 2 is wide enough to include an interest in a KiwiSaver scheme, although that case was not about dividing a KiwiSaver account under the PRA.178
Section 127 of the KiwiSaver Act 2006 recognises that a court can make
orders under section 31 of the PRA in relation to KiwiSaver
schemes, which
indicates an intention that KiwiSaver schemes would fall under the
superannuation provisions of the PRA.
14.33 In other cases under the PRA the courts have treated KiwiSaver entitlements as the equivalent of money in a bank account which can be split evenly.179 This approach ignores the contingent
nature of KiwiSaver entitlements. It may be unfair on the contributing partner as he or she must account for half the value of the KiwiSaver scheme when the actual funds cannot usually
be accessed for many years. The time value of money is not considered in
making half of the account payable on separation. These
issues have not yet
been raised in any cases. This might be because KiwiSaver is a relatively new
scheme and as a result the
sums of money in KiwiSaver accounts are usually
small when compared to the size of the overall relationship property pool.
However
as KiwiSaver accounts become larger over time, the fact that the funds
cannot be accessed immediately may see the courts move
to treating KiwiSaver
accounts as if they are superannuation schemes. This might also create issues,
due to the unique aspects
of the KiwiSaver scheme described at paragraph 14.31
above.
C ONSU LTATION QUESTION
D19 Should KiwiSaver schemes be treated in the same way as superannuation
schemes on the division of relationship property? Or should
there be a different
approach? What would that approach look like?
ACC payments
14.34 In Chapter 11 we explained how an entitlement to payments under the
Accident Compensation Act 2001 and its predecessors
178 Trustees Executors Ltd v Official Assignee [2015] NZCA 118, [2015] 3 NZLR 224 at [53].
179 Examples of this include S v S [2012] NZFC 2685; B v C [2015] NZFC 8940; and R v L FC Gisborne FAM-2011-016-147, 6
October 2011.
(ACC payments) will be classified as relationship property if the
entitlement arose during the relationship. It is not clear how ACC
payments should be divided.
14.35 Section 123 of the Accident Compensation Act provides that all entitlements under the legislation are “absolutely inalienable”. Section 124 provides that the Accident Compensation Corporation must provide the entitlements only to the claimant.
There are limited exceptions to these rules, such as deductions for child
support, but division of relationship property under the
PRA is not
included.
14.36 The KiwiSaver Act 2006 has similar restrictions. Section 127(1)
provides that a member ’s interest or any future benefits
in a KiwiSaver
scheme cannot be assigned or passed to another person. Section 127(2),
however, provides that interests can be
passed to another person if required
by any enactment, or by court order, “including an order made under
section 31 of the
[PRA]”. The Court of Appeal has said that this express
reference to section 31 indicates that any derogation from the clear
language
of section 127(1) of the KiwiSaver Act should be clearly and expressly provided
for in some other enactment.180
14.37 There is no equivalent of section 31 to enable a court to make orders regarding a person’s ACC entitlements under the PRA. Nor does section 123 of the Accident Compensation Act refer to the PRA. It is therefore unclear whether the PRA gives a court
power to make orders dividing a partner ’s ACC entitlements. The contrary view, however, is that notwithstanding the prohibition on alienation under sections 123 and 124 of the Accident Compensation Act, the PRA will prevail. That is because section
4A of the PRA provides that every other enactment must be read subject to
the PRA. Regardless, we think it is desirable that
this be clarified in the
PRA.
C ONSU LTATION QUESTION
D20 If ACC entitlements can be classified as relationship property, should
section 123 of the Accident Compensation Act 2001 be amended
to expressly allow
division under the PRA?
180 Trustees Executors Ltd v Official Assignee [2015] NZCA 118, [2015] 3 NZLR 224 at [53].
Pets
14.38 The PRA’s definition of “family chattels” under section 2 includes “household pets”. Pets are therefore theoretically treated like any other item of property when partners’ property is classified and divided. Pets are, however, different from other types of family chattels. They are living creatures, and their ongoing care must
be factored into the division of relationship property. A partner ’s
attachment to and affection for a pet is also likely
to be of a different
quality than their attitude to other types of property.
14.39 The PRA gives little direction on how these special considerations
are to be taken into account when dealing with pets. The
courts have, however,
established some fairly clear principles:
(a) First, the courts have followed the PRA’s provisions and included pets when dividing the partners’ relationship property equally. In the case S v S for example, the Family Court ordered that the partners’ dog Milo was
to stay with Mr S at Mr S’s rural property.181 The Court
accepted however that Milo was relationship property and that Milo’s
value had to be shared equally. The Court
ordered that Mr S pay Mrs S half
Milo’s value, which was assessed at half the price Milo had been bought
for.182
(b) Second, even though the value of the pets will be shared, the courts will determine which partner the pet should live with based on the best interests of the pet. For example, in the case Pence v Pence, the Court had
to decide which partner the couple’s two chihuahuas should live with.183 One partner argued that each partner should be awarded one dog. The Court did not agree. The Court said that it was in the best interests of the chihuahuas that they live together. The Court noted that four reasonably large dogs frequently visited one
of the partner ’s homes, and considered that the larger dogs would not be appropriate company for the smaller chihuahuas. The Court therefore awarded ownership of
the chihuahuas to the other partner.184
181 S v S [2012] NZFC 2685.
182 S v S [2012] NZFC 2685 at [30].
183 Pence v Pence (1978) 2 MPC 146.
14.40 Although these principles appear fairly well settled, there are
potential issues. The main concern is whether the PRA should contain more direction to the courts on how it should make orders regarding pets. Some overseas commentators suggest that the principles governing the post-separation placement of
family pets should be dealt with expressly through legislation.185
The Swiss Civil Code, for example, provides that ownership of
a pet may only be awarded to the partner who offers the better conditions of
animal welfare in which to keep the animal.186
14.41 There is also uncertainty regarding pets that cannot be properly
described by the term “household pets” used
in section 2. A family
may have an equally strong attachment to a pet horse or sheep, even though
these animals are not technically
“household pets”. There is also
some uncertainty regarding the classification and valuation of pets used partly
for
business, like showing or breeding.187
14.42 Although these concerns are legitimate issues, we are unsure whether
in practice they are creating problems to an extent
that requires reform of
the PRA.
C ONSU LTATION QUESTION
D21 Do the PRA’s provisions regarding pets give sufficient direction
to a court? Are the provisions inadequate in relation
to non-household
pets?
Interim property orders
14.43 Separation or the death of one partner can have immediate financial
consequences for the partners involved.188 When property matters
under the PRA are disputed this can tie up a
186 Discussed in Paula Hallam “Dogs and Divorce: Chattels or Children? – Or Somewhere In-between?” (2015) 17 S Cross
L Rev. 97; and Swiss Civil Code 1907, art 651a. In contrast, some Canadian courts have resisted calls to determine the living arrangements for pets in a similar way to the guardianship of children. See Ireland v Ireland 2010 SKQB
454, 367 Sask R 130 at [12] “[A] dog is a dog. Any application of principles that the court might normally apply to the determination of custody of children are completely inapplicable to the disposition of a pet as family property” cited with approval in Henderson v Henderson 2016 SKQB 282.
187 Nichola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PRA 2.12.02].
large proportion of a partner ’s wealth until those matters are
resolved. This can take a long time, often years, especially if the partners
go to court.189
14.44 Sometimes a partner will need interim access to relationship property in order to pay for day-to-day living expenses or cover the additional costs of moving out of the family home, setting up a new home and/or getting legal advice. When relationship
property is in the other partner ’s name, and the partners cannot
agree on how interim costs are to be met, an application
for an interim property
distribution may be necessary.
Interim distributions under section 25(3)
14.45 Section 25(3) provides that “the court may at any time make
any order or declaration relating to the status, ownership,
vesting, or
possession of any specific property it considers just.” Section 25(4) then
states that:
To avoid any doubt, but without limiting subsection (3), if proceedings
under this Act are pending, the court, if it considers it
appropriate in the
circumstances, may make an interim order under that subsection for the sale of
any relationship property, and
may give any directions it thinks fit with
respect to the proceeds.
14.46 A court can therefore order an interim distribution of property under
section 25(3), and it can give effect to that order
by making ancillary orders
under section 33.190
14.47 The PRA does not provide any guidance on when an interim
distribution should be made. However the courts have recognised
a range of
relevant factors, including:191
(a) the purpose and principles of the PRA;
(b) the needs and circumstances of the applicant;
being discontinued, withdrawn or struck-out) from the time it was filed was approximately 74 weeks: this figure is from provisional analysis made by the Ministry of Business, Innovation and Employment’s Government Centre for Dispute Resolution, having analysed data from the Ministry of Justice’s Case Management System and provided by email to the Law Commission (26 September 2017). See Chapter 25 for further discussion on court processes.
191 H v P FC Tauranga FAM-2009-070-817, 11 January 2011 at [26]; and M v B [2013] NZHC 1056 at [30].
(c) the purpose for which interim distribution is sought;
(d) the applicant’s likely share of relationship property; (e) the respondent’s ability to give effect to an order;
(f ) the length of time until the hearing of the substantive
issues;
(g) delays to date, and who had caused them;
(h) any uncertainty as to the applicant’s entitlements under the
PRA;
(i) the effect of an order on the parties’ willingness and
determination to finalise their claims;
(j) whether or not the respondent has dissipated relationship
property;
(k) any possible prejudice that might arise from making a proposed
order; and
(l) whether an interim distribution will cause further delays in finally
determining the relationship property claim.
Limitations of section 25(3)
14.48 Because section 25(3) has not been designed solely for interim
distributions,192 there are a number of limitations that undermine
its effectiveness.
14.49 First, orders can only be made in relation to specific items of property. Section 25(3) cannot be used to make an interim distribution of a sum of money that represents part of the value of the global pool of relationship property.193 A court would instead need to order specific property to be vested in one partner or to
be sold, with orders as to how the proceeds should be distributed
between the partners.194
a series of orders in relation to each specific asset owned by each of the parties: Public Trust v Whyman [2004] NZCA 327; [2005] 2 NZLR 696 (CA) at [21],.
14.50 Second, it is unclear whether a court can make an order under
section 25(3) in respect of general funds. While orders have
been made in relation to funds held in lawyers’ trust accounts,195
the High Court in Owen v Thomas noted there were “serious
difficulties” in obtaining an order under section 25(3) for the payment of
a sum of money,
because it does not readily fit within the description of
“specific property.”196 The Court distinguished money
frozen in an account by agreement or court order, from funds that can move in
and out of a bank account
and which can be replaced by funds of a different or
mixed character in terms of being either relationship or separate
property.197
14.51 Third, there is uncertainty as to whether section 25(3) can be used to make orders in relation to separate property. The High Court
has observed on several occasions that section 25(3) appears to extend to separate property,198 and in R v G the Family Court made orders under section 25(3) vesting in the respondent certain property which the partners had agreed was the applicant’s separate property.199 However in the more recent case of Owen
v Thomas the High Court, while not deciding on the matter, observed
that it would need to be satisfied that the circumstances of the parties
justified the separate property of one party being drawn into the pool of
relationship property.200 Otherwise, the Court said, section 25(3)
would enable a court to order an interim distribution of property that could
not be distributed
by way of a final order.201
14.52 Finally, an interim distribution converts the property into one partner ’s separate property, so the effect of the order is final
and cannot be revisited or recalled.202 A court must therefore
be
specified date.
195 Murray v Murray [1989] NZCA 362; (1989) 5 FRNZ 177 (CA); and M v M [2007] NZFLR 933 (FC). In Burton v Burton [2001] NZHC 1264; [2002] NZFLR 172 (HC)
the High Court held at [21] that it is not possible at law to take possession of money without vesting the ownership of it.
196 Owen v Thomas [2014] NZHC 2200 at [28].
197 Owen v Thomas [2014] NZHC 2200 at [29].
198 Cossey v Bach [1992] 3 NZLR 612 (HC) at 639; and M v B [2013] NZHC 1056 at [31]. See also RL Fisher (ed) Fisher on
Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.59].
199 R v G FC North Shore FAM-2009-044-920, 31 March 2010.
200 Owen v Thomas [2014] NZHC 2200 at [25].
201 See Burton v Burton [2001] NZHC 1264; [2002] NZFLR 172 (HC).
202 B v B [2012] NZHC 1951 at [12]; and Burton v Burton [2001] NZHC 1264; [2002] NZFLR 172 (HC). Note that orders for possession under s
25(3) of the Property (Relationships) Act 1976 are not final in effect: Brown v Cheung [2016] NZHC 2408, [2016] NZFLR
860.
certain that an interim distribution will not exceed the applicant’s
entitlement. As the Family Court observed in A v R (No
2):203
The challenge, therefore is to determine the amount which can be safely
released to the applicant at this stage without putting the
Family Court in any
difficulty when it comes to make [its] final determination under the
Act.
14.53 This requires a court to have sufficient information regarding the value of both the specific item of property that is the focus of
the section 25(3) application and the global pool of relationship property.
This can be challenging when there are unresolved disputes
about the
relationship property.204 In Chapter 13 we discussed how disputes
over the value contribute to costs and delay to the resolution of property
matters. This is
also an issue for interim distributions.
Relationship between section 25(3) and the other pillars of financial
support
14.54 In Chapter 2 we identified the different pillars of financial support
available to families when relationships end. These
are maintenance (including
interim maintenance), child support and State benefits.205 Each
addresses a different issue and together with the PRA they establish a framework
of financial support.
14.55 Often these pillars of financial support will be better at meeting one partner ’s interim living costs than an interim distribution
of property under the PRA. While our review does not extend to these other
pillars of financial support, it is important to understand
how they operate to
ensure there are no gaps or overlaps in terms of what each pillar is designed
to achieve. We discuss interim
maintenance below, as this is directly relevant
to the role of interim distributions under the PRA. Maintenance is discussed
further
in Part F and child support is discussed in Part I.
Interim maintenance under the Family Proceedings Act 1980
14.56 One partner may be entitled to maintenance from the other partner to
the extent that it is necessary to meet their
203 A v R (No 2) FC Christchurch FP/009/1430/99, 18 August 2004.
204 See for example B v B [2012] NZHC 1951 at [13].
205 Other pillars of financial support may be available when a relationship ends on death, as discussed in Chapter 2.
reasonable needs if they cannot meet those needs themselves.206
Maintenance may be available for married and civil union partners both during
the relationship and after the relationship has been
dissolved, and for de
facto partners after the parties cease to live together.207 A partner
seeking maintenance must apply to the Family Court or District Court under the
Family Proceedings Act 1980.
14.57 Interim maintenance can be ordered when an application for maintenance has been filed but not yet finally determined.208 A court can make an interim maintenance order for the payment of “such periodical sum as the [court] thinks reasonable”.209 A court will consider the reasonable needs of the applicant, with reference to the partners’ previous standard of living, the applicant’s ability to meet those needs and the other partner ’s ability to pay.210
Interim maintenance orders can only be made for a six month period,211 and are a stop-gap measure designed for quick and
easy access to the courts.212 Interim maintenance is often sought immediately following separation when the final outcome of
the partners’ relationship, parenting and property matters is
unknown.213
14.58 During preliminary consultation we heard from lawyers that
applications for interim maintenance are relatively common and
often a vital
source of aid for many applicants. However, there can be delays in applications
being heard and subsequent applications
are often required once the six month
time limit expires because the parties are still sorting out their affairs.
We also heard
that partners will often make private arrangements for the
payment of
208 Family Proceedings Act 1980, s 82.
NZLR 245 (CA); and Langridge v Langridge [1987] NZHC 1406; [1987] 2 NZLR 554 (HC).
210 Ropiha v Rohipa [1979] 2 NZLR 245 (CA).
212 Beck v Beck [1975] 2 NZLR (SC) 123 at 125; and G v [LC] FC Auckland FAM-2011-004-2021, 16 December 2011 at [9].
213 H v H [2014] NZHC 211, (2014) 29 FRNZ 727 at [36].
maintenance in the short-term following separation, often for six
months, reflecting the time limit in the Family Proceedings Act.
14.59 A court can make a final order for maintenance where a partner cannot meet their reasonable needs due to specified circumstances, such as the partner ’s ability to become self- supporting due to the effects of the division of functions in the relationship, or ongoing childcare responsibilities.214 A court must take into account a number of factors in assessing quantum, including the reasonable needs, means, and responsibilities of
each partner.215 There is no time limit for final maintenance
orders but partners must assume responsibility for their own needs within a
reasonable
time after the relationship ends.216
When should maintenance be ordered pending the determination of property
matters?
14.60 Maintenance clearly has a role to play following a relationship
breakdown. This is recognised in the PRA. Section 32 requires
a court to have
regard to any prior maintenance orders, and permits a court to make, vary or
discharge an order for maintenance when
dealing with property matters under the
PRA.217
14.61 Maintenance will not, however, always be sufficient in meeting the needs of one partner pending the determination of property matters under the PRA. For example, when the partners only possess capital assets and have limited income streams there may be an inability to pay a reasonable amount of maintenance. There are also restrictions within the maintenance regime. For example, lump sum payments cannot be awarded for interim
maintenance,218 and legal and accounting costs cannot be claimed in applications for final maintenance.219
14.62 For these reasons we think there remains a need to provide for
interim property distributions under the PRA. We discuss
below
214 Family Proceedings Act, s 64.
215 Family Proceedings Act, s 65.
217 Similar provisions also exist in s 65(2)(a)(i) of the Family Proceedings Act 1980.
218 Family Proceedings Act, s 82.
some options for reform that are designed to address the current
limitations of section 25(3).
Options for reform
Option 1: Provide for interim lump sum distributions
14.63 One option is to retain section 25(3) but give the court a new power
to order an interim distribution in the form of a lump
sum payment. This would
provide an alternative to seeking an interim distribution in relation to a
specific item of property. A
lump sum distribution could be made where a court
was satisfied that funds were available to meet the order. Those funds might
not need to be classified as relationship property, but a court would still need
to be satisfied that the interim payment will
not exceed the value of the
recipient partner ’s share in the global relationship property
pool.
14.64 We think that an initial lump sum payment order could address a
number of the issues we have outlined. It could also improve
accessibility to
the law and provide a visible framework to incentivise partners to negotiate
their own agreements for interim payments
out of court.
14.65 The option of an interim lump sum payment in lieu of maintenance is
discussed further in Part F.
Option 2: Provide specific valuation guidance for interim
distributions
14.66 In Chapter 13 we discussed some options to address valuation issues, although we are unsure if these reforms would be effective in reducing the prevalence of valuation disputes. One option to address valuation disputes that arise in the context of interim distributions might be to provide guidance on how a court should assign values to property for the purposes of interim distributions. For example, the PRA could provide that, when two different valuations are submitted, a court can accept the lowest reasonable valuation for the sole purpose of making an interim distribution order. The court’s decision would be a pragmatic one and would have no bearing on the value to be assigned to the property at the final hearing.
C ONSU LTATION QUESTIONS
D22 Should a court have the power to order an initial payment not
associated with specific items of property? If so on what basis?
D23 Are there any other options to improve the PRA’s provisions for
interim distributions?
Non-division orders
Occupation and tenancy orders
14.67 Section 27 provides that a court may grant one partner the right to occupy the family home or any other premises forming part of the relationship property, to the exclusion of the other partner.220
In the PRA the “family home” is not defined by ownership; it
simply means the home that is used as the principal family
residence.221
Section 28 provides that a court may make an order vesting the tenancy
of any dwellinghouse in either partner.222
14.68 Occupation orders can also be obtained under the Domestic Violence
Act 1995 when there is an urgent need to respond to family
violence.223
While there is overlap between the PRA and the Domestic Violence Act, we
think it is coherent and does not create confusion or gaps
in
provision.224
14.69 In Part I we discuss whether the occupation and tenancy order provisions in the PRA are effective in addressing the interests of children. Another issue is whether an occupation order is available for the family home when it is held on trust or in a
company, either on separation or when the partner who was the
trust beneficiary dies. We discuss this issue this
below.
221 Property (Relationships) Act 1976, s 2 definition of “family home”.
222 Property (Relationships) Act 1976, s 2 definition of “dwellinghouse”.
223 Domestic Violence Act 1995, ss 52–61.
Are occupation orders available for trust and company
property?
14.70 Property held on trust cannot normally be divided under the PRA
if one or both of the partners has only a discretionary interest in the trust. That is because a discretionary interest in trust property is not considered “property” for the purposes of the PRA. Sometimes, the courts have also said there is no jurisdiction to make an occupation order where the family home is held on trust, unless one or both of the partners has a vested or contingent interest in the trust assets and that interest is relationship property.225 In R v R, however, the Family Court held that while
one or both partners must have an “interest” in the family
home, it was not possible to generalise what constitutes
a property interest in
a trust.226 There is, the Court said, a continuum of interests in
different trusts and each case must be considered to see where it falls on
this continuum.227
14.71 The Family Court also has held that it has no jurisdiction to make
an occupation order if a company holds the home, unless
the company is a
sham.228
14.72 Peart argues that precluding jurisdiction under section 27 because the family home is held on trust or owned by a company misunderstands the requirements of section 27.229 Rather than focusing on whether there is a property interest sufficient to
give ownership of the home, the proper question for section 27, Peart argues, is whether there is a “use and occupation” interest sufficient to give a right to possess the home.230 Close scrutiny is required of the terms of the trust or the shareholder ’s interest, and the decisions by the trustees or arrangements made by the
company that allowed one or both of the partners to occupy
the
225 Gao v Elledge [2003] NZFLR 378 (DC); and Keats v Keats [2006] NZFLR 470 (FC). Keats was followed in C v H FC Hamilton
FAM-2008-019-992, 11 March 2009.
226 R v R [2010] NZFLR 555 (FC).
772 (CA) at [48]–[49]. However, despite these references, the bundle of rights argument has not been widely adopted. See the discussion in Part G.
228 S v S [2008] NZFLR 711 (FC).
229 Nicola Peart “Occupation orders under the PRA” [2011] NZLJ 356 at 357.
230 Nicola Peart “Occupation orders under the PRA” [2011] NZLJ 356 at 357.
home during and after the relationship.231 If there is an express
or implied authority to occupy the home, and that has not come to an
irreversible end, then Peart argues that property interest
is sufficient for
the purposes of an occupation order.232
14.73 However, where the partner with a discretionary interest in the trust dies, this interpretation of section 27 is unlikely to assist the surviving partner. A partner ’s beneficial interest in a trust is personal to them and ceases on their death.233 Therefore even if a right to exclusive occupation could amount to a property interest under section 27, the right to occupy may end on the death of a partner depending on the terms of the trust deed.234 There is no
jurisdiction for a court to grant an occupation order under section
27 to the surviving partner based on the deceased’s interest prior to
death.
14.74 For example in C v H, Mrs C was 74 years old when her 83 year
old de facto partner of eight years died.235 The family home was
held on trust but Mrs C was not a beneficiary. Mrs C was denied an occupation
order pending the disposition of
the PRA proceedings because the right granted
by the trust to her de facto partner to reside in the family home had been
terminated
by his death.
14.75 We think it is desirable that the application of section 27 to property held on trust or by a company be clarified in the PRA. If occupation orders should be available in respect of trust and company property, then section 27 could be amended to clarify that a court may make an occupation order when, during the relationship, the partners jointly had a right, either expressly granted or inferred from arrangements, to exclusive possession
of the property. Special provision may be required to ensure that an
occupation order may be granted to a surviving partner, if the
deceased was the
trust beneficiary.
14.76 In Part G we also identify an option for reform that would expand
the definition of property in the PRA to include broader
rights and reflect a
partner ’s true interest in a trust. This may also go some way to
recognising the true nature of a right
to occupy the home
231 Nicola Peart “Occupation orders under the PRA” [2011] NZLJ 356 at 357–359.
232 Nicola Peart “Occupation orders under the PRA” [2011] NZLJ 356 at 359.
233 S v N FC North Shore FAM-2010–044–1254, 30 June 2011 at [39].
235 C v H FC Hamilton FAM-2008-019-992, 11 March 2009.
under a trust arrangement as a property interest for the purpose
of occupation orders.
C ONSU LTATION QUESTIONS
D24 Should occupation orders be available where the property in question is
held on trust or by a company? If so, in what circumstances?
D25 If occupation orders should be available regarding trust and company
property, would clarifying that an occupation order could
be made where either
partner could have exclusive possession of the property achieve this purpose?
Are there any other options?
Is there appropriate guidance on interest awards and occupation
rent?
14.77 When one partner occupies the family home after separation, the other partner might be compensated for their loss of enjoyment of that property. Interest awards can be made by a court to compensate one partner for denied or delayed access to the capital he or she is entitled to under the PRA. This applies
to the period up until the date of judgment.236 Interest awards are usually made under section 33(4). Alternatively, a court may require one partner to pay compensation to the other when
their entitlement was delayed under section 18B of the PRA. An interest
award under either section 33(4) or section 18B may be based
on a calculation of
interest on the partner ’s share of the property that the other partner
had the use of.237
14.78 Occupation rent can also be awarded under section 18B.238 Section
33 does not specifically address occupation rent, but section 33(3) (i) empowers a court to make an order for the payment of a sum
of money by one partner to the other.
14.79 It is not clear whether there is a difference between awards of
interest and occupation rent. Some cases suggest that occupation
rent is
equal to an interest order.239 If they serve the same function, then
an allowance of interest on occupation rent has
236 Interest awarded becomes a fixed sum post-judgment and thereafter attracts interest at the prescribed rate under the
Judicature Act 1908.
237 Griffiths v Griffiths [2011] NZHC 1629; [2012] NZFLR 327 (HC).
238 Occupation rent can also be ordered under s 343(f ) of the Property Law Act 2007, requiring the payment by any person
of a fair occupation rent for all or any part of the property which is split between co-owners via a court order under s 339 of that Act.
239 E v G HC Auckland CIV–2005–485–1895, 18 May 2006 at [24].
aspects of double counting.240 However in T v G the High Court
observed that an award of interest should not be confused with orders for
compensation for lack of use of a family home, or occupation
rent which might
be made under section 18B.241
14.80 There appears to be no settled approach on whether an award of occupation rent or an award of interest is appropriate to compensate a partner for their loss of enjoyment of the family home. The High Court has also observed that there appears to be “no clear or coherent principles to guide a Court in the exercise
of its discretion in awarding interest” in PRA cases.242 The interest rates stipulated in section 87 of the Judicature Act 1908243
which apply in most commercial disputes may “not always be appropriate
in a family law context.”244
14.81 Another issue on which guidance would be desirable is that of grace periods in awards of occupation rent or interest. Currently there is no consistent approach on whether there should be a period immediately following separation when occupation rent
or interest is not applicable.245 It has also been suggested that the occupying party should not be liable for occupation rent until they receive notice from the non-occupying party that an adjustment for occupation is being sought.246 The occupying party should
have the opportunity to vacate the property and seek alternative
accommodation before occupation rent or interest starts accruing.
Occupation rent when the home is held on trust
14.82 If occupation orders are available in respect of trust and company
property, then specific provision may be needed to provide
for
240 Wicksteed v Wicksteed [2001] NZHC 977; [2002] NZFLR 28 (HC) at [60].
241 T v G [2013] NZHC 2976 at [81].
242 Wicksteed v Wicksteed [2001] NZHC 977; [2002] NZFLR 28 (HC) at [59].
a fair indication of New Zealand interest rates.
246 See S v S FC Blenheim FAM-2009-006-245, 13 May 2010 at [67] citing C v C FC Nelson FAM-2006-042-184, 5 August
2008.
occupation rent or interest. Currently section 18B only provides
for compensation in respect of relationship property. Where the occupying party is making use of a home held on trust, there is no jurisdiction to make an order for compensation under section
18B.247 However in T v G the High Court held that it was
not prohibited from awarding an interest payment simply because the asset (the
family home in
this case) was held in a family trust.248
C ONSU LTATION QUESTIONS
D26 Should occupation rent or interest be available?
D27 Should more guidance be given?
Protection of rights under the PRA
14.83 The PRA has several provisions that protect a partner ’s
rights before a court determines the division of the partners’
property.
Section 42 notices of claim
14.84 Section 42 is an important provision. It allows a partner with a
claim or interest in land under the PRA to register a notice
on the title of
the land. Section 42(5) provides that a notice can be registered even though
no PRA proceedings are pending or
in contemplation.
14.85 A notice of claim has been described as a “stop sign”
because when registered on the title to land it prevents
dealings with the
land.249 It prevents the registered owner from selling or otherwise
disposing of the land to a third party. A notice of claim can protect
a
potential interest regarding:
14.86 land claimed as relationship property (such as the family home)
where it is in the name of one partner;
(a) land that is one partner ’s separate property if there is
a potential claim against that land, such as a challenge
247 X v Y [2015] NZHC 1166, [2015]NZFLR 664 at [25].
248 T v G [2013] NZHC 2976 at [79].
249 Moriarty v Roman Catholic Bishop of Auckland (1982) 1 NZFLR 144 (HC) at 146. Section 42(1) of the Property
(Relationships) Act 1976 deems the alleged claim or interest to be a registerable interest under the Land Transfer Act
1952. Section 42(3) of the Property (Relationships) Act 1976 provides that a notice once lodged has effect as if it were a caveat.
against a section 21 agreement,250 or a claim under
section 9A;251 and
(b) land purchased after separation where a partner has a potential claim
under section 44 or section 44C, or where it is argued
that the land is held on
trust and that the trust is a “sham”.252
14.87 A notice of claim protects the claimant from the date of lodging the
notice, but it does not affect any claims arising before
that date. If the land
has already been disposed of, then an application under section 44 may be
necessary.253
14.88 Notice of claims, once lodged, can only be removed by order of
the Family Court, District Court or High Court.254 A notice of
claim will be removed if a court is satisfied that the claimed interest is
unsustainable or suspicious or the notice
has done its
work.255
14.89 The notice of claim procedure appears to be widely used. In the
last ten years, the number of notices registered against land under section
42 each year has ranged from a low of 794 registrations
in one year, to a high
of 1,255 registrations in another year.256 These statistics show that
many partners are using their rights under section 42 which suggests that
many people consider that
the notice of claim procedure is a useful
mechanism.
14.90 Despite the significance of section 42, we have encountered little criticism with the notice of claim procedure. There may, however, be issues with how the notice of claim procedure works in practice. For example, the authors of Family Property say: 257
The form prescribed for s 42 notices is poorly worded. The use of the
present tense to describe the claimant’s relationship
to
the
250 Coxhead v Coxhead [1989] NZHC 2588; (1989) 5 NZFLR 398 (HC); and Doyle v Doyle [2003] NZCA 216; [2004] NZFLR 43 (CA).
251 M v W FC Kaikohe FAM-2009-027-327, 30 November 2009.
253 Section 44 of the Property (Relationships) Act 1976 is discussed in Part G.
254 Property (Relationships) Act 1976, s 42(3).
8 September 2009.
256 The number of registrations each year have been as follows: 2007: 1,255 registrations; 2008: 1,170 registrations; 2009:
993 registrations; 2010: 942 registrations; 2011: 862 registrations; 2012: 855 registrations; 2013 841 registrations; 2014:
752 registrations; 2015: 794 registrations; 2016: 881 registrations: email from Land Information New Zealand to the Law
Commission regarding data on notice of claim registrations (28 April 2017).
257 Nicola Peart (ed) Brookers Family Law —Family Property (online looseleaf ed, Thomson Reuters) at [PR42.05].
owner of the land presupposes that the parties are still married
or in a civil union or de facto relationship. It does not provide for the possibility that the parties may have separated or that one of them has died. Yet, claims under the Act are obviously possible
in those circumstances... Section 42 notices must therefore be available
to protect interests in land that could be the subject of
those
claims.
Are notices of claim available for trust property?
14.91 It is uncertain how the notice of claim procedure applies to certain
types of property.258 In particular it is difficult to sustain a
notice of claim in respect of property legally owned by a third party, such as
a company
or trustee.259
14.92 A section 42 notice cannot be used where a partner only has a discretionary interest in the trust property,260 or to protect some interest outside the PRA, such as an interest claimed under a constructive trust.261 Ownership of company shares does not create a beneficial interest in company property, and therefore
a section 42 notice cannot be sustained in respect of company
property,262 unless there is a claim under section 44 or
44C.
14.93 We think that the availability of notices of claim in respect of trust and company property should be clarified. We are interested in views on what types of property interests the procedure
should be able to protect. We expect that if the remedies in the PRA
regarding trust assets are improved, as discussed in Part
G, applying section
42 will expand to include trust property subject to such potential
claims.
14.94 A notice of claim can also affect the rights creditors claim to the
land, particularly if the creditor ’s interest
in the land is unregistered
or if it has been registered after the notice of claim
258 Heazlewood v Joie de Vivre Canterbury Ltd [2015] NZCA 213.
259 A notice of claim against trust property can only be maintained where there is a claim under ss 44 or 44C of the Property
(Relationships) Act 1976: see W v L FC Waitakere FAM-2005-090-1441, 19 November 2008; and C v C FC Rotorua FAM-
2007-063-652, 20 June 2011); where a partner has a vested or contingent interest in the trust property; where a partner has a beneficial interest in trust property on the basis of the Supreme Court’s interpretation of “property” in Clayton
v Clayton: see B v B [2016] NZFC 2668, [2016] NZFLR 944 citing Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551; or where it is alleged that the trust is a sham: see H v D FC North Shore FAM-2003-044-33,
19 June 2008; Clayton v Clayton [2013] NZHC 301, [2013] 3 NZLR 236; Clayton v Clayton [Vaughan Road Property Trust]
[2016] NZSC 29, [2016] 1 NZLR 551; and B v B [2016] NZFC 2668, [2016] NZFLR 944.
260 Mulholland v Tonar HC Auckland CIV-2005-404-6870, 30 March 2006; and Thompson v Parlour [2012] NZHC 3096.
261 Buxtone v Buxtone [2017] NZHC 131.
262 Straight Views Ltd v Hannaway (2005) 6 NZCPR 725 (HC); and Cijffers v Cijffers [1989] NZHC 2605; (1989) 5 FRNZ 694 (HC).
is lodged. We discuss how section 42 can affect the rights of
creditors in Part K.
C ONSU LTATION QUESTIONS
D28 Should the notice of claim procedure under section 42 be able to
protect interests in trust property, where a partner only
has a discretionary
interest or a constructive trust claim?
D29 Are there any other issues with the way the notice of claim procedure is
working in practice?
Section 43 orders restraining the disposition of property
14.95 Section 43 applies when a disposition of property is about to be made to defeat a partner ’s claim or rights under the PRA. A court has the power to restrain the impending disposition, or order that any proceeds from the disposition be paid into court, where it is satisfied that a disposition is about to be made to defeat the claim or rights of a person under the PRA.263 While “disposition” is not defined in the PRA, the High Court has held that it covers all forms of alienation, whether for value or not.264 Orders can
be made in relation to both relationship property and separate
property.
Is the threshold for section 43 too high?
14.96 Section 43 requires a predictive assessment of both the likelihood of
the disposition being made, and the intention of the
party claimed to be making
the disposition.265
14.97 The test for establishing intention is the same as that under
section 44, which applies where a disposition has been made
and an application
is made asking a court to set aside that disposition. The applicant must
establish that the person making
the disposition is doing so “in order
to defeat the claim or rights” of any person under the PRA.266
The courts have taken the approach that, when a person must have known
that disposing of property
263 Property (Relationships) Act 1976, s 43(1).
264 Re Polkinghorne Trust [1988] NZHC 1525; (1988) 4 NZFLR 756 (HC).
265 Patterson v Davison [2012] NZHC 2757 at [39].
266 Property (Relationships) Act 1976, ss 43(1); and 44(1).
would expose their partner to a significantly enhanced risk of not
receiving their entitlement under the PRA, they must be taken to have
intended that consequence, even if it was not actually their
wish to cause the
partner loss.267 The Court of Appeal recently confirmed this
approach in Potter v Horsfall, stating:268
... the inquiry is directed to the disposing party’s knowledge of
the effect the disposal will have on the other party’s
rights, from which
intention may be inferred, rather than to whether that party was motivated by a
desire to bring about that consequence.
14.98 While the approach of the courts, confirmed in Potter v Horsfall, may make it easier to meet the threshold for section 43, we are interested in views on whether the threshold is appropriate. Section 43 is a precautionary measure that functions as a statutory form of interim injunction,269 and cannot be used to recover property already disposed of, unlike section 44.270 Setting aside a disposition under section 44, it seems, carries greater consequences than preventing a disposition until proceedings
are dealt with under the PRA. It may, therefore, be appropriate to have a lower threshold, such as an effects-based test.271
Section 44C, for example, enables a court to make an order of compensation
where relationship property has been disposed of to a
trust and the disposition
has the effect of defeating the claim or rights of one of the partners. However
lowering the threshold
may be unnecessary if, as an alternative, a section 42
notice of claim can be lodged on the title of the property.
C ONSU LTATION QUESTION
D30 Is the threshold test in section 43 too high? If so, would an effects-based test be
appropriate?
268 Potter v Horsfall [2016] NZCA 514, [2016] NZFLR 974 at [41] in relation to s 44 of the Property (Relationships) Act 1976.
Leave to appeal to the Supreme Court has been granted: Horsfall v Potter [2017] NZSC 21.
269 S v S [2008] NZFLR 227 (HC) at [26].
1996 added that “it should be enough if the effect of the disposition is to defeat the claim or rights of any other person rather than importing notions of motive”.
Part E – How
should the PRA treat short-term relationships?
Chapter 15 – The three year rule
Introduction
15.1 A marriage, civil union or de facto relationship must usually have
lasted for three years or more before qualifying for
the general rule of
equal sharing.1 If a relationship lasts for less than three years, it
is a “relationship of short duration” (short-term relationship)
under the PRA, and different property division rules apply.2 In
this Part we examine how the PRA applies to short-term relationships.
15.2 In this chapter we consider the reasons for treating short-term
relationships differently to qualifying relationships, and
ask whether the
minimum duration for qualifying relationships (the three year rule) remains
appropriate. The rest of Part E is arranged
as follows:
(a) In Chapter 16 we look at the property division rules for short-term
marriages and civil unions.
(b) In Chapter 17 we focus on short-term de facto relationships. We ask
whether the PRA should continue to treat short-term de
facto relationships
differently to short–term marriages and civil unions.
Options for reform in Part E may have human rights implications
15.3 The options explored in Part E may raise issues under human rights
law. As we explained in Chapter 2, the New Zealand Bill
of Rights Act 1990
prohibits unjustified discrimination, including indirect discrimination, on a
range of grounds such as marital
status and family status.3 Any
option for reform of the PRA that proposes to treat relationships differently
based on the type of relationship (marriage, civil
union or de facto
relationship) or
2 Property (Relationships) Act 1976, ss 2E, 14, 14AA and 14A.
3 New Zealand Bill of Rights Act 1990, s 19; and Human Rights Act 1993, ss 21 (prohibited grounds of discrimination) and
65 (indirect discrimination).
the presence of children would need to be to be demonstrably
justified in order to avoid contravening human rights law.4 Any
recommendations we make in our final report will be reviewed for consistency
with domestic human rights law and relevant international
obligations.
Should the PRA have different rules for short-term relationships?
15.4 The PRA has always included a minimum duration requirement for qualifying relationships and special property division rules for short-term relationships. This is because the PRA can have significant consequences at the end of a relationship, which are
only justified if a relationship has demonstrated a sufficient level of
commitment and permanence.
15.5 A minimum duration requirement is a necessary (although blunt) way to distinguish fragile relationships from relationships to which the partners are assumed to have made a certain degree
of commitment. As Atkin and Parker observe, it is not the PRA’s intention to create a property sharing regime for “transient
or fleeting associations”.5 A minimum duration requirement recognises that commitment grows over time6 and avoids applying the general rule of equal sharing to early-stage relationships. It
also provides some protection against a manipulative partner
who enters a relationship with the aim of acquiring a share of the other
partner ’s property.7
15.6 A minimum duration requirement also recognises that equal sharing is
justified only where contributions to the relationship
are equal.8
As Peart observes:9
4 New Zealand Bill of Rights Act 1990, s 5.
5 Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at 86.
7 Bill Atkin “Property division: Lessons from New Zealand” in Panagiotis I Kanellopoulous, Elini Nina-Pazarzi and Cornelia
Delouka-Inglessi (eds) Essays in Honor of Penelope Agallopoulou (Ant N Sakkoulas, Athens, 2011) 129 at 138.
8 See discussion in Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at 2.
In short duration relationships the contributions are usually
unequal, because there is often not enough time to build the non-
financial contributions to a level where they can be appropriately
equated with
financial contributions.
15.7 There will, of course, be short-term relationships where contributions
are equal, for example where both partners have made
financial contributions,
or where one partner cares for a child while the other partner provides
financial support for the family.
How the PRA should operate in these
circumstances is explored in the following chapters.
15.8 For these reasons our preliminary view is that the PRA should continue to include a minimum duration requirement for qualifying relationships and special property division rules
for short-term relationships. What that minimum duration requirement should
be, and how property should be divided when a short-term
relationship ends, are
the focus of this part of the Issues Paper.
C ONSU LTATION QUESTION
E1 Do you agree that the PRA should have a minimum duration requirement
for qualifying relationships and special property division
rules for short-term
relationships?
How does the three year rule operate?
15.9 The three year rule has applied to marriages since the PRA was first
enacted as the Matrimonial Property Act in 1976,10 to de facto
relationships since 2001 and to civil unions since they were introduced in
2005.
15.10 Section 2E is the basis for the three year rule. It provides that a relationship of short duration is one in which the partners have lived together in a marriage, civil union or as de facto partners for a period of less than three years. A court can also treat a longer relationship as a short-term relationship if, having regard to
all the circumstances, it considers it just to do so.11 This might
be appropriate if, for example, there have been long
periods
10 See Matrimonial Property Act 1976, s 13(3) (as enacted).
11 Property (Relationships) Act 1976, s 2E.
of separation during the relationship or some other factor has
affected the quality of the relationship.12
Historical background
15.11 As early as 1975 there were calls for limited property rights for de facto relationships lasting longer than two years.13 In
1988 a Working Group reviewed the legal provision for de facto relationships
and also recommended a minimum duration of two years
before special rules of
property division should apply, observing that:14
It does not seem to the group that the threshold for a de facto marriage
need to be the same as the threshold for a short marriage
under the Matrimonial
Property Act. It must be remembered that until a de facto relationship has
lasted for two years (if that period
is chosen) there would be no rights at all
of a matrimonial nature for the de facto partners. The situation under the
Matrimonial
Property is not analogous.
15.12 The amendments introduced into Parliament in 1998 proposed a minimum duration of three years for de facto relationships, consistent with the existing provisions for short-term marriages.15
The 1998 amendments, however, went further than the Working Group’s recommendations because they also covered short-term de facto relationships.16
15.13 The Select Committee considering the 2001 amendments received
submissions favouring several different qualifying periods
for
de
was a strong case for including de facto relationships within the new matrimonial property regime, on “practical and humanitarian grounds”. However the Matrimonial Property Bill as enacted did not extend to de facto relationships. See Chapter 2 for further discussion of the legislative history of the Property (Relationships) Act 1976.
Supplementary Order Paper 2000 (25) Matrimonial Property Amendment Bill 1998 (109-2). See paragraph 17.3 below.
16 De Facto Relationships (Property) Bill 1998 (108–1), cl 59.
facto relationships.17 These ranged from two, three, five and seven
years (but a shorter period where there are children).18 Other
submitters suggested that the PRA should only apply to de facto relationships
if there are children.19
15.14 The Select Committee concluded that three years was an appropriate
length of time before the general rule of equal sharing
should take effect
for de facto relationships.20 It also noted that three years was
consistent with the principles of the Human Rights Act 1993 which prohibits
discrimination on the
grounds of marital status.21
Determining the duration of a relationship
15.15 Determining when a relationship begins and ends is important as it
may decide whether the PRA’s rules for short-term
relationships apply.
Relationship duration is also relevant to the classification of property under
the PRA22 and to whether maintenance is available to de facto
partners under the Family Proceedings Act 1980.23
Start and end dates
15.16 Determining the start and end dates of a relationship can be
difficult as they are not necessarily linked to specific events.
15.17 A marriage will often have a start date that is earlier than the
date the partners actually married, because the PRA
counts any time the
partners spent together in a de facto relationship immediately before
marrying.24 Research indicates that most people live in a
de
24 Property (Relationships) Act 1976, s 2B.
facto relationship before marriage.25 Therefore when the duration
of a marriage is an issue, a court will often need to decide when the
preceding de facto relationship began. This also applies to
civil unions
preceded by de facto relationships.26
15.18 A de facto relationship begins when the criteria in the definition in section 2D are satisfied. This has been described by the Family Court as the point at which the relationship assumes a significant degree of mutual commitment and permanency, and at which
the partners’ lives become significantly intertwined.27 This is not necessarily linked to when the partners moved in together. It can be difficult to determine when a de facto relationship began if
the relationship gradually evolved over time from an initial phase of living
in the same house that could be seen as “co-residential
dating” to
a de facto relationship.
15.19 A relationship ends if the partners cease to live together as a
couple or if one of the partners dies.28 Marriages and civil unions
may also end on the formal dissolution of that relationship.29 In
O’Shea v Rothstein the High Court said that separation does not
automatically bring a relationship to an end.30 While sometimes that
will undoubtedly be so, there will be other situations where that is not the
case:31
15.20 There can be no hard and fast rule because all the circumstances of the particular matter under consideration have to be taken into account. The reasons for, and duration of, the separation are
likely to be important considerations. An indicator that separation does not automatically bring a relationship to an end and that intermittent relationships were within the contemplation of the legislature can be found in s 2E which defines “relationship of
short duration”.
25 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
27 Boyd v Jackson FC Napier FP041/363/01, 6 March 2003 at [3].
28 Property (Relationships) Act 1976, ss 2A(2), 2AB(2), 2D(4).
29 Property (Relationships) Act 1976, ss 2A(2) and 2AB(2).
31 O’Shea v Rothstein HC Dunedin CIV-2002-412-8, 11 August 2003 at [22].
Intermittent and sequential relationships
15.21 Sometimes partners will have an intermittent relationship. When
determining the duration of an intermittent relationship a
court may exclude a
period of resumed cohabitation of up to three months and that had the motive of
reconciliation.32
15.22 As noted above, sometimes partners will have been in two different
types of relationships together, one after the other. The
most common example is
a de facto relationship preceding a marriage.33 If so, the period of
each relationship is usually added together to determine the overall length of
the relationship.34
Should the qualifying period be longer?
15.23 The three year rule does not appear to cause issues for marriages.
The median duration of marriages ending in divorce has been rising since the early 1990s, and was 14 years in 2016, compared to 12 in 1977.35 This data does not capture any time spent in a
de facto relationship immediately preceding marriage, which is also counted when calculating the duration of a marriage under the PRA.36 Although this data must be treated with caution,37 it suggests that few marriages are short-term marriages, and that few marriages are likely to be affected by a three or even five
year qualifying period. This data includes civil unions that end in
dissolution, although this is likely to be a small
group.38
32 Property (Relationships) Act 1976, s 2E(2).
33 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
34 Property (Relationships) Act 1976, ss 2B–2BA.
35 Information prior to 1977 is not available. Median duration of marriage includes civil unions ending in dissolution. The median is the mid-point value. See Statistics New Zealand “Divorces by duration (marriages and civil unions) (Annual- Dec)” (2017) <www.stats.govt.nz>.
36 Property (Relationships) Act 1976, s 2B.
2B and 2BA. This is important because most people live in a de facto relationship before marriage: see Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
of all marriages and civil unions in 2016: Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1 citing Statistics New Zealand “Marriages and civil unions by relationship type, NZ and overseas residents (Annual-Dec)” (May 2017) <www.stats.govt. nz>.
15.24 The three year rule is more significant for de facto relationships.
This is because short-term de facto relationships are not normally covered
by the PRA, as we discuss in Chapter 17.39 Whether or not a de
facto relationship satisfies the three year rule is a question that carries
significant consequences under the
PRA.
Issues with the three year rule
15.25 During our research and preliminary consultation we noted the concern
that the three year rule is not achieving a just division
of property when
some de facto relationships end. Some may argue that a longer qualification
period is needed because:
(a) Some people drift into de facto relationships without focusing on the property consequences. While partners that marry or enter into a civil union can reasonably be expected to understand that property consequences will follow under the PRA, this expectation might not apply to partners in de facto relationships. They need longer
to recognise their legal state is changing and organise their affairs
accordingly.
(b) De facto relationships take longer than marriages and civil unions to
reach functional equivalence, or to “mature”
into the kind of
relationship to which the general rule of equal sharing should apply.
(c) De facto relationships have a different status to marriage because one is commonly a stepping stone to the other, and because of the way marriage is considered by some to strengthen the commitment between partners. We discuss what we know about
the similarities and differences between how different relationships function
in Chapter 17.40
(c) People who have more than one intimate relationship in their lifetime
need a longer qualifying period to protect their assets
from gradual
erosion.41
39 Property (Relationships) Act 1976, ss 1C(2)(b) and 14A.
40 Most people live in a de facto relationship before marriage: Law Commission Relationships and Families in Contemporary
New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
41 See data on re-partnering after separation in Chapter 4 of Law Commission Relationships and Families in Contemporary
New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017).
(d) It would be more consistent with certain religious
beliefs (for example the special status of marriage) and cultural or social
values to have a longer qualifying period for de facto
relationships.
15.26 These arguments need to be evaluated in the light of what we know
about the duration of de facto relationships.
What do we know about the duration of de facto relationships?
15.27 The Parliamentary select committee considering the 2001 amendments was advised that there was no available data on the average length of de facto relationships in New Zealand.42 We
face the same challenge in 2017. While some evidence suggests that many de facto relationships result in marriage, there is
little available data on the duration of de facto relationships that continue long-term or end in separation. We explore the data that is available in our Study Paper, Relationships and Families
in Contemporary New Zealand – He hononga tangata, he hononga
whānau i Aotearoa o nāianei (Study Paper).43
15.28 There are conflicting views on whether de facto relationships are more fragile than marriages. One New Zealand study from 1995 identified that first cohabiting unions44 have become increasingly more likely to end in separation rather than marriage.45 Among those who entered into their first cohabitation before 1970, 75 per cent had married and 14 per cent had separated within five years. In contrast, of those who entered their first cohabitation
between 1980–1989, 41 per cent had married and 45 per cent had
separated within five years.
15.29 That study also identified, however, that the proportion of first
cohabiting unions that were still intact five years on
had increased, from 11
per cent of cohabitations entered into before
43 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017).
1970, to 14 per cent of cohabitations entered into between 1980–
1989.46 It was said that this “fits with the argument that
enduring cohabiting unions were increasingly likely to be acceptable to
the
wider community and in that sense
‘formalised’”.47
15.30 That study is now over 20 years old and was undertaken before the PRA was extended to include de facto relationships. It is unknown whether the trends it identified have continued or
if they have been altered by subsequent changes to the legal and social
context, such as greater legal recognition of de facto relationships48
or increasing public acceptance of de facto relationships.
15.31 More recent research from Australia suggests that cohabiting unions may now be more enduring than the New Zealand study suggests.49 Research in England and Wales also challenges
the view that cohabiting relationships are more fragile than marriages.50 That research observed that, while statistics may indicate that marriages, on average, last longer than de facto relationships:51
The evidence suggests that if we compared like with like, for example
young secular childless couples, or older couples in a long-term
union with
children, there would probably be little difference between separation rates for
cohabiting couples and married couples.
1840: A Demographic History (Auckland University Press, Auckland, 2007) at 237.
47 Subsequent cohabiting unions include cohabitations that were preceded by an earlier cohabitation or marriage, or both.
These results are discussed in Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017).
Duration of de facto relationships in PRA
cases
15.32 Research into a snapshot of reported PRA cases from 2002 to
2009 found that in 44 per cent of cases involving a de facto relationship, the relationship was shorter than five years.52 This appears to suggest that a longer qualifying period might be better at capturing only those partners that intended to enter a de
facto relationship (or should have reasonably known that they were
entering a de facto relationship) while reducing the risk of
capturing partners
who slip inadvertently into one.53
15.33 This data must, however, be treated with caution. It only gives a snapshot of the small proportion of de facto relationships that end in litigation. It does not capture de facto relationships where property matters are resolved out of court or where the partners
are unaware that the PRA applies to them. It also does not capture de facto
relationships that “end” in marriage or
civil union, or that are
ongoing. Perhaps more importantly, the prevalence of cases involving de facto
relationships shorter than
five years might simply reflect the fact that these
relationships fall into the “grey area” where the existence of
a
qualifying relationship might be contestable if the start and/or end dates of
the relationship are unclear.54
Advantages of the three year rule
15.34 Despite its issues, the three year rule has a long history, is
simple to remember and sets a “bright-line test”.
Changing the
qualifying period for de facto relationships without a solid evidence base would
be difficult to justify and is likely
to cause confusion.
at [3.26].
15.35 Changing the qualifying period might raise issues that are more
significant than the issues associated with the current approach. A longer qualifying period risks excluding relationships that should be covered by the PRA and may not provide the best protection
for a vulnerable partner when a relationship ends. It may not reduce
disputes but simply shift the likelihood of disputes to longer
relationships.
Excluded partners may still seek other legal remedies.55
15.36 The three year rule does not exist in isolation: a relationship must
also qualify as a de facto relationship before the general
rule of equal
sharing applies. Therefore concerns that the PRA does not apply to the right
relationships may be addressed by other
means. These include changing the
definition of de facto relationship (see Chapter 6) and engaging the PRA’s
rules around
contracting out (see Part J).
C ONSU LTATION QUESTIONS
E2 Do you think the three year rule is fair, or is it problematic for some
or all relationship types?
E3 Do you think the three year rule is well understood?
Options for reform
15.37 We explore some different options below, should reform be necessary
to address the concern that the three year rule is
not achieving a just
division of property when some de facto relationships end.
15.38 Whether reform of the three year rule is necessary, and if so what option is preferred, must be considered in light of any changes proposed elsewhere in this Issues Paper. It is important that the minimum duration requirement is appropriate for the rules that apply when that requirement is met. For example, a three year qualifying period may remain appropriate if the PRA’s core rules remain the same, or if the definition of relationship property
is narrowed so there is a smaller pool of property available for
division at the end of a relationship (see option 4 below).
15.39 Some of these options work together. It may be possible to
implement option 1 (increasing the qualifying period for all relationship types) with or without option 3 (allowing a court to treat a short-term relationship as a qualifying relationship), depending on the length of the new qualifying period. Option
2 (increasing the qualifying period for some or all de facto relationships)
and option 3 must be implemented together to avoid injustice.
Option 1: Increase the qualifying period for all relationship types
15.40 This option would treat all relationship types the same, but
in practice it could have a disproportionate effect on de facto relationships if those relationships are generally shorter than marriages. We have no way of knowing how many de facto relationships would be disadvantaged by this option as we lack data on the average duration of de facto relationships. While many PRA cases that make it to court involve de facto
relationships under five years, for the reasons given at paragraph
15.3325 we are not convinced that this alone points to a problem with the
qualifying period being too short.
Option 2: Increase the qualifying period for some or all de facto
relationships
15.41 This option could accommodate concerns that the three year rule is not achieving a just division of property when some de facto relationships end. A longer qualifying period could apply
to either some or all de facto relationships. For example, de facto
relationships with children could remain subject to the existing
three year
rule. This would recognise the importance of children as an indicator of the
kind of relationship to which the PRA should
apply, and the PRA’s role in
protecting children’s interests (see Part I). Under this option, a court
should be able
to treat a short-term relationship as if it were a qualifying
relationship in certain circumstances to avoid injustice (see option
3).
15.42 This option is consistent with the view that different relationship types tend to form, function and endure in different ways, and that treating all relationships in the same way does not does not always lead to a just result. Giving the courts a power to treat
short-term relationships as qualifying relationships in certain
circumstances could mitigate injustice or disadvantage resulting from the
distinctions drawn by this option.
15.43 This option would be a significant departure from the PRA’s current rules and, in our preliminary view, a backwards step. It would effectively treat relationships differently depending on
the form the relationship took, rather than how that relationship
functioned. Different treatment raises issues under human rights
law. It may
devalue de facto relationships and relationships without children, and
stigmatise these groups as less worthy of statutory
protection than couples in
other types of relationships. While there is some evidence that might support
this approach, as noted
above, we are not convinced that the evidence available
is sufficiently robust to support this option.
Option 3: Allow the court to treat a short-term relationship as if it were a
qualifying relationship
15.44 Currently there is no discretion for a court to treat a short-term
relationship as if it were a qualifying relationship.56 This may not
be an issue if the three year rule remains because it is unlikely that there
are many relationships shorter than three
years to which the general rule of
equal sharing should be applied. If, however, option 1 or option 2 is
adopted, there may
be a need to allow a court to depart from the minimum
duration requirement in certain circumstances. This is because longer the
qualifying period, the greater the need for flexibility to avoid unjust
outcomes for some short-term relationships.
15.45 The PRA could be amended to give the court discretion to treat a short-term relationship as if it were a qualifying relationship if satisfied that failure to do so would result in “serious injustice”. This would set a high threshold, recognising that the qualifying
period should be fit for purpose for most relationships. This option may, however, complicate the PRA as “serious injustice” tests
are already used in other provisions.57 This may raise issues as to whether case law on those provisions is (or should be) relevant in
this context.
57 See for example Property (Relationships) Act 1976, ss 14A and 21J. See paragraph 17.5 in relation to s 14A.
15.46 An alternative is to give a court discretion to treat a short-term
relationship as if it were a qualifying relationship if the partners lived together as a couple for a “significant period of time”
and the court considers it just. This would draw on a concept developed by the American Law Institute, which suggested
using a “significant period of time” requirement rather than a set period for some relationships.58 Whether the requirement is met would be determined in the light of a list of factors (similar to the list in section 2D(2)), and the extent to which those factors wrought change in the life of one or both partners.59 The greater the change, the shorter the period necessary to satisfy the requirement.60 Other factors that may be relevant might include
a substantial contribution to the relationship or a considerable intermingling of property.61 This option may require a court to focus on circumstances related to the character and quality of
the relationship (as it currently does with the existing discretion to treat
a qualifying relationship as if it were a short-term
one) and the significance
of the life events that occurred during the relationship.
Option 4: Retain the three year rule and address issues with its application
to de facto relationships in other ways
15.47 The final option is to retain the three year rule for relationships,
recognising that its advantages outweigh the issues
we have identified with its
application to de facto relationships. These issues might then be addressed in
other ways, for example:
(e) changing the definition of de facto relationship (see
Chapter 6);
(f ) changing the definition of relationship property (see
Chapter 9); and
61 See Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (1988) at 67.
(g) promoting awareness of the PRA’s rules including the
ability to contract out (see Part J) through a public education campaign (see
Chapter 4).
C ONSU LTATION QUESTION
E4 Which option for reform do you prefer, and why? If you prefer option 1 or option 2, what should the qualifying period be increased to?
Chapter 16 – Short-term
marriages and civil unions
16.1 Short-term marriages and civil unions are automatically covered by the
PRA.62 A court can order the division of relationship property
according to the applicable rules, and can make non- division orders
such as
occupation and tenancy orders.63
16.2 Section 14 sets out the property division rules for short-term
marriages. These rules are mirrored in section 14AA, which applies
to short-term
civil unions. The discussion in this chapter primarily concerns section 14 as
that section has a longer legislative
history and has been the subject of
more extensive judicial debate. We have no reason to believe that this
discussion is not
equally applicable to short-term civil unions.
The property division rules
16.3 Section 14 dilutes the general rule of equal sharing in certain
specified circumstances. In those circumstances some or
all relationship
property is shared on the basis of each spouse’s contribution to the
marriage.
Dividing the family home and chattels
16.4 Section 14(2) provides that the general rule that the family home
and family chattels are shared equally64 does not apply:
(a) to any asset owned wholly or substantially by one spouse at the date
on which the marriage began; or
(b) to any asset that has come to one spouse, after the date on which the
marriage began,—
(i) by succession; or
(ii) by survivorship; or
62 Property (Relationships) Act 1976, ss 2A(1)(a), 14 and 14AA. The definitions of “marriage” in s 2A and “civil union” in s
2AB include a marriage or civil union that is void.
63 Property (Relationships) Act 1976, ss 27, 28 and 28A.
64 Property (Relationships) Act 1976, ss 11(1)(a), 11(1)(b), 11A, 11B and 12.
(iii) as the beneficiary under a trust; or
(iv) by gift from a third person; or
(c) where the contribution of one spouse to the marriage has clearly been disproportionately greater than the contribution of
the other spouse.
16.5 In Chesham v Chesham the High Court considered what
“substantially” owning an asset meant under section 14(2)(a).65
It said that a house purchased before marriage by the spouses as tenants in common in equal shares was not “owned wholly
or substantially” by one spouse. Rather, it was wholly owned by both
spouses.66 The Court then considered the position if the legal title
were ignored, and said that “[a] three to one disparity does not
bring
the house within the concept of substantially owned by
one”.67
16.6 A sense of relativity between each spouse’s contribution to the
marriage is incorporated into the test in section 14(2)(c).68 In
Burgess v Beavan for example the Court of Appeal said that not only must
the financial contribution of one spouse be clearly greater, it must
also
have brought a disproportionate benefit to the other spouse, having regard to
the tangible and intangible contributions made
by the other spouse to the
marriage.69
16.7 If one of the section 14(2) exceptions applies, each spouse’s share of the affected property (the asset that satisfies the test in section
14(2)(a) or 14(2)(b), or all relationship property if the test in section 14(2)(c) is satisfied) is determined in accordance with his or her contribution to the marriage.70 Contributions are set out in section 18, and include monetary contributions and non-
monetary contributions such as childcare and the performance of household duties. It is open to a court to take a technical approach to determining each spouse’s contribution (whereby a numerical weighting between financial and non-financial contributions is
determined and applied) or to make a “broad-brush”
assessment.71
65 Chesham v Chesham [1993] NZFLR 300 (HC). See also Treloar v Treloar [1988] NZHC 2294; (1988) 5 NZFLR 209 (HC).
66 Chesham v Chesham [1993] NZFLR 300 (HC) at 310.
67 Chesham v Chesham [1993] NZFLR 300 (HC) at 312.
68 Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at 4.3.2(a).
69 Burgess v Beavan [2010] NZCA 625, [2011] NZFLR 609 at [31]. See also L v H [2015] NZFC 1426 and Miramontes v Brennan
70 Property (Relationships) Act 1976, s 14(3).
71 Jackman v Clague [2016] NZCA 463 at [16]–[17].
Dividing other relationship property
16.8 Section 14(4) provides that other relationship property (excluding the family home and family chattels) is shared equally unless one spouse’s contribution to the marriage has clearly been greater
than the other ’s. If that test is satisfied, each spouse’s
share in any other relationship property is determined
in accordance with his
or her contribution to the marriage.72
Issues with sections 14 and 14AA
What is a just division of property at the end of a short-term
marriage?
16.9 It is not clear what a just division of property at the end of a
short-term relationship looks like, and whether that goal
is achieved by the
existing rules for short-term marriages and civil unions in sections 14 and
14AA.
16.10 Section 14 assumes that a just division of property at the end of a short-term marriage generally requires equal division, but that division on a contributions basis may be just in certain circumstances. This incomplete displacement of the general rule of equal sharing may cause perceived unfairness in some
circumstances. For example, if one spouse purchased the family home one month before the marriage, the exception under
section 14(2)(a) would apply and the general rule of equal sharing would be
displaced in relation to that asset. If, however, that
partner had waited,
and purchased the family home one month into the marriage, section 14(2)(a)
would not apply and the property
would be shared equally, unless the partner
successfully argues that section 14(2)(c) applies.
16.11 The exceptions in section 14(2) are said to represent “untidy
qualifications” to the simple, alternative proposition
that the general
rule of equal sharing has no relevance to a short-term marriage.73
It might, however, be considered appropriate that section 14 is weighted
in favour of equal sharing of the family
72 Property (Relationships) Act 1976, s 14(5).
73 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.78]. Fisher notes
“the simple formula that ss 11, 11A, 11B and 12 should not apply to marriages of short duration did not find favour.”
home and family chattels because they are central to family life
(see further discussion of the “family use” approach in Chapter
9).
The tests in section 14 are unclear and incomplete
16.12 Section 14 has been described as an “indirect and incomplete”
statutory route to achieving the apparent legislative purpose of deferring
equal sharing of some relationship property until a
marriage has survived its
initial period as a short-term relationship.74
16.13 Specific issues with the section 14(2) exceptions include:
(a) The degrees of ownership implied by the concept of substantial
ownership in section 14(2)(a) is difficult to reconcile with
the PRA’s
definition of “owner”.75 Under the PRA an
“owner” is the person who is the beneficial owner of the property
(see Chapter 8). If a person is the
beneficial owner of the property it does
not matter that the property is heavily mortgaged or otherwise
encumbered.76
(b) Sections 14(2)(a) and 14(2)(b) do not appear to extend to the proceeds of sale of a qualifying asset.77 If that
is the case, proceeds are subject to the general rule of equal sharing
unless section 14(2)(c) applies.78 This is different to the way the
PRA treats the proceeds of sale and any increase in the value of separate
property in sections 9,
9A and 10 (see Chapters 9 and 10).
(c) The degree of disparity required by section 14(2) (c) is unclear. The word “disproportionately” has been described as an “unfortunate choice” as its literal meaning assumes the existence of a desirable
standard against which any given proportions are to
be
74 See RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.78].
76 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.79].
77 See RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.79].
measured.79 One interpretation is that section 14(2)(c)
requires a greater degree of disparity than that required for other
relationship property in section 14(4) (“been clearly
greater”).80 This is said to reflect the special position of
the family home and chattels, and means that those assets are more likely to
be
shared equally.81
16.14 It could also be clearer how debts are to be dealt with when an
exception in section 14 applies to an asset over which a
relationship debt is
secured. Section 14 does not address debts.
Options for reform
Option 1: Amend the tests in sections 14(2) and
14(4)
16.15 Option 1 retains the current rules of division for short-term marriages and civil unions but makes some changes to sections
14(2) and 14(4) (and the mirror provisions in section 14AA) to address
identified issues.
16.16 Options to amend the tests include:
(a) Deleting the words “wholly or substantially” in section
14(2)(a) to reconcile the concept of ownership with the definition of
“owner” in section 2 of the PRA.
(b) Amending sections 14(2)(a) and 14(2)(b) to include any increase in
value or proceeds of the sale of any qualifying asset.
This would mean that
property acquired out of a qualifying asset is treated in the same way,
enabling a partner to trace his or
her assets into other forms of property, as
is generally the case with separate property under the
PRA.
79 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.84]. See
also Treloar v Treloar [1988] NZHC 2294; (1988) 5 NZFLR 209 (HC) at 215: “This clumsy phrase with its double adverbs has caused some trouble” referring to s 13(1)(c) of the Matrimonial Property Act 1976, which also contained the phrase “clearly been disproportionately greater”.
80 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.84].
81 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR14.06].
(c) Amending the threshold tests in sections 14(2)(c) and
14(4) to clarify the required degree of disparity in the contributions of the
spouses. Options include:
(i) A “bright-line” test, such as a disparity of 60:40 or
greater for section 14(2)(c) and a disparity of 55:45 or
greater for section
14(4).82 This would have the advantages of being clear and
accessible. However it might be difficult to apply to non-financial
contributions.
(ii) Replacing the phrase “clearly been disproportionately
greater” in section 14(2)(c) with “significantly greater”
to
achieve a discretionary standard that is higher than the threshold test in
section 14(4) but avoids the issues raised by the
current drafting.
Option 2: Adopt contribution-based rules of property division
16.17 This option is to replace the current rules of division for short- term marriages with one rule for all relationship property. A court would determine the share of each spouse in all of the relationship property in accordance with the contribution of each spouse to the marriage. It would effectively eliminate the exceptions in section 14 and extend the property division rules that currently apply when those exceptions are satisfied to all relationship property. It would be consistent with how property is divided when a short-term de facto relationship meets the requirements specified in section 14A(2) (discussed in Chapter
17), and when exceptional circumstances exist that make equal sharing of
relationship property repugnant to justice (section 13).
There is, therefore,
an established body of case law that considers this approach to property
division.
16.18 This option would be simpler than the current approach, because one set of rules would apply to all relationship property. It would also end special treatment of the family home and chattels, which may be considered less appropriate in a short-term relationship (see the discussion of the family use approach to classification
in Chapter 9). Removing the presumption of equal sharing
82 See RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [12.84].
of the family home and chattels could, however, increase the
likelihood of unequal division when a short-term marriage ends. This may
favour the partner that has made a substantial financial
contribution where
the marriage has not lasted long enough for the other partner ’s
non-financial contributions to build
up.
Option 3: Equal sharing of the fruits of the relationship
16.19 In Chapter 9 we considered the option of a different definition of relationship property for shorter relationships based on a “fruits
of the relationship” approach.83 Under that approach, the property one partner acquires before the relationship, or receives as a
gift or inheritance during the relationship, will generally remain separate
property. This applies even if the property is used
as the family home or as a
family chattel. When the partners separate, they would only divide the property
that had been acquired
during the relationship.
16.20 The fruits of the relationship approach may have particular appeal for short-term relationships as it focuses on the product of the partners’ joint and several contributions and excludes property which has not been produced or improved by the relationship. This may better align with the values and norms of relationships in contemporary New Zealand. The rationale for special treatment of the family home and chattels may be weaker in a short-term relationship because the partners have had less time to build a close association with the property and make it “theirs” (see the discussion of the family use approach to classification in Chapter
9). Adopting this option would, however, lead to two definitions of
relationship property and associated uncertainty unless this
approach is also
extended to qualifying relationships. This is considered as an option in
Chapter 9.
16.21 This option is different to the current rules in section 14. For example, a family home or chattel that was wholly owned by one partner before the marriage began would probably remain
that partner ’s separate property under a fruits of the relationship approach. It would not be divided at the end of the relationship.
Under section 14, such assets would probably be divided based
83 See also Robert Fisher “Should a Property Sharing Regime be Mandatory or Optional?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
on each partner ’s contribution to the relationship. This option
would therefore remove the special status of the family home
and chattels and is likely to reduce the property pool available for
division at the end of some short-term relationships. In Chapter
9 we discuss
in more detail the advantages and disadvantages of the different approaches to
defining relationship property.
C ONSU LTATION QUESTION
E5 Which of these options do you prefer, and why?
Chapter 17 – Short-term de facto
relationships
17.1 Short-term de facto relationships, unlike short-term marriages and
civil unions, generally fall outside the PRA.84 A court cannot make
a property division order in respect of a short-term de facto relationship
unless the test in section 14A(2)
is passed. That test does not apply to
short-term marriages or civil unions.
17.2 If the section 14A(2) test is passed, the rules of division that
apply to short-term de facto relationships are different
to those that apply to
short-term marriages and civil unions. If the test is not passed, partners in
short-term de facto relationships
do not have property rights under the
PRA.
Background to section 14A
17.3 Section 14A was carried over from the De Facto Relationships (Property) Bill 1998 (Bill).85 That Bill sought to provide a different property division regime for de facto relationships, recognising the view that they should not be equated with marriages.86 The Bill did not progress and instead the 2001 amendments extended the PRA to cover de facto relationships. Despite the PRA’s equal treatment of qualifying relationships, there remained a view
that it would generally be unfair to equate short-term de facto relationships with short-term marriages and civil unions.87
This was probably based on the idea that short-term de facto relationships lacked the required degree of commitment and permanence.88 Section 14A was likely retained as a safety valve to cater to exceptional circumstances where the general exclusion of
short-term de facto relationships would cause
injustice.
85 De Facto Relationships (Property) Bill 1998 (108-1), cl 59.
86 (26 March 1998) 567 NZPD 7918.
87 See paragraph 15.54 above.
88 See Tejal Panchal “Relationship property and de facto relationships of short duration: how can we fix the law?” (2016) 8
NZFLJ 206 at 208.
17.4 The section 14A test has been the subject of considerable judicial
debate. Parts of section 14A have been described as “inherently
vague”.89 This has the potential to undermine the principle
that questions arising under the PRA be resolved as inexpensively, simply, and
speedily as is consistent with justice.90
The section 14A(2) test
17.5 A short-term de facto relationship must pass the test in section
14A(2) before a court can order the division of property under the
PRA. Section 14A(2) is a two-step test:
(2) If this section applies, an order cannot be made under this Act for
the division of relationship property unless—
(a) the court is satisfied—
(i) that there is a child of the de facto relationship; or
(ii) that the applicant has made a substantial contribution to the de
facto relationship; and
(b) the court is satisfied that failure to make the order would result in
serious injustice.
17.6 The meaning of “child of the de facto relationship” in section
14A(2)(a)(i) is wide.91 It includes two categories of children:
any child of both de facto partners; and any other child who was a member of
their family
at the relevant time. The second category has been construed
narrowly,92 but may potentially include stepchildren, foster children
and some children who are also members of another household, such as where
care
is shared. The definition is discussed in detail in Part I.
17.7 The “substantial contribution” requirement in section 14A(2)(a) (ii) was considered in S v J.93 In that case the applicant had carried out the full range of domestic tasks, provided some funds used to buy a car, worked hard in the other partner ’s business, and gave
up her life overseas to make a life with the other partner in
New
89 Bill Atkin “The Legal World of Unmarried Couples: Reflections on ‘De Facto Relationships’ in Recent New Zealand
Legislation” (2008) 39 VUWLR 793 at 809.
90 Property (Relationships) Act 1976, s 1N(d).
91 Property (Relationships) Act 1976, s 2 definition of “child of the de facto relationship”.
92 M v L (2005) 24 FRNZ 835 (FC).
93 S v J [2005] NZFLR 932 (FC).
Zealand.94 The Family Court was satisfied that this amounted to a
“substantial contribution”.
17.8 Even if one of the criteria in section 14A(1)(a) is met, the applicant must still satisfy the court that a failure to make a property division order would cause “serious injustice”. This test was satisfied in L v D because the High Court considered it would have been a serious injustice for the applicant not to share in capital gains that were a result of her substantial contribution
to the development and management of the other partner ’s
vineyard.95
The property division rules
17.9 If the test in section 14A(2) is satisfied, the property division
rules in section 14A(3) apply. That section provides that
each partner
’s share of relationship property is to be determined in accordance with
his or her contribution to the de facto
relationship. Contributions are listed
in section 18, and include monetary and non-monetary contributions.
Issues with section 14A
The PRA treats short-term de facto relationships differently to short-term
marriages and civil unions
17.10 The key issue with section 14A is that it treats short-term de facto relationships differently to short-term marriages and civil unions. Short-term de facto relationships must meet additional requirements before a court can make a property division order, and even if those requirements are met, the rules of division that apply to short-term de facto relationships are different. The general rule of equal sharing, which still applies to short-term
marriages and civil unions in some circumstances, does not apply
at all to short-term de-facto relationships.96
94 S v J [2005] NZFLR 932 (FC) at [68]–[69].
95 L v D HC Blenheim CIV 2006-406-293, 2 November 2010 per Wild J at [56].
17.11 In Chapter 3 we explained that an implicit principle of the PRA
is that the law should apply equally to all relationships that
are substantively the same. This principle is driven by equality as expressed in anti-discrimination laws and reflects a shift in family law policy towards greater recognition of a wide range of family relationships. In Chapter 5 we expressed our preliminary view that the PRA should continue to apply in the same way
to all qualifying relationships that are substantively the same, regardless
of relationship type. The issue here is whether the
PRA should also apply
equally to all short-term relationships, regardless of relationship
type.
17.12 It might be argued that the current approach is appropriate because short-term de facto relationships are different to short- term marriages and civil unions, and as such equal treatment would not lead to a just division of property for short-term de facto relationships. This might be because commitment in a de facto relationship may be ambiguous or low at the beginning due to the way commitment in informal relationships grows over time, and it would be unfair to impose the PRA on unsuspecting persons. It is not as easy to say the same of marriages, which are commonly preceded by a de facto relationship, are registered
“opt-in” relationships and generally involve a public ceremony.
People who get married can be reasonably expected to
appreciate that their
change of legal status will carry some property consequences.97 Some
of the arguments for a longer qualifying period for de facto relationships (see
paragraph 15.25) may also support a view that
the PRA should treat short-term
de facto relationships differently.
17.13 We are not, however, convinced that different rules for short- term de facto relationships are justified in contemporary New Zealand. There are few areas of law that still distinguish between relationship types in this way.98 More people are living in de
facto relationships and social attitudes towards them are likely
to have changed.99 It may now be considered unfair, unjust
and
99 See Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
inconsistent with anti-discrimination laws to deny legal rights to
people on the basis of their marital status.100
17.14 Equal treatment of short-term relationships in the PRA would not necessarily mean equal division, because the PRA’s special property division rules for short-term relationships can dilute or displace the general rule of equal sharing. Nor would this necessarily “open the floodgates”, because a relationship must still qualify as a de facto relationship in the first place, and this
qualification should restrict the PRA’s application to relationships
that are substantively the same.
17.15 Whether different rules for short-term de facto relationships should
continue needs to be evaluated in the light of what
we know about the
similarities and differences between different relationship types.
Similarities and differences between how relationships
function
17.16 Some overseas experts see relationships between partners that
live together as very similar to marriage, “...just a modern, private,
‘do it yourself ’ form of marriage, in which couples are ‘as good as’ married”.101 Others see these relationships as very different to marriage, or as a “try and see” strategy only part way to the full mutual commitment of marriage.102 Another view again is that these relationships are preferable to marriage, “...part of a
liberating shift towards more egalitarian gender roles ...in which couples only stay together if the relationship continues to meet their individual needs”.103
17.17 There is little New Zealand research on the similarities and
differences (if any) between relationship types. Many still see
marriage as the “gold standard” of commitment.104 Commitment
for couples that live together is more often seen as a private matter and something that grows over time,105 emerging at some point prior to marriage if the relationship takes that path. Some New Zealand research has found that married and unmarried couples who have children describe commitment, and what it means to them, in similar ways.106 We know very little about civil unions in New Zealand as this relationship type is relatively new and few people enter into civil unions.107 Literature on money management within New Zealand relationships is sparse and based on older data. A small New Zealand study of unmarried couples calls into question the strength of the association between relationship type and money management style.108
Money management in relationships is discussed in Chapter 6.
17.18 These different views on the similarities and differences between
relationship types are likely due to a number of factors,
including different
religious and social values, the diversity of couples that live together and
the changes that occur as these
relationships progress. Baker and Elizabeth
identified four types of unmarried couples that live
together:109
(a) Co-residential dating: These relationships are said to be very
much about the here and now, without any particular thought to the
future.110 This is said to be a
104 Maureen Baker and Vivienne Elizabeth Marriage in an Age of Cohabitation: How and When People Tie the Knot in the
Twenty-First Century (Oxford University Press, Canada, 2014) at 184.
of 30 married and 20 cohabiting couples with children in Wellington. There was no difference in the time they had been in their current relationships (12.5 years). Researchers in the United Kingdom also say that “[e]mpirical studies, including our own, routinely record expressions of commitment by cohabitants that are little different from those of married spouses”: Simon Duncan, Anne Barlow and Grace James “Why don’t they marry? Cohabitation, commitment and DIY marriage” (2005) 17(3) CFLQ 383 at 388 citing J Ekelaar and M Maclean “Marriage and the moral bases of personal relationships” (2004) 31(4) Journal of Law and Society 510. See also L Jamieson et al “Cohabitation and commitment: partnership plans of young men and women” (2002) 52(3) Sociological Review 354; C Lewis, A Papacosta and J Warin Cohabitation, Separation and Fatherhood (Joseph Rowntree Foundation, 2002); and J Lewis The End of Marriage? Individualism and Intimate Relationships (Edward Elgar, 2001).
107 Partners have been able to enter into a registered civil union in New Zealand since 2005: Civil Union Act 2004, s 2. See n
38 above and Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1 for statistics on the number of people entering into civil unions.
109 Maureen Baker and Vivienne Elizabeth Marriage in an age of Cohabitation: How and When People Tie the Knot in the
Twenty-First Century (Oxford University Press, Canada, 2014) at 8–9.
common pattern, especially among young people.111 It is
unlikely that many of these early-stage relationships are de facto
relationships under the PRA.
(b) Trial marriage: Living together is thought to take the form of a
trial marriage for the majority of opposite-sex couples.112 It
allows couples to see if they are suitably matched and can “justify the
next step”. As we discuss in our Study Paper,
living together has become
the normal precursor to marriage for the vast majority of
couples.113
(c) An alternative to marriage: These couples may reject the
patriarchal, heterosexual or religious overtones associated with
marriage.114
(d) The same as marriage: This group includes long-term, opposite-sex
couples that live together, often with children.
17.19 The available research suggests that the reasons couples live together will vary, as will their level of commitment, the degree
of relationship fragility and their intentions to enter a marriage or civil union. Couples will also vary in why they married or entered into a civil union, how their marriage or civil union functions, and
their level of commitment to the marriage or civil
union.
111 Maureen Baker and Vivienne Elizabeth Marriage in an age of Cohabitation: How and When People Tie the Knot in the
Twenty-First Century (Oxford University Press, Canada, 2014) at 9.
112 Maureen Baker and Vivienne Elizabeth Marriage in an age of Cohabitation: How and When People Tie the Knot in the Twenty-First Century (Oxford University Press, Canada, 2014) at 8 citing Gordon A Carmichael and Andrea Whittaker “Living Together in Australia: Qualitative Insights into a Complex Phenomenon” (2007) 13(2) Journal of Family Studies
202; Ernestina Coast “Currently Cohabiting: Relationship Attitudes, Expectations and Outcomes” in John Stillwell, Ernestina Coast and Dylan Kneale (eds) Fertility, Living Arrangements Care and Mobility: Understanding Population Trends and Processes (Springer, Dordrecht, 2009) 105; Wendy Manning, Jessica A Cohen and Pamela J Smock “The Role of Romantic Partners, Family, and Peer Networks in Dating Couples’ Views About Cohabitation” (2011) 26(1) Journal of Adolescent Research 115; and Lixia Qu “Expectations of Marriage Among Cohabiting Couples” (2003) 64 Family Matters
36.
113 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 1.
The section 14A(2) test is
unclear
It is unclear what constitutes a “substantial contribution to the
de facto relationship”
17.20 The PRA does not define or provide any guidance on what constitutes
a “substantial contribution” to the de facto
relationship.115
The courts have developed different and sometimes conflicting
approaches.116
17.21 Early Family Court decisions assessed whether the contribution was a departure of some degree from “the norm”.117 However
in L v P the High Court considered it was difficult to assume a supposed norm of contributions or even a “norm” of a de facto relationship.118 The Court considered it more helpful to focus on the natural meaning of the word, noting that the dictionary definition of “substantial” was something of “real importance
or value”, and that therefore there was no need to refine the meaning further.119 The High Court in L v D however said that “substantial” was a well understood word and did not see the need to resort to dictionary definitions.120 In H v H the High Court was attracted to the “departure from the norm” approach originally taken by the Family Court, but thought that attempts to define
the precise degree of departure from the norm required were not of particular assistance.121 The Court said that a “substantial contribution” is a contribution of real importance or value over and above what would usually be expected from the partners in the normal course of their relationship.122 More recently, the High Court in Picton v Uxbridge was not convinced that it is necessary
to limit the natural meaning of “substantial contribution” as
it
118 L v P [2007] NZHC 1037; [2008] NZFLR 401 (HC) at [70].
119 L v P [2007] NZHC 1037; [2008] NZFLR 401 (HC) at [70].
120 L v D HC Blenheim CIV-2006-406-293, 2 November 2010 at [47].
121 H v H [2013] NZHC 443, [2013] NZFLR 387 at [55].
122 H v H [2013] NZHC 443, [2013] NZFLR 387 at [56].
was in H v H.123 The Court said that the applicant’s contribution
need not be out of the ordinary or far beyond the norm, and
that it is sufficient if it is substantial in the sense of being of real
importance or value.124 As a result of these differing approaches
there is said to be a lack of consistency and predictability in how the courts
apply this
requirement.125
The threshold for “serious injustice” is
unclear
17.22 The phrase “serious injustice” is not defined in the
PRA.126 It has been described as “inherently
vague”127 and is said to provide “fertile ground for
legal argument and judicial interpretation”.128
17.23 In Gibbons v Vowles the Family Court said that a comparison
is needed between the consequences for the partners if an order is made and if
it is not.129 The High Court took a similar approach in L v
P:130
In assessing “serious injustice” it is legitimate to apply the concept of a party getting a just return for “contributions”... It is also relevant to consider the concepts that have been developed in constructive trust cases relating to de facto relationships, referred to in Lankow v Rose [1994] NZCA 262; [1995] 1 NZLR 277, (1994) 12 FRNZ 682 (CA). The concept of a return for contributions and the notion of
a constructive trust can be seen as a benchmark of entitlement, against which the position of the applicant if a Court does not interfere can be measured. If the status quo after separation without the intervention of the Court results in a return that is less than the entitlement under s 14A(3) and Lankow v Rose, there will be a serious injustice.
17.24 The meaning of the phrase “serious injustice” has been
considered in several cases.131 In Schmidt v Jawad the High
Court said that
123 Picton v Uxbridge [2015] NZHC 1050, [2015] NZFLR 935 at [41].
124 Picton v Uxbridge [2015] NZHC 1050, [2015] NZFLR 935 at [41]- [42].
125 Tejal Panchal “Relationship property and de facto relationships of short duration: how can we fix the law?” (2016) 8
NZFLJ 206 at 208.
126 Property (Relationships) Act 1976, s 14A(2)(b).
127 Bill Atkin “The Legal World of Unmarried Couples: Reflections on ‘De Facto Relationships’ in Recent New Zealand
Legislation” (2008) 39 VUWLR 793 at 809.
128 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR14A.06].
129 Gibbons v Vowles (2003) 22 FRNZ 946 (FC) at [9]. The Family Court also said at [6] that “serious injustice” is a higher threshold than merely “unjust” as used in s 21(8) of the Matrimonial Property Act 1976 and a lower threshold than “repugnant to justice” as used in the exception to equal sharing in s 13 of the Property (Relationships) Act 1976.
130 L v P (2007) [2007] NZHC 1037; [2008] NZFLR 401 (HC) at [75]. See also Gibbons v Vowles (2003) 22 FRNZ 946 (FC) at [8]–[12].
131 For example, S v J [2005] NZFLR 932 (FC) at [73].
“serious injustice” means what it says: it is more than an injustice
– it is a serious injustice.132 It warned that using
other words instead of “serious” risks changing the
test.133
17.25 The issue is further complicated because a “serious
injustice” test is used in other sections of the PRA. For
example, a court
may set aside an agreement under section 21J if giving effect to it would cause
“serious injustice”.134 There are different views as to
whether the phrase “serious injustice” should be interpreted in a
similar fashion throughout
the PRA.135
17.26 The PRA does not expressly indicate who must experience “serious injustice” if an order is not made.136 The focus is usually on the applicant. Arguably serious injustice for children of the de facto relationship if an order is not made should be considered in a
more direct way.137 This would be consistent with the existing requirement to have regard to the interests of any minor or dependent children of the relationship in PRA proceedings.138 It would also be consistent with the focus on children in section
14A(2)(a)(i).
The test sets a high bar for relationships with children
17.27 Short-term de facto relationships with children pass the test in section 14A(2) if a court is satisfied that failure to make an order would cause “serious injustice”. The requirement for serious injustice sets a high bar. It means that a court will not be able
to make a property division order for some short-term de facto
relationships with children.139 Yet an increasing number
of
133 Schmidt v Jawad [2006] NZFLR 410 (HC) at [34].
134 Property (Relationships) Act 1976, s 21J.
135 See Gibbons v Vowles (2003) 22 FRNZ 946 (FC) at [5], the discussion in S v W [2006] NZHC 1672; [2006] 2 NZLR 669 (HC) at [132] and Nicola
Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR14A.06].
136 Property (Relationships) Act 1976, s 14A(2)(b).
138 Property (Relationships) Act 1976, s 26(1).
139 Compare Family Law Act 1975 (Cth) (Australia), s 90SB.
children are born outside marriage.140 In 2016, 46 per cent of
all births in New Zealand were ex-nuptial, up from 17 per cent in 1976.141 There is also some evidence about commitment and the management of money in relationships that questions the basis for distinguishing between parents based on relationship type (see paragraph 17.17). It might also be argued that a child is a sufficient marker of commitment in a short-term de facto relationship and that all such relationships should be subject
to the PRA due to the change in the partners’ relationship and
obligations wrought by parenthood.
Options for reform
Options for reforming section 14A(2)
17.28 It is important that options for reforming the section 14A(2) test
are considered in the light of the property division
rules that would apply
when the test is satisfied or if it no longer applies. For example, if equal
sharing of the fruits of
the relationship (as explained in option 3 of Chapter
16) applies, option 1 (repeal section 14A(2)) may be considered appropriate
because a fruit of the relationship approach may achieve a just division of
property without the need for an additional test.
Option 1: Repeal section 14A(2)
17.29 Our preliminary view is that in contemporary New Zealand it is difficult to justify a provision like section 14A(2) that treats short-term de facto relationships so differently to short-term marriages and civil unions. It follows that our preliminary view is that section 14A(2) should be repealed. This would remove a
significant hurdle for short-term de facto relationships and bring the PRA’s treatment of short-term de facto relationships more in line with the treatment of short-term marriages and civil unions. It would also reduce complexity of the law and, in doing so,
promote the resolution of property matters out of court.
140 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 2.
17.30 This option would likely increase the number of short-term de
facto relationships covered by the PRA. Short-term relationships would, however, still need to satisfy the definition of de facto relationship in section 2D in order to be covered by the PRA. That definition is designed to capture relationships that are substantially the same as marriages and civil unions. The
definition of de facto relationship is discussed in detail in Chapter
5. A de facto relationship would still need to satisfy the minimum duration
requirement before the general rule of equal sharing
applied.
Option 2: Retain section 14A(2) but clarify its
application
17.31 If there is a need to retain section 14A(2), then another option is to clarify its application. This option has two elements. The first
is to clarify the threshold in section 14A(2)(a)(ii) of a “substantial
contribution to the de facto relationship”. This
could be achieved by
adopting either:
(a) A threshold guided by the plain meaning and dictionary definition of “substantial” in the sense of being of real importance or value. Panchal considers this approach would be most in line with the policy behind the
2001 amendments and the principle of inexpensive, simple and speedy resolution of property matters as
is consistent with justice.142 It would also follow more recent
cases like Picton v Uxbridge, where the High Court said that a
substantial contribution may not be an unusual feature of a short-term
relationship.143 This approach would also avoid comparisons with
other relationships, which can be unhelpful given the variety of relationships
the
PRA covers.144
(b) A threshold that asks whether the contribution is beyond, or far beyond, “the norm”. As already noted, there is no such thing as “normal” in relationships given the range and variety that exist. It is even difficult to
say what is “normal” in a specific relationship given
that
142 Tejal Panchal “Relationship property and de facto relationships of short duration: how can we fix the law?” (2016) 8
NZFLJ 206 at 212–213.
143 Picton v Uxbridge [2015] NZHC 1050, [2015] NZFLR 935 at [41].
144 See Tejal Panchal “Relationship property de facto relationships of short duration: how can we fix the law?” (2016) 8
NZFLJ 206 at 212–213.
a substantial contribution is likely to reflect the wider
context.145
17.32 Our preliminary view is that, of these two alternatives, we prefer
the first.
17.33 The second element of option 2 is to provide the courts with
guidance on what constitutes “serious injustice”
for the purposes
of section 14A(2)(b). The PRA could be amended to include a list of relevant
factors. This could include matters
such as:146
(a) the PRA’s policy of a just division of property at the end of a
relationship;147
(b) a comparison between the likely consequences for the parties and any
children if an order is made, and if an order is not made;148
(c) whether the ongoing daily care of children may create a serious degree
of economic disparity between the partners on separation;149
(d) whether there has been such a disparity of contributions that a
refusal to address it could amount to serious injustice;150
(e) the availability and ease of obtaining alternative remedies under any
other enactment or rule of law or of equity;151
(f ) any other matters that a court considers
relevant.
145 Tejal Panchal “Relationship property and de facto relationships of short duration: how can we fix the law?” (2016) 8
NZFLJ 206 at 209.
147 Gibbons v Vowles (2003) 22 FRNZ 946 (FC) at [7]. The policy of the Property (Relationships) Act 1976 is discussed in
Chapter 3.
148 See Gibbons v Vowles (2003) 22 FRNZ 946 (FC) at [8].
149 See Gibbons v Vowles (2003) 22 FRNZ 946 (FC) at [10]; and Property (Relationships) Act 1976, s 15.
293, 2 November 2010..
151 Tejal Panchal “Relationship property and de facto relationships of short duration: how can we fix the law?” (2016) 8
NZFLJ 206 at 214.
Option 3: Introduce a different test for short-term de facto
relationships with children and give the courts greater
discretion
17.34 This option would introduce different eligibility criteria for de
facto relationships with children. As with options 1 and
2, a relationship would
still need to qualify as a “de facto relationship”. This option
could work together with option
2.
17.35 One approach would be to remove the requirement to satisfy the “serious injustice” limb of the section 14A(2) test and treat short- term de facto relationships with children the same as short-term marriages and civil unions. This would mean that all short-term de facto relationships with children would be covered by the
PRA, regardless of whether failure to make an order would cause serious
injustice.152
17.36 An alternative approach would be to lower the threshold in section
14A(2)(b) from “serious injustice” to “injustice”
for
short- term de facto relationships with children.
17.37 In each case the court should have discretion to treat a short-term
de facto relationship without children the same as a
short-term de facto
relationship with children, if it is just to do so having regard to all the
circumstances of the relationship.
This is important to help mitigate injustice
or disadvantage that may result from the distinction drawn between short-term
de
facto relationships with and without children.
17.38 This option may indirectly benefit some children through their parent’s claim, but it also has the potential to disadvantage other children where the applicant is not the primary caregiver.153
For example, it could disadvantage children of the de facto relationship that are the applicant’s stepchildren and who, going forwards, will be living with the other partner. This option must
also be considered in light of the definition of “child of the
de
be eligible to apply for financial relief on separation without having to satisfy any minimum duration requirement. See Law Commission of England and Wales Cohabitation: The Financial Consequences of Relationship Breakdown (LAW COM No 307, 2007) at [3.26]–[3.31]. See also Family Law Act 1975 (Cth) (Australia), s 90SB, which provides that a court can make certain orders in relation to a de facto relationship if there is a child of the de facto relationship: no additional “serious injustice” test applies.
153 See the discussion in H v C FC Christchurch FAM-2007-057-000337, 30 August 2011 at [44]–[47].
facto relationship” and the option considered in Part I of a broader
definition of “member of the family”.154
17.39 Because this option treats relationships differently based on family status, it may raise issues under human rights law.155
Different treatment may also devalue de facto relationships without children
and stigmatise this group as less worthy of statutory
protection than couples
with children.
Options for reforming section 14A(3)
17.40 We are not convinced that different rules for short-term de facto
relationships are justified in contemporary New Zealand.
It follows that our
preliminary view is that the same property division rules should apply to all
short-term marriages, civil
unions and de facto relationships. This could be
achieved by adopting, for all short-term relationships, either:
(a) the rules for short-term marriages and civil unions in sections 14 and
14AA, with amendments to the tests in sections 14(2)
and (4) as explained in
option 1 of Chapter 16;
(b) the rule for short-term de facto relationships in section
14A(3), which provides for the division of relationship property on a
contributions basis, identified as option 2 of Chapter 16;
or
(c) equal sharing of the fruits of the relationship as explained in
option 3 of Chapter 16.
17.41 Adopting the same property division rules for all short-term relationships would address the issue we have with the way the PRA treats short-term de facto relationships differently to
short-term marriages and civil unions. It recognises the implicit principle that the PRA should apply equally to all relationships that are substantively the same. It would be a simple, clear and consistent approach to property division at the end of a short-
term relationship. This option is not, however, consistent with the view that different relationship types tend to form, function and endure in different ways, and that treating all relationships in the
same way does not does not always lead to a just result. As
noted
154 Property (Relationships) Act 1976, s 2 definition of “child of the de facto relationship”.
155 Human Rights Act 1993, s 21(1)(l). See the discussion of human rights law issues in Chapter 16.
at paragraphs 17.16 to 17.19, the available research does not,
however, necessarily support that view.
17.42 The property division rules for de facto relationships could be changed independently of the rules for marriages and civil unions, for example by adopting a fruits of the relationship approach for
de facto relationships only. However we do not favour this option as it would
still treat short-term de facto relationships differently
to other short-term
relationships.
C ONSU LTATION QUESTIONS
E6 Which option for the reform of section 14A(2) (options 1 – 3) do
you prefer, and why?
E7 Should there be one set of property division rules for all short-term relationships? If so, what rules should apply and why?
Part F –
What should happen when equal sharing does not lead to equality?
Chapter 18 – Does section 15
achieve post-separation equality?
Introduction
18.1 Section 15 of the PRA provides that a court can order one partner to
compensate the other when there is likely to be a significant
difference in
income and living standards post-separation, as a result of the division of
functions within the relationship. Broadly
speaking, section 15 seeks to
address situations where the general rule of equal sharing does not lead to a
just division of
property. Our preliminary view is that section 15 has had
limited success in achieving this objective.
18.2 In this chapter we review the history of section 15 and analyse how it has been applied by the courts, including how the courts determine the amount of compensation payable when a section
15 claim succeeds. We also identify issues with how section 15
operates.
18.3 In Chapter 19 we discuss three potential options for reform.
Option 1 focuses on improving the operation of section 15. Option
2 looks at how the objective of section 15 could be achieved by changing
other PRA rules. Option 3 is to combine section 15 compensation
payments and
maintenance payments into one regime of “financial reconciliation”
payments.
18.4 At the time of writing, a decision of the Supreme Court on the operation of section 15 is pending.1 This is the first time section
15 has come before the Supreme Court. The Court’s decision is likely to have implications for interpreting and applying section
15 but at this point we can only take the lower courts’ decisions
into account in our discussion.
1 Leave to appeal and cross-appeal was granted in Scott v Williams [2016] NZSC 149. The case was heard by the Supreme
Court in March 2017.
Historical background
18.5 The concerns that led to the enactment of section 15 in 2001 go back to 1988, when a Working Group was established to review the Matrimonial Property Act 1976.2 The Working Group looked at the “considerable topical concern” that equal division of
matrimonial property had failed to secure an equitable result.3 The heart of the debate about equality and equity, the Working Group said, was “the economic consequence of current sex roles in our society.”4 It did not, however, “see matrimonial property law as
a feasible vehicle for securing equality of outcome between the sexes when
a marriage breaks down.”5
18.6 In 1996 the Court of Appeal acknowledged the limitations of the Matrimonial Property Act in Z v Z (No 2).6 The Court was asked to consider whether earning capacity was “property”, and whether enhanced earning capacity could be “matrimonial property” under the Act.7 The Court said that earning capacity did not fall within the Act’s definition of property, and that it was not Parliament’s intention to include enhanced earning capacity within the
scope of matrimonial property to be divided at the end of a relationship.8 The Court reached this conclusion “notwithstanding the strength of the argument... that to treat enhanced earning capacity as matrimonial property is consistent with the policy and spirit of the legislation.”9
18.7 The Court noted that the Matrimonial Property Act had been harsh on
women:10
2 The Working Group was convened by Geoffrey Palmer, then Minister of Justice, to review the Matrimonial Property Act
1976, the Family Protection Act 1955, the provision for matrimonial property on death and the provision for couples living in de facto relationships. The Working Group was to deal with the broad policy issues, rather than to produce a blueprint for new legislation: Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 1–2.
3 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
4–15.
4 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12.
5 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12. The Working Group did however recommend changes to the rules of division that “go some way towards alleviating the detrimental effects of marriage breakdown”. These recommendations included extending the general rule of equal sharing to all categories of relationship property (previously it only applied to the family home and family chattels). This effectively brought more assets into the pool of matrimonial property available for equal division (at 13).
6 Z v Z (No 2) [1997] 2 NZLR 258 (CA). The decision was given by the full bench of seven judges of the Court of Appeal.
7 Pursuant to s 8(e) of the Matrimonial Property Act 1976.
8 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 280.
9 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 280–281.
10 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 275.
There is growing recognition that the division of matrimonial
property under the Matrimonial Property Act is operating harshly on those women who have foregone their own participation in the workforce, other possibly than on a part-time or temporary basis, and who have supported the advancement of their husbands’ careers by managing the household and caring for the children
of the marriage. At the same time their husbands who have remained in employment, have acquired experience, skills or qualifications which have increased their earning capacity. At the time of the dissolution of the marriage they are then in the advantageous position of being able to recover from the effect of the division of the matrimonial assets and earn, sometimes
in a relatively short time, a substantial income. By comparison, because of the role which she has assumed in the marriage, the wife is ill-equipped to rejoin the workforce and earn an income. Further, where the efforts of the couple during the marriage
have been directed at building up the husband’s income-earning
potential, the wife’s share of the matrimonial home and
other matrimonial
assets may not be significant. Many such wives, as in this case, become
beneficiaries while their husbands continue
to earn a substantial
income.
18.8 Something more than an equal division of relationship property was required to ensure a just result. The Matrimonial Property Amendment Bill was introduced into Parliament in 1998, but it was not until a change of government in 1999 that amendments were made to the Bill addressing “the issue of economic disadvantage suffered by a non-career partner when a relationship breaks down”.11 These amendments included section 15 and would permit departure from equal sharing where necessary to give
effect to justice.12
18.9 The Parliamentary select committee considering the proposed amendments
inserted a set of principles into the Matrimonial Property
Act, now to be
renamed the PRA. These included the principles that “men and women have
equal status, and their equality
should be maintained and
enhanced”,13 that a “just division of relationship
property has regard to the economic advantages or disadvantages” to the
partners
arising from their
11 Supplementary Order Paper 2000 (25) Matrimonial Property Amendment Bill 1998 (109-2) (explanatory note) at 71 and
74-75.
12 Other provisions that were inserted into the Property (Relationships) Act 1976 in order to address economic
disadvantage suffered by a non-career partner were ss 9A(2) and 15A: Supplementary Order Paper 2000 (25) Matrimonial
Property Amendment Bill 1998 (109-2) (explanatory note) at 71–72. These provisions are discussed in Chapter 10.
13 Property (Relationships) Act 1976, s 1N(a).
relationship or from the end of the relationship,14 and that “all
forms of contribution to the... relationship are to be treated as
equal”.15 Section 15 must be read in the context of these
principles.16
18.10 The “underlying notion” in introducing section 15 was
one of equity; “that it is sometimes fair to treat
people differently to
achieve a just outcome.”17
What is section 15 trying to achieve?
18.11 The PRA generally treats a qualifying relationship as a partnership
or joint venture to which each partner contributes equally,
although perhaps in
different ways.18 Each partner ’s contributions to the
relationship result in an entitlement to an equal share in the property of the
relationship.
18.12 Section 15 recognises that equal sharing will not always result in a just division of relationship property. One partner (partner A) can be compensated by the other partner (partner B) when the post-separation income and living standards of partner B are likely to be significantly higher than partner A because of the way the partners carried out their respective functions during the relationship. This is because it would be unjust for partner B to enjoy the full benefits of the relationship partnership or joint
venture, in which both partners had worked and had expected to share into
the future.
18.13 Section 15 is not about addressing post-separation needs. When partners cannot meet their own post-separation needs or those of their children, other “pillars of financial support” are available.19
These are maintenance, child support and State benefits. Each addresses a different issue and together with the PRA they
establish a framework of financial support and influence
post-
14 Property (Relationships) Act 1976, s 1N(c).
15 Property (Relationships) Act 1976, s 1N(b).
16 The policy and principles of the Property (Relationships) Act 1976 are discussed in Chapter 3.
17 Wendy Parker “Sameness and difference in the Property (Relationships) Act 1976” (2001) 3 NZFLJ 276.
18 This is reflected in the explicit and implicit principles of the PRA, discussed in Chapter 3.
separation financial recovery. We discuss maintenance in Chapter
19.20
18.14 We continue to use the terms “partner A” and
“partner B” throughout this Part. In keeping with the
language of
section 15, partner A is the applicant for an order under section 15 (or the
“non-career partner”)21 and partner B is the other
partner.
What is “economic disparity”?
18.15 The term “economic disparity” is often used in connection with section 15, even though it is not used or defined in the section itself.22 In this Part we use the term economic disparity in the narrow sense, to mean the requirement in section 15 that
the income and living standards of partner B are likely to be significantly
higher than partner A.
18.16 Economic disparity alone does not satisfy the requirements of section
15. The economic disparity must be caused by the effects
of the division of
the functions within the relationship while the partners were living together.
We refer to this as the “division
of functions”.
What is a “division of functions”?
18.17 The most common division of functions in section 15 cases is where
partner A does not participate in the paid workforce
and instead manages the
household and raises the children while partner B performs paid work and
provides the family income. We
use the term “household
management” as shorthand for the role of partner A in this scenario, for
ease of reading.
18.18 There can, however, be many variations to this scenario. Partner A
may:
21 The term “non-career partner” was used during Parliament’s consideration of the 2001 amendments. See for example
Supplementary Order Paper 2000 (25) Matrimonial Property Amendment Bill 1998 (109-2) (explanatory note) at 71
and Matrimonial Property Amendment Bill 1998 and Supplementary Order Paper No 25 2000 (109-3) (select committee report) at 16.
22 We note that s 15 does not expressly refer to the term “economic disparity”, although the heading of that sub-part of the
Property (Relationships) Act 1976 is “Court may make orders to redress economic disparities”. The courts use the term
(a) take just a few years off paid work in order to look after
children or a dependant relative;
(b) work part-time and also perform a household management role and support
partner B in a high-stress occupation;
(c) relocate to another region or country to accommodate partner B’s
work; or
(d) work in a particular job to ensure income for the family while partner
B is studying for a qualification that enhances longer
term earning
capacity.23
18.19 A division of functions can lead to economic disparity in situations
where the partners have no children. Men as well as
women can be partner A or
partner B.24
When does section 15 apply?
18.20 In broad terms, divisions of functions result in two scenarios
which may lead to economic disparity under section 15:
(a) First, where partner A has suffered a loss arising from the division
of functions. The loss can be viewed in several ways:
(i) a lost opportunity to develop a career or explore an economic
opportunity;
(ii) loss as a result of performing an unpaid role in the
relationship;
(iii) loss of income and living standards enjoyed during the relationship; or
(iv) loss arising from investing in partner B’s career throughout the
relationship and then losing the
date of hearing partner B was a principal and therefore receiving a much higher salary than partner A, who was a teacher. Despite acknowledging that partner A had greater responsibility for the children, it found that the disparity was not caused by the division of functions in the relationship.
24 For cases where men in the position of partner A have brought claims under s 15 of the Property (Relationships) Act
1976 see, for example, De Malmanche v De Malmanche [2002] 2 NZLR 838 (HC); R v F FC Rotorua FAM-2006-069-80, 4
August 2008; H v H FC Nelson FAM-2005-042-527, 29 March 2007; G v G FC Gisborne FAM-2010-016-232, 22 August
2011; Van Amelsford v Leender [2013] NZFC 8113; Elliot v Elliot [2005] NZFLR 313 (FC) (which was successful and the husband was awarded $15,000 (adjusted for inflation) which was the lowest sum ever awarded in a s 15 claim); J v B FC North Shore FAM-2008-044-833, 13 May 2011 (a s 15A claim only); and N v S [2012] NZFC 7043.
benefits of that investment on separation.
(b) Second, where partner B has advanced his or her
career or other economic opportunity due to functions (such as household
management and other support) performed by partner A. Of
course, partner
B’s success may be in part due to factors intrinsic to partner B, such as
a brilliant mind or individual talent.
However as the Parliamentary select
committee observed:25
... although the ability to earn an income at a particular level is undoubtedly dependent on the personal attributes, training, and skills of the person in question, the ability to devote time to
cultivating those skills and attributes is likely to be affected by the
division of functions during the relationship.
18.21 Partner B’s success will therefore be a consequence of how the
functions of the relationship were divided between the
partners. After
separation Partner B continues to benefit from the division of the functions
within the relationship and partner
A does not.
18.22 Both scenarios may occur simultaneously, potentially resulting in a
“double loss” for partner A. As Lord Nicholls
in the House of Lords
in McFarlane v McFarlane said:26
... the parties may have arranged their affairs in a way which has greatly advantaged the husband in terms of his earning capacity but left the wife severely handicapped so far as her own earning capacity is concerned. Then the wife suffers a double loss: a diminution of her earning capacity and the loss of a
share in her husband’s enhanced income. This is often the case.
Although less marked than in the past, women may still suffer
a disproportionate
financial loss on the breakdown of a marriage because of their traditional role
as a home-maker and child-carer.
18.23 A typical scenario that section 15 was intended to address is in
this case study:
Case study: When section 15 is intended to apply
Victoria and Fergus met just as they both started work as junior lawyers. After five years together they married and soon after had their first child, Alice. Victoria left her job and remained at home to look after Alice and
a second child, Bella, born three years later. Fergus continued working
as
26 McFarlane v McFarlane [2006] UKHL 24; [2006] 2 AC 618 at [13] per Lord Nicholls of Birkenhead.
a lawyer to provide the family income and he became a partner in a law
firm. Victoria and Fergus separated when Alice was five and Bella
two.
Fergus was earning a salary of $350,000 and after the separation Victoria found a job as a junior solicitor earning $40,000. The children lived with Victoria during the week and would stay with Fergus in the weekends. Their main asset was the mortgage-free family home. The value of the home was shared equally under the
rules of the PRA. With her share of the equity Victoria purchased a new house, but could only afford a smaller home in a cheaper neighbourhood that was 30 minutes’ drive away from Alice’s school and 45 minutes’ drive from her work. In order that Victoria could work, Bella was put into a private childcare facility (she was too young to go to kindergarten). Bella was not yet entitled to receive a subsidy for the costs of her childcare. The costs of the childcare were shared equally by Victoria
and Fergus. Victoria’s share amounts to a significant proportion of
her salary.
Fergus also used his share in the equity from selling the family home to buy a new house. Because his salary was significantly higher, he was able to buy a similar sized house in the same neighbourhood in which the family had
lived before the separation. Fergus’s salary also made payment of the costs of childcare easy, and he had enough income to spend money on leisure activities for himself and the children. Victoria’s standard of living dropped because of
the reduced income into her household and the long commuting time each day,
leaving less time and money for Victoria to maintain
her home and care for the
children as she would have liked, or participate in leisure activities
herself.
When does section 15 not apply?
18.24 Section 15 does not capture all forms of financial inequality
between the partners at the end of a relationship. Economic
disparity is, as we
discuss at paragraphs 18.321–18.443 below, a very narrow
concept.
18.25 There will also be cases where there is economic disparity but it is
not attributable to a division of functions. This is
illustrated in the case
study below:
Case study: When section 15 does not apply
Jo and Billie work in the same jobs they have had since they first met. Jo is a surgeon and Billie is a nurse. They have twin girls aged three. First Billie and then Jo took six weeks off when the twins were born. Jo and Billie have separated.
Billie has remained in the family home with the twins but is struggling to pay the mortgage and other bills. In this case Billie would not appear to have a claim under section 15 because any economic disparity between Jo and Billie is not due to the division of functions during the relationship. The economic
disparity between them is more likely to be because Billie has a lower income
and/or because she now has ongoing day to day care of the
children.
18.26 In this case study, Billie might be entitled to maintenance and
child support, but is unlikely to have a claim under section
15. We discuss
the overlap between section 15 and maintenance in Chapter 19 with respect to
option 3.
How does section 15 work in practice?
18.27 Section 15 provides:
(1) This section applies if, on the division of relationship property, the court is satisfied that, after the marriage, civil union, or de facto relationship ends, the income and living standards of one spouse or partner (party B) are likely to be significantly higher than the other spouse or partner (party A) because
of the effects of the division of functions within the marriage, civil
union, or de facto relationship while the parties were living
together.
(2) In determining whether or not to make an order under this section,
the court may have regard to—
(a) the likely earning capacity of each spouse or partner:
(b) the responsibilities of each spouse or partner for the ongoing daily
care of any minor or dependent children of the marriage,
civil union, or de
facto relationship:
(c) any other relevant circumstances.
(3) If this section applies, the court, if it considers it just, may, for
the purpose of compensating party A,—
(a) order party B to pay party A a sum of money out of party B’s
relationship property:
(b) order party B to transfer to party A any other property out of party
B’s relationship property.
(4) This section overrides sections 11 to 14A.
18.28 Section 15 applies “on the division of relationship property”, after the relationship ends. This suggests that partner A cannot make a
section 15 claim independent of an application for orders dividing
relationship property under section 25(1) of the PRA.27
18.29 There is no onus of proof in the conventional sense on partner
A.28 Partner A does not carry the sole responsibility for proving to a court that he or she deserves compensation under section 15. A court can make its own determination on the evidence before it.29
The Court of Appeal in M v B said that:30
The imposition of an onus of proof would be a further impediment to the
obtaining of just entitlements under the statutory regime
given that, in many
respects, the relevant evidence is more than likely in the possession of the
titled partner (who more often than
not is a man).
There is some validity in this concern. The Act is about property rights
and entitlements. The Act, and the regulations which have
been promulgated
pursuant to it, make it clear that, although there is not a fully inquisitorial
system, a Court needs only to be
satisfied about a state of events which has
existed, or which exists. Notions of onus of proof fit uncomfortably within this
legislative
regime.
18.30 A court must still be satisfied that the different elements of
section 15 are satisfied. The Court of Appeal has described
these as
“hurdles” that “must be overcome” in order for partner
A to succeed under section 15.31 These hurdles are:
(a) a significant disparity in the income and living standards of partner
A and partner B (which we call “economic disparity”);
(b) the economic disparity was caused by the division of functions between
partner A and partner B within the relationship; and
(c) compensation is just in the circumstances.
1976 during a relationship. See by contrast s 25(3), which allows a court at any time to make any order or declaration relating to the status, ownership, vesting, or possession of any specific property as it considers just. This difference risks an order being made pursuant to s 25(3) without regard to any potential award under s 15. Second, a s 15 claim cannot be brought after the partners’ relationship property has been divided.
28 See also the discussion of onus of proof in Chapters 6 and Chapter 25.
29 The Court of Appeal clarified in X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [96] that “there must be material before the
Court from which a Judge can determine that the threshold disparity has been met.”
30 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [38] and [39].
31 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [125].
18.31 The discussion in this section is based on our review of the case
law, and that undertaken by Green32 and Henaghan.33
Section 15 claims have come before the Court of Appeal only four times,
the last decision being in 2016,34 and the Supreme Court only once,
in March 2017 (decision pending).35
Hurdle one – economic disparity
18.32 For a claim to succeed under section 15, there must be economic disparity between partner A and partner B. Disparity must exist in both income and living standards. In looking at what the income and living standards of the partners are “likely” to be,
the assessment is prospective, or forward-looking. A court must therefore speculate based on the information provided to it. Evidence on each partner ’s future income and living standards
is usually provided by experts, such as forensic accountants or actuaries
who can provide, for example, a valuation of potential
pay-scales for a
foregone career.36 Expert evidence assists the court, but the cost
and time associated with preparing such evidence is considerable and can place
section
15 beyond the reach of potential claimants.
The overlap between income and living standards
18.33 A section 15 claim will fail unless a significant difference in both
income and living standards is established. Section
15 does not indicate
whether income or living standards are more important and it is unclear why
establishing disparity in both
elements is required.
18.34 In X v X the Court of Appeal recognised that in reality there
is often an overlap between income and living standards.37 A high
income usually means a high standard of living and if there is a significant
disparity in income then there is usually a
significant
32 Claire Green “The impact of section 15 of the Property (Relationships) Act 1976 on the vexing problem of economic disparity” (PhD Thesis, University of Otago, 2013). Green analysed section 15 cases and surveyed legal practitioners around New Zealand about their views on section 15.
34 N v N [2004] NZCA 288; [2005] 3 NZLR 46 (CA); M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA); X v X [2009] NZCA 399, [2010] 1 NZLR 601; and Scott v
Williams [2016] NZCA 356, [2016] NZFLR 499.
35 Scott v Williams [2016] NZSC 149 (granting leave to appeal to the Supreme Court).
36 See for example M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA); and X v X [2009] NZCA 399, [2010] 1 NZLR 601.
disparity in living standards. The Court considered that a separate
analysis of income and living standards was not usually required, although
both must be established.38
18.35 It might not always be the case, however, that a higher income
means a higher standard of living. The partners might
have different incomes
but not different living standards. For example, partner A may have a lower
income than partner B, but may
inherit a substantial sum of money or enter a
new relationship with a new partner who can support a standard of living at
least
equivalent to that of partner B. It is also possible that partners have
equivalent incomes but different living standards. For
example, if partner A has
responsibility for the ongoing care of a dependant parent his or her living
standards may be lower, or
if partner B inherited a substantial sum of money
his or her living standards may be higher.
18.36 It is also possible that partner B could suffer a drop in living standards, despite having a larger income than partner A. This was the case in L v B where the Family Court said there was
no disparity.39 The Court referred to ongoing maintenance
commitments, the need to support Partner B’s new wife and expected child,
the long
term occupation of the family home by Partner A, and that Partner B
could not rehouse himself from relationship property proceeds.
What is “income”?
18.37 Income is not defined in the PRA but was described by the Court of
Appeal as something to be “considered in the round,
[and] includes all
periodic streams of money”.40 So income as assessed for
taxation is only one measure and regard may be had further afield, for example,
to losses that may be
written off by a self- employed partner.
18.38 If partner B is unemployed but has previously been in employment, a
court may consider clear evidence of partner B’s
ability to find
employment at a comparable pay rate to that previously
held.41
38 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [81].
39 L v B [2012] NZFC 9534.
40 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [88].
41 S v S FC North Shore FAM 2004-044-1890, 12 May 2006 at [55].
What is meant by “living standards”?
18.39 “Living standards” is different to “lifestyle”.42 The exact boundaries of what can be considered “living standards” are not clear. Factors considered relevant have included: ownership of one’s own home, ability to work, amount of leisure time, flexibility in time free
to work, ability to make lifestyle choices regarding work, care
of children and living arrangements, holiday opportunities, the ability to
save money, and any separate property owned.43 In K v K the
Family Court found that the fact the husband chose to live with his parents
meant he had higher living standards than the wife
who had limited financial
resources, restricting the choices she was able to make.44
18.40 St John suggests that living standards are affected by a number of
factors, not determined solely by income.45 Relevant questions may
include how many people are being supported by each partner ’s income,
the relevance of economies of
scale, assets at the disposal of each partner,
the utility of assets at a partner ’s disposal (for example a house
which
a partner cannot maintain), whether third parties (such as parents) are
able to assist in the day-to-day running of the house,
“perceptions of
fairness”, and “intangibles such as enjoyment of
children”.46
Date of assessment
18.41 The date at which the likely future income and living standards are to be assessed is the date of separation, as this is when the division of functions within the relationship ends. The High Court in X v X [Economic Disparity] stated that:47
at separation the division of functions in the marriage has come to an
end. That is the point as which its effects must be judged,
using whatever
evidence is available at the time of the hearing to inform the
process.
42 V v V [2002] NZFLR 1105 at [12]; N v N [2003] NZLR 46 (FC) at [3].
44 K v K FC Papakura FAM-2003-055-406, 3 July 2007.
45 Susan St John “Economist’s Perspective: Prospects for Equality” (paper presented to the Property (Relationships) Act
1976 Spotlight Seminar, Wellington, August 2001) at 4.
46 Susan St John “Economist’s Perspective: Prospects for Equality” (paper presented to the Property (Relationships) Act
1976 Spotlight Seminar, Wellington, August 2001) at 5.
47 X v X [Economic Disparity] [2007] NZFLR 502 (HC) at [88].
18.42 As we discuss at paragraph 18.710, the partners’ post-separation
division of functions is largely irrelevant under section 15.
18.43 The disparity period continues until either there is no longer a
significant difference in income or living standards or
the difference is no
longer caused by the division of functions in the
relationship.48
“Significant” disparity
18.44 Use of the word “significant” in section 15 “denotes a more than trivial disparity”.49 What amounts to significant disparity requires a subjective assessment and is a “factual question”.50
What appears to be a small difference for high income earners (for example a difference in income of $8,000) could be significant
for low income earners. Disparity is assessed relative to the partners. If both partners’ incomes are low then the disparity may be significant even if there is a small difference between the incomes. For partners with significant wealth and income then a significant disparity would require a large gap in income.
Where a gap in income is very large, a gap in living standards will
“inevitably” be found.51
Hurdle two – the economic disparity is caused by the division of
functions
18.45 The second hurdle is that the economic disparity must have been
caused by the division of functions within the relationship
(the causation
hurdle). Based on our review of the cases, we estimate that approximately 20
per cent of claims under section 15
do not meet this hurdle.
The division of functions does not have to be the sole cause of economic
disparity
18.46 In early decisions under section 15 the courts indicated that the
division of functions must be the principal or dominant
cause of
48 X v X [Economic Disparity] [2007] NZFLR 502 (HC).
49 X v X [2009] NZCA 399 at [77]. It was described as “noteworthy or important” in P v P [2003] NZFLR 925 (FC) and
“somewhere between clearly greater and disproportionately greater” in N v N [2003] NZLR 46 (FC).
50 X v X [2009] NZCA 399 at [83].
51 B v M [2005] NZFLR 730 at [120].
economic disparity for a section 15 award to be made. More recent
decisions, however, take a different approach. Although a clear, causal
link must be established, it need not be the only causative
link. In M v B
the Court of Appeal said:52
In G v G [2003] NZFLR 289 (FC) Judge Ellis (in the context of a claim for a compensatory award under s 15) stated at [127] that the test for causation was that “the ‘division of functions’ must not only be a ‘real and substantial cause’ but must be the principal cause of the economic disparity.” This puts the jurisdictional bar
too high. The “principal cause” of the husband’s present
earning capacity is his skill as a lawyer. But that consideration
alone does not
preclude a redistributive award.
18.47 This was applied in S v C, where the High Court overturned the
Family Court’s decision rejecting partner A’s section 15 claim.53
The High Court held that, although other factors had played a role in the
economic disparity, such as partner B’s qualifications
and partner
A’s “emotional difficulties following the marital breakdown”,
which “might have delayed her ability
to begin work”, so did the
division of functions within the marriage.54 The Court was
satisfied that partner A had suffered reduced earning capacity and this was
caused by the division of functions
in the relationship.55
18.48 A similar approach is taken to assessing eligibility for maintenance under sections 63 and 64 of the Family Proceedings Act 1980. Those sections allow a court to consider the ability of a partner to become self-supporting, having regard to “the effects
of the division of functions” within the relationship.56 In
that context the Court of Appeal in Slater v Slater said there could be
more than one operative cause.57
Does the decision relating to how the functions are divided in the
relationship have to be mutual?
18.49 A second uncertainty, now resolved by the courts, was whether the
division of functions within the relationship had to
be
52 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [201] per Young P.
53 S v C [2007] NZFLR 472 (HC) at [27].
54 S v C [2007] NZFLR 472 (HC) at [32]–[35].
55 S v C [2007] NZFLR 472 (HC) at [35].
56 Family Proceedings Act 1980, ss 63(2)(a)(i) and 64(2)(a)(i).
57 Slater v Slater [1983] NZLR 166 (CA) at 174.
agreed upon. Arguably a unilateral choice by one partner not to
undertake paid work would cause economic disparity, rather than the division of functions. During our preliminary consultation
we were told that it is not uncommon for partner B to argue that partner A chose to stay at home and that partner B did not agree with that choice. There may also be cases where partner A stopped paid work without there being a conscious decision by
the partners for this to happen, for example if partner A was made
redundant.
18.50 In X v X the Court of Appeal considered whether a decision
not to work should be assumed to be mutual or whether a court should hear
evidence
that one person could have furthered their career but unilaterally
chose not to.58 Before X v X, there were cases where partner
B disputed that the decision was mutual and this was sometimes treated as a
reason not to make
a section 15 award.59
18.51 The Court of Appeal in X v X said to “ensure that the reality of decision-making in relationships is reflected, it should be presumed that functions within a marriage are agreed to by both parties”.60 Reversing that presumption would require compelling evidence to the contrary.61 The Court also said that the merits of the partners’ decision as to the division of functions is irrelevant under section 15:62
I reject any suggestion that an enquiry ought or needs to be made into the
merits of a decision made by the parties as to the division
of domestic roles
for a causal relationship under s 15 to be established. [The applicant] was
correct to submit that where a state
of affairs exists – namely, in this
case, Mrs X’s protracted
59 In K v K FC Auckland FAM-2004-004-509, 27 August 2008 and on appeal K v K HC Auckland CIV-2008-404-6161, 31 July
2009 the husband claimed that the wife insisted on taking exclusive care of the children and that was not his preference. The High Court (reversing the approach of the Family Court) took the approach that the decisions were a part of the choices of the relationship such as having children and regardless that the wife had stopped work against the wishes
of the husband, the result was a qualifying division of functions. However, the Court then took the unusual step of dismissing the claim on the basis it was unconvinced by the evidence put forward as to what the wife would have earned but for the division of functions. In the context of a significant disparity and a clear division of functions it would seem that this should have been a question of quantum rather than causation. In M v M FC Wellington FAM-2007-091-767, 23
September 2009 the Family Court dismissed the application and included amongst other factors that the wife had not pursued her career for a number of years of the marriage before the partners had children.
60 X v X [2009] NZCA 399, [2010] NZLR 601 at [105].
62 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [104].
absence from the workforce and her support of the children and
Mr X – there is a presumption, in the absence of clear evidence to the contrary, that it was pursued by both parties to the marriage. Evidence that a party did not return to the workforce when
they could have, or chose to pursue a domestic life instead of
a professional career, may, however, be relevant to the Court’s
exercise of its discretion under s 15(3).
Establishing causation requires a retrospective assessment
18.52 When assessing causation, a court must look back at what happened during the relationship. Causation is more easily established where there is evidence that the division of functions in the relationship clearly affected partner A’s and/or partner
B’s earning capacity. Examples of evidence that might establish
causation include evidence relating to partner B’s
absence from the
household due to employment, partner A’s relocation to support partner
B’s career, or sacrifice of
partner A’s professional career.
18.53 Claims where partner A seeks to show that the economic disparity arises from a loss in potential earnings because of the division of functions (referred to as “diminished earnings
claims”) have generally had the most success. Claims that seek
to show the disparity arises from the enhancement of partner B’s
earning potential due to the division of functions (referred
to as
“enhancement claims”) have been more difficult to
establish.63
18.54 Both types of awards are, however, possible. In P v P the High
Court said:64
We are satisfied that in principle both the depression of A’s
earning capacity and the enhancement of B’s earning capacity
are relevant
in the s 15 context. Essentially this conclusion reflects the terms of s 15(1)
whereby jurisdiction is dependent
by the Court of Appeal decision in Z v Z. If Parliament intended to change the law established in Z v Z it should have specifically said so, or amended the definition of “property” or altered ss 8(e), 8(ee) and 9(4). I therefore do not accept the submissions ... that compensation is available on a redistributive basis.” This was founded on the reasoning that s
15 provided for compensation, not for treating future earning potential as property, and therefore conceptually it could only provide for losses rather than to redistribute benefits. The Court could not see any way of granting a payment for enhancement that did not treat enhanced income as relationship property. This has not been the approach in other cases, probably because a simple application of s15 allows for an order of transfer of property for any disparity caused by a division of functions in the relationship, regardless of what the conceptual basis for that order would otherwise be.
64 P v P [2005] NZHC 1219; [2005] NZFLR 689 (HC) at [56].
upon the likelihood that party B’s income and living standards
will be significantly higher than those of party A. In light of this
jurisdictional requirement we think there is no basis to exclude
an enhanced
income position from consideration provided, of course, the relevant causative
nexus is also made out.
18.55 In M v B the Court of Appeal was open to the argument there
may be a redistributive quality to section 15. The Court said that “both
compensatory and redistributive exercises may be appropriate under s 15”,
a view which “accords with P v P”,65 and that in
some circumstances “an enhancement of earning capacity will properly be
redistributable under s 15.” 66 The possibility of enhancement
awards was also recognised by the Court of Appeal in X v
X:67
If there had been evidence in this case that the effect of the division of
roles during the relationship was to enhance the income
capacity or living
standards of Mr X on an ongoing basis after separation, the section 15 award
would have needed to reflect that.
Establishing causation in enhancement claims can be
difficult
18.56 In enhancement claims, partner A is claiming that the division
of functions has “freed up” partner B. Partner B is able to
develop work skills and experience thereby enhancing his or
her earning
potential. A good example is the case of Williams v Scott in the Family
Court.68 Mr Williams developed a successful law firm. Ms Scott was
credited with “providing care to the parties’ sick son, hosting
functions with real estate agent offices, building up the firm’s strong
conveyancing business, and carrying out significant
accounting
tasks”.69 These latter contributions added value to the law
firm and enhanced Mr Williams’ income. In the Family
Court
the discussion can be reduced to the simple proposition outlined in X v X: “Did [the wife] support [the husband] to obtain his qualification and gain the experience that provided him with an enhanced earning capacity?”
66 M v B [2006] NZCA 535; [2006] NZFLR 641 (CA) at [200] per Young P.
67 X v X [2009] NZCA 399 at [237].
68 Williams v Scott [2014] NZFC 7616 at [317]; Williams v Scott [2014] NZHC 2547, [2015] NZFLR 355; and Scott v Williams
[2016] NZCA 356, [2016] NZFLR 499. Judgment of the Supreme Court pending.
69 Williams v Scott [2014] NZFC 7616 at [317]. Judgment of the Supreme Court pending.
Ms Scott received an award under section 15 for enhancement on
this basis.70
18.57 Where the enhancement is less clear a section 15 claim is harder to establish. In P v P the High Court said that “some comparative evidence was necessary to enable Mr P’s earnings pattern to be assessed against that of others” in a similar career.71 Without that evidence the Court was reluctant to make an order under section
15.72 In M v B the court observed:73
A woman who stays at home and looks after children frees up her partner’s time and energy, and in this way, may facilitate an enhancement of his earning capacity. Thinking along these lines is reflected in s 15 and in some circumstances, such an
enhancement of earning capacity will properly be redistributable under s
15. But, as this case illustrates, it is not always easy
to move from the
general to the specific.
18.58 In E v E the Family Court said that section 15 “requires circumstances that are truly causative, not merely permissive”.74 In that case the Court found no enhancement despite agreeing that partner A had “released [partner B] from family duties” meaning partner B “was not hampered in the pursuit of his career”. Other cases focus on specific sacrifices or steps taken by partner A that benefited partner B. In H v S and J v J choices to move overseas
to support partner B’s career were critical.75 In H v H
[Economic Disparity] the husband’s maritime career depended on him not
having to be at home and in C v C the wife had contributed to the
administration of the husband’s business.76
18.59 Other cases hint at a more relaxed approach to the relationship
between the division of functions and enhancement. In C v C [Economic
Disparity] the High Court noted in finding causation that “the
division of roles assisted Mr C to pursue his
professional
71 P v P [2005] NZHC 1219; [2005] NZFLR 689 (HC) at [61].
72 P v P [2005] NZHC 1219; [2005] NZFLR 689 (HC) at [61].
73 M v B [2006] NZCA 535; [2006] NZFLR 641 (CA) at [199]–[200] per Young P.
74 E v E [2012] NZFC 830 at [140].
75 H v S [2012] NZFC 7543; and J v J [2014] NZHC 1495.
76 H v H [Economic Disparity] [2007] NZFLR 711 (HC); and C v C FC Lower Hutt FAM-2007-032-170, 25 September 2008.
career free of day to day child care responsibilities”.77 In W v H the
Family Court found that:78
[Mr W] was able to commit himself to a fulltime position with [X firm] at
an important stage of his working life... Household duties
or childcare duties
or the other spouse’s career did not impact on him because this couple had
made a joint decision that [Ms
H] would manage those functions... I accept Mr
Higgins evidence that it is likely that his salary was enhanced by his ability
to
commit to a fulltime position and to enhance his skills through
training.
18.60 Both cases resulted in successful enhancement claims.
The courts take different approaches to determine causation
18.61 There is inconsistency in the way causation is dealt with by the
courts. In a few cases, the courts will assume causation
where there is
economic disparity and the division of functions is clear, particularly where
children are involved. More often,
however, the courts require evidence of
loss of earning ability by partner A or enhancement of partner B’s earning
capacity.
This might include evidence about the career partner A would have
pursued, evidence of an abandoned career or other additional
factors.79
18.62 There are striking examples. One is CH v GH.80 The husband and wife married and had children at a very young age (the wife became pregnant with their first child at age 16). They had two more children. The husband became an electrician and the wife committed her time to household management and looking after the children. It took a long time post-separation for an application to be made (and ultimately 13 years before the dispute was heard by the Family Court).81 The Family Court looked at the actions
of the wife in the interim period, where she largely continued as an active mother and grandmother while working part-time. The Court concluded that because the wife’s first child had been born when the wife was so young she had had no opportunity to start a
career and “it is therefore very difficult for her to show that
there
77 C v C [Economic Disparity] HC Auckland CIV-2003-404-002392, 28 November 2003.
78 W v H [2015] NZFC 3413 at [85].
80 CH v GH DC Auckland FAM-2007-004-1129, 24 December 2008.
is a detrimental effect on a career development because she did
not have one in which to develop”.82 The Court found no causation, even though there was a very significant disparity as the husband had accumulated “approximately $1 million” post-separation
while the wife had “increasingly gone into debt”. 83
The Court noted that there was no evidence of
enhancement.84
18.63 This decision is in stark contrast with H v H [Economic Disparity].85
In that case the wife left school at age 15 when she became pregnant with their first child. They had two more children. The husband was a fisherman and ultimately the skipper of a
vessel while the wife remained at home and raised the children. After the partners separated there was a large disparity in income and living standards. The High Court considered that causation was overwhelming as both partners had started with no qualifications and the husband had pursued his career while
his wife “exclusively looked after the three children and cared for the
household until the parties separated”.86 The Court found
that partner A had enhanced partner B’s career prospects, stating that
“[w]ithout his wife...it was unlikely
that he would have been able to
build up his maritime experience and qualifications to the same
degree”.87 The Court calling it “added
value”.88
18.64 The key difference between these two cases is that in H v H
[Economic Disparity], the husband’s job as a fisherman required him to
be away from home for large amounts of time. Otherwise the facts are
similar.
18.65 Another example is Douglas v Douglas.89 Partner A
brought four dependent children into the marriage from a former relationship.
The marriage lasted 17 years.90 The Family Court emphasised the
fact of a clear division of functions and how partner A supported partner
B’s career through
the relationship, including partner
B’s
82 CH v GH DC Auckland FAM-2007-004-1129, 24 December 2008 at [49].
83 CH v GH DC Auckland FAM-2007-004-1129, 24 December 2008 at [50].
84 CH v GH DC Auckland FAM-2007-004-1129, 24 December 2008 at [51].
85 H v H [Economic Disparity] [2007] NZFLR 711 (HC).
86 H v H [Economic Disparity] [2007] NZFLR 711 (HC) at 711.
87 H v H [Economic Disparity] [2007] NZFLR 711 (HC) at 712.
88 H v H [Economic Disparity] [2007] NZFLR 711 (HC) at 717.
89 Douglas v Douglas [2013] NZHC 3022. The case was known in the Family Court as A v A [2012] NZFC 10192.
ability to train for a three year apprenticeship.91 Overall there was
a clear commitment to prioritise partner B’s career over partner
A’s. The Family Court also stated that:92
In general where one partner has stayed home and has had a protracted
absence from the work force in support of the children there
will need to be
compelling evidence in order for a court to determine that the disparity has not
been caused by the division of functions.
18.66 This statement was not repeated in the High Court on appeal.
The fact partner A brought four dependent children into the relationship
influenced the High Court’s reasoning. The Court found
partner A would
likely have done the exact same thing (work part-time while mostly committing to
looking after the children) if
there had been no relationship. The High Court
overturned the section 15 award of $63,000 in the Family Court.
18.67 The two decisions in Douglas reflect the two approaches taken by the courts. One is to view the purpose of the “division of functions” requirement as being to ensure awards are made if there is a division of functions and resulting economic disparity. Questions of loss of earning ability by partner A in diminished earnings claims, or earning enhancement by partner B in enhancement claims, are not important. The alternative approach emphasises the causal relationship between the division of
functions and lost earning potential or earning enhancement. This approach requires more of partner A in presenting evidence, and invites argument on whether work options were available, how choices were made within the relationship and whether there
is evidence of an alternative career the applicant would have pursued.93 A higher evidential burden (and the costs involved in presenting that evidence) can render section 15 an unattractive
option in seeking a departure from equal sharing.
91 A v A [2012] NZFC 10192.
92 A v A [2012] NZFC 10192 at [50].
Consequences of different approaches relating to the causation
hurdle
18.68 Different approaches to the causation hurdle risks inconsistency
between cases. It also risks decisions failing to fulfil
the purpose of section
15. Green suggests that:94
The court decisions... indicate the inherent difficulty of applying the provision, particularly in achieving the correct balance between being unduly restrictive, rarely finding that the economic disparity was a result of the division of functions, to lowering
the jurisdictional bar so that the causation test is effectively
meaningless.
18.69 The differing approaches to the causation hurdle illustrates that
section 15 is insufficiently clear as to the proper approach.
18.70 An underlying issue is whether the causation hurdle creates a distracting and unnecessary level of analysis. The burden it places on partner A can be significant in terms of the evidence that
may be required. A difficulty that often arises is that the courts find there is insufficient evidence to establish a link between the role of party A within the relationship, such as household
management, and his or her low earning capacity post-separation. This means that the current application of section 15 does not necessarily lead to compensation for cases where economic disparity and a division of functions is established, unless detailed evidence is presented of a hypothetical career partner A could
have enjoyed, but for the division of functions.
18.71 The causation hurdle means that not all cases of economic disparity will be recognised and addressed under section 15. The risk of failing to capture otherwise valid claims also arises because section 15 emphasises the division of functions during the relationship. This fails to recognise that the roles played by the partners can continue after the relationship. This is notable where the partners have dependent children. What happens if
partner A is pregnant with the partners’ first child at the end of the relationship? There has not been a “division of functions in the relationship” (partner A has not yet undertaken childcare responsibilities) that caused the economic disparity (for the period when partner A stays at home to care for the child).
This raises the question of whether it is more in keeping with
the policy and principles of the PRA to address any economic
disadvantages arising from the end of the relationship, not just those
directly caused by a division of functions within it.
Hurdle three – compensation must be just in the circumstances
18.72 If a court is satisfied there is economic disparity caused by the
division of functions in the relationship, then it may
make an order under
section 15(3) “if it considers it just”.95 In X v X
the Court of Appeal said: 96
The s 15(3) discretionary assessment is not amenable to a prescribed
formula, and the justice of an award in any particular case will
depend on a
comprehensive assessment of the parties’ respective financial positions,
their earning prospects going forward,
their current obligations in respect of
any children of the partnership, and other matters that go to the overall
fairness of an
award.
18.73 Section 15(2) provides that a court in deciding whether to make an
order may have regard to: 97
(a) the likely earning capacity of each partner;
(b) the responsibilities of each partner for ongoing daily care of any
children of the relationship; and
(c) any other relevant circumstances.
Cases where the court considered an order under section 15 was not
just
18.74 There are cases where the Family Court has indicated it would not
have exercised its discretion to make an award under section
themselves. In other words, the fact that partner A has a relationship property entitlement worth several million dollars and will therefore be significantly wealthy compared to most other people is not relevant when partner A is in a position of economic disparity in relation to partner B.
15 even if the other hurdles had been met. In M v M the Family
Court said that even if the economic disparity was caused by the division of functions, it would have hesitated to exercise its discretion.98 This was due (among other things) to the property partner A would receive from the division of relationship property, her lack of good faith in some dealings, her ill health hindering work efforts, and the relatively low relevance of the division of functions to any disparity.99 Another case is Wills v
Catsburg, where the Family Court said it would not have exercised its
discretion to make an award under section 15 because partner A had
made a
lifestyle choice not to work in paid employment.100
18.75 In E v E the Family Court did not make an award under section
15 despite concluding there would be economic disparity caused by the division
of functions for a period of four years when partner A would be looking after
the child of the relationship, requiring her to work
part-time instead of
full-time.101 The Court considered, however, that the money lost
would be “significantly less” than the $64,000 claimed. It factored
in the impact of a section 15 award on partner B’s living standards and
partner B’s contribution of separate property
at the start of the
relationship, from which the partner A derived a benefit.102
18.76 In L v B the Family Court’s reasons why an award under section
15 was not just appear to undermine the compensation purpose
of section 15.103 In that case the Court was not satisfied that
there was either economic disparity or a causal link to the division of
functions,
but went on to say:104
If I am wrong in the above findings, if I stand back and look at the overall discretion and determine whether an award for economic disparity is just, I am not persuaded that such an award is just. I take into account the deferment of the sale
of the home, the ongoing requirement for child support and spousal maintenance and the fact that the Court has declared the D Street property to be the wife’s separate property, albeit
with her obligations to the family, with their consent, this
could
98 M v M FC Wellington FAM-2007-091-767, 23 September 2009.
99 M v M FC Wellington FAM-2007-091-767, 23 September 2009 at [61].
100 Wills v Catsburg [2016] NZFC 851 at [52].
101 E v E FC New Plymouth FAM-2007-043-396, 18 December 2009.
102 E v E FC New Plymouth FAM-2007-043-396, 18 December 2009 at [83].
103 L v B [2012] NZFC 9534.
104 L v B [2012] NZFC 9534 at [70].
provide a source of income for her on an ongoing basis. I do not
consider that it would be fair to make a substantial redistributive award. I consider that the wife will be able to plan to re-enter
the workforce as a result of this judgment and will be able to either upskill, or retrain or alternatively enter the workforce now. I take into account that the clean break principle in a sense is being deferred and that provides ongoing support for the wife. While she has the ongoing responsibility for the children she
will now be able to phase in and plan for the reintegration back with the workforce. Taking her age into account that will still be achievable. I do not consider it is appropriate to compensate from the husband’s share of relationship property for any adjustment.
I take into account that there has been reasonably significant spousal
maintenance paid by the husband post-separation and child support.
I accept that
he should not be rewarded for doing what he is responsible for doing in the
first place but on the other hand I have
to acknowledge that it has been paid
and that there is going to be continued liability. I also take into account the
ages of the
children.
18.77 Factors taken into account in that case, such as maintenance
and child support, are to meet the financial needs of the partner and
children, not to compensate partner A for the economic disadvantages
he or she
suffered as a result of the division of functions. By taking these payments
into account the Court essentially conflated
the two separate concepts of needs
and compensation.105
Is the reasoning used by the courts consistent with the purpose of section
15?
18.78 The decision in L v B is not a one-off example of a court
considering factors that seem inconsistent with the compensation purpose of section 15. In other cases the courts have also considered:106
(a) whether economic disparity is likely to be long-term or
short-term;107
106 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR15.15].
107 Monks v Monks [2006] NZFLR 161 (HC).
(b) whether there are causative factors other than the
division of functions and the weight of those other
factors;108
(c) the clean break concept;109
(d) availability of part-time rather than full-time work for partner
A;110
(e) post-separation support such as mortgage
payments;111
(f ) voluntary payment of spousal maintenance;112 and
(g) age of the partners and the number of years left in the
workforce.
18.79 The courts’ consideration of these factors suggests a disinclination to find that a section 15 claim has been established. It is hard
to see how many of these factors are relevant to compensation for economic disparity. For example, whether or not partner
B voluntarily paid maintenance as opposed to being forced to pay maintenance
by a court order seems irrelevant to whether economic
disparity caused by the
division of functions should be compensated. While the age of the partners and
the length of the economic
disparity may indicate a level of need (perhaps
caused by the economic disparity and perhaps not), section 15 is focused on
compensation.
Meeting needs is a separate issue that is dealt with under
maintenance and child support where relevant. We discuss the overlap
between
section 15 and maintenance in Chapter 19 with respect to option 3.
18.80 The discretion under section 15(3) is broad and we consider that its
exercise has resulted in cases where an award was not
made or was reduced for
reasons unrelated to compensating for economic disparity resulting from the
division of functions.
Ability to review the court’s discretion under section
15(3)
18.81 Because a court’s decision to make a section 15 award is an
exercise in discretion, the extent to which a higher court
can
108 De Malmanche v De Malmanche [2002] 2 NZLR 838 (HC).
109 M v B [2006] NZCA 535; [2006] NZFLR 641 (CA); and L v B [2012] NZFC 9534 at [70].
110 C v C [Economic Disparity] HC Auckland CIV-2003-404-002392, 28 November 2003.
111 C v C [Economic Disparity] HC Auckland CIV-2003-404-002392, 28 November 2003.
112 C v C [Economic Disparity] HC Auckland CIV-2003-404-002392, 28 November 2003 at [63].
review it is limited.113 A higher court can only intervene if the
lower court had:114
(a) made an error of law or principle;
(b) took into account an irrelevant consideration;
(c) failed to take account of relevant considerations; or
(d) made a decision that was plainly wrong.
Determining the amount of section 15 awards
18.82 If the three hurdles in section 15 are satisfied a court may order partner B to transfer a sum of money or any other property from partner B’s share of relationship property to partner A.115 This is most commonly implemented by adjusting each partner ’s share of the pool of relationship property (for example partner A receives
65 per cent and partner B receives 35 per cent of the relationship property
pool) After the court has made the monetary award the
relationship property is
then shared equally.
Overview of amounts awarded under section 15
18.83 Our research identified approximately 100 cases in which a court decided a claim under section 15.116 Roughly 40 per cent of claims were successful, resulting in a compensatory award under section
15. The amount awarded ranged from $15,000 to $470,000.
The largest amount awarded was in Scott v Williams, but in that case
the Family Court had originally awarded $850,000, which was lowered to
$470,000 on appeal.117 On average, the amount awarded was
approximately $96,000.118
113 The High Court in L v P HC Auckland CIV-2010-404-6103,
17 August 2011 at [50] stated that:
If the threshold requirements of s 15(1) are established, s 15(3) enables the Court to make an economic disparity award “if it considers it just” to do so. This involves the exercise of a discretion and therefore the limits on an appeal in respect of the exercise of a discretion apply, as earlier discussed.
114 J v J [2014] NZHC 1495at [24] and [80]; see also Simon v Wright [2013] NZHC 1809 at [42].
115 Property (Relationships) Act 1976, s 15(3).
116 “Case” in this context means that a unique application was made under s 15 of the Property (Relationships) Act 1976.
Thus each “case” includes any appeals in that matter.
117 The amount awarded in the Family Court ($850,000) was reduced to $280,000 in the High Court and then raised to
$470,000 in the Court of Appeal. This case is currently on appeal to the Supreme Court
118 See Vivienne Crawshaw “Section 15 – A Satellite Overview” (2009) 6 NZFLJ 155for an earlier review of the case law.
18.84 We could not determine, in every case, the amount of the section
15 award as a proportion of the overall relationship property pool.119 While in some cases the amount awarded was given as a percentage of the relationship property pool, in others the amount awarded was given as a monetary sum and the value
of the relationship property pool was not stated. In some cases the value of
a large asset (such as a house) was given and we nominated
a maximum proportion
based on that figure.
18.85 Of the cases we could measure, the section 15 award was, on average, 7.4 per cent of the overall relationship property pool. The amount awarded in Scott v Williams, while the largest monetary sum on record, represented just 5.2 per cent of the overall relationship property pool.120 We identified eight cases where
the proportion was above 10 per cent, and two cases in which the section 15 award represented a much larger percentage of the relationship property pool. In J v J the award amounted to 30 per cent of the relationship property pool,121 and in Fischbach v Bonnar, the first reported case to consider section 15, the award amounted to 21 per cent.122 The lowest proportion we identified
was in M v M, where the award of $31,000 (adjusted for inflation)
amounted to 1.4 per cent of the relationship property
pool.123
How the courts calculate the award
18.86 The PRA itself offers little guidance on how a section 15 award
should be determined, beyond stating that the purpose
of the award is to
compensate partner A. The Court of Appeal has noted that calculations of
section 15 awards “have not exactly
been a model of
clarity”.124 In M v B the Court of Appeal said
that
subverts the entitlement plus compensation rationale of the Act with a needs-based approach. The fifty per cent is awarded on the basis of entitlement, not need. Compensation is awarded on the basis that one party remains substantively better off than the other, and does so because the functioning of the relationship has generated compensable losses.
120 Scott v Williams [2016] NZCA 356. Judgment of the Supreme Court pending.
123 M v M FC Papakura FAM-2004-055-398, 15 June 2006.
124 M v B [2006] 3 NZFLR 660 (CA) at [721].
compensation should be determined by reference to what partner
A could have earned after the relationship but for the effect of the division
of functions during the relationship.125
18.87 The majority of the Court of Appeal in X v X said that
“the statutory requirement is that the award be just, and that is the
overriding consideration”.126 It endorsed the methodology
adopted in the Family Court,127 which was as
follows:128
(a) calculate the difference between the income partner A would have been
earning but for the division of functions, and what
partner A is projected to
actually earn working to the full extent of his or her capacity (known as the
“but for” income);
(b) make any necessary deductions to the “but for” income to
reflect the time value of money and the chances of non-collection
of future
income (because of reduced time in the workforce for reasons such as death,
deteriorating health, changes in personal
priorities, re- partnering or early
retirement); and
(c) halve the resulting net present value of the “but for”
income (this is the “halving step”, which is
discussed
below).
18.88 The majority considered that such an approach could offer “value in providing some structure for the exercise that judges are required to undertake, which should enhance the predictability of awards”.129 It was emphasised that the formula was not the
only approach that could be taken recognising that “the judge is required to make judgements on matters which are inherently imprecise”.130 The methodology is not suitable where partner A had no career prior to the relationship. An example of this would be
where the partners met when they were young and had children
125 M v B [2006] NZCA 535; [2006] NZFLR 641 (CA) at [206] per Young P.
126 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [175] per O’Regan and Ellen France JJ.
596 (FC); P v P [2005] NZHC 1219; [2005] NZFLR 689 (HC); T v T [Economic disparity] [2007] NZFLR 754 (FC); and W v W FC Auckland FAM
2007-004-663, 12 December 2007.
128 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [172] per O’Regan and Ellen France JJ..
130 A similar approach had been used in earlier cases including V v V [2002] NZFLR 1105 (FC); McGregor v McGregor (No 2) [2003] NZFLR 596 (FC); P v P [2005] NZHC 1219; [2005] NZFLR 689 (HC); T v T [Economic disparity] [2007] NZFLR 754 (FC); and W v W FC Auckland FAM 2007-004-663 12 December 2007.
early on so partner A never had the opportunity to build a career
(as in CH v GH).131
18.89 In his minority decision in X v X, Robertson J considered that section 15 “should not be locked into any particular prescription”132 and cited his own judgment in M v B where he
said that “section 15 awards are necessarily a matter of impression and rote applications of a formula will not be appropriate”.133
Robertson J preferred that the approach to determining the amount of
compensation was to have regard to all the facts and that the
approach was
discretionary and not formulaic.
18.90 Since X v X several cases have taken a less formulaic
approach and instead relied on a more comprehensive analysis of the particular
facts.
In Williams v Scott the Family Court considered factors such as
partner A’s IQ and income earning potential when assessing what loss she
may have
incurred.134
18.91 In H v S partner A had no established career as she had stayed at home to take care of the children, although toward the end of the relationship she had begun a teaching career with some success.135 The Family Court said that a more comprehensive
approach allowed it to consider the fact that both partners were close to retirement. There was little evidence on what earning potential partner A could have had, so the Court assessed the likely future “but for” income as $80,000 per annum, her actual income as $60,000 per annum and decided that compensation should be available to reflect a disparity period of five years.136
From that the Court deducted sums for tax, the time value of money and contingencies to reach a sum of $41,000 adjusted for inflation. Although this still involved more calculation, the Court was prepared to substitute intuition for precise evidence on what partner A would have earned in an alternative career.
18.92 In J v J partner A had a career as a nurse and had a child
from a former relationship.137 The High Court said that caring for
that child had not impacted on her career, but there were two
children
131 CH v GH DC Auckland FAM-2007-004-1129, 24 December 2008.
132 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [125].
133 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [125] citing M v B [2006] 3 NZFLR 660 (CA) at [147].
134 Williams v Scott [2014] NZFC 7616.
135 H v S [2012] NZFC 7543.
136 H v S [2012] NZFC 7543 at [76]–[78].
137 J v J [2014] NZHC 1495.
of the marriage that partner A gave up work to care for. Partner
A also relocated to support partner B’s career. The Family Court awarded partner A an additional 30 per cent of the relationship property pool, by far the highest proportion ever awarded in a section 15 case. This resulted from a “broad brush approach”.138
The Court identified the factors relevant to a just award, including how the division of functions led to the disparity and other
factors including the size of the property pool and each partner ’s
age, stage of career and income, and partner A’s
continued responsibility
for one child.
18.93 This decision was upheld on appeal. The High Court noted
that:139
While the loss sustained by [partner A] could have been calculated with
more precision by reference to the income she could be expected
to earn as an
enrolled nurse and her remaining years in the workforce before retirement, the
loss she sustained as a result of her
foregone career is not the main operating
factor in the disparity.
18.94 The final phrase in the above quote highlights a shift away from the formulaic approach that relied on past and potential income
to look more broadly at all the circumstances when calculating the section
15 award. The Court then said that:140
The justice of the situation is influenced by the position of the parties
upon entering the relationship, the length of the marriage,
the size of economic
disparity and the marked inequality of income earning capacity.
18.95 The Family Court in Williams v Scott141 followed a
similar approach and made an award of 10 per cent of the relationship property
pool. On appeal, the High Court and Court
of Appeal shifted back towards an
approach involving specific calculation. A further appeal in this case is being
considered by the
Supreme
Court.142
138 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA).
139 J v J [2014] NZHC 1495 at [82] (emphasis added).
140 J v J [2014] NZHC 1495 at [83].
141 Williams v Scott [2014] NZFC 7616.
Adjustments for contingencies (provision for
possible future events)
18.96 Based on our review of the cases, approximately 20 per cent of awards
under section 15 included some reduction to allow for
contingencies. The
reduction varies significantly, from five per cent in Woodman v Woodman
to 50 per cent in S v S and K v B.143
18.97 A reduction or discount for contingencies is made by a court to recognise possible future changes to circumstances. The discount appears to depend on several factors. One is the estimated length of time the economic disparity will continue for (disparity period). Usually when partner A has only been out of the workforce for
a short time it will not take long for him or her to regain full earning potential. The courts have made discounts to awards to reflect the lengths of the estimated disparity periods. There is no consistency as to the discount applied for similar time periods, as
demonstrated in the table
below.
143 Woodman v Woodman FC Auckland FP004/598/02C, 28 July 2004; S v S FC North Shore FAM-2004-044-1890, 12 May
2006 and K v B FC Wellington FAM-2009-032-92, 5 October 2010.
Case
|
Year
|
Estimated period of dispar-
ity
|
Discount applied
|
McGregor v McGregor144
|
2003
|
One and a half years
|
7.5 per cent
|
Humphrey v Humphrey145
|
2003
|
Three and a half years
|
25 per cent
|
P v P146
|
2005
|
Seven years
|
25 per cent
|
S v S147
|
2006
|
Five years
|
50 per cent148
|
H v K149
|
2009
|
Seven years
|
25 per cent150
|
K v B151
|
2010
|
Seven years
|
50 per cent152
|
H v S153
|
2012
|
Five years
|
25 per cent
|
18.98 Some judges appear more sceptical of discounts for contingencies
than others. The High Court in S v C declined to make a discount for
contingencies, “which in the absence of evidence of any specific
contingencies must be regarded
as neutral”.154 Another
example is in Woodman v Woodman, where the Family Court applied a five
per cent discount for “genuine contingencies (such as death)” and
dismissed
other contingencies as speculative, noting that examples raised
included re-partnering and winning Lotto.155
The halving step
18.99 We identified 11 cases where the halving step was applied. There is mixed academic opinion on the halving step, which is to take the resulting value of a section 15 award, treat it as relationship property and therefore halve it. Atkin has argued that:156
... we need to ensure that in curing one injustice we do not create
another. Whatever the claimant receives by way of compensation
comes from the
other party – as the claimant goes up, the other
144 McGregor v McGregor [2003] NZFLR 596 (DC).
145 Humphrey v Humphrey FC Christchurch FAM-2003-009-3044, 25 May 2005.
146 P v P [2005] NZHC 1219; [2005] NZFLR 689 (HC).
147 S v S FC North Shore FAM-2004-044-1890, 12 May 2006.
148 This discount encompassed “tax, mortality, loss of employment, re-partnering, illness and other contingencies”: S v S FC North Shore FAM-2004-044-1890, 12 May 2006 at [91].
149 H v K FC Whangarei FAM-2006-088-712, 27 October 2009.
150 This discount took into account other factors including the range of possible career paths for the applicant: H v K FC Whangarei FAM-2006-088-712, 27 October 2009 at [78].
151 K v B FC Wellington FAM-2009-032-92, 5 October 2010.
152 In this case there was an additional “contingency” because the applicant had pursued a different, potentially less lucrative, career than before: K v B FC Wellington FAM-2009-032-92, 5 October 2010 at [147].
153 H v S [2012] NZFC 7543.
154 S v C [2007] NZFLR 472 (HC) at [40].
155 Woodman v Woodman FC Auckland FP004/598/02C, 28 July 2004.
party goes down. By halving the final figure, we make sure that
both meet half way. Failing to halve may mean that the other party incurs
a loss that creates a disparity in the other direction.
18.100 Caldwell has pointed out there is nothing in the wording of section
15 to require that awards made under section 15 should
be halved. He notes
that to halve an award risks preserving an existing
disparity.157
18.101 This part of the calculation exercise has something of a controversial
history. Its early evolution is traced back in P v
P:158
[43] In my decision in V v V [2002] NZFLR 1105 I calculated an amount for s 15 compensation and reduced it by 50%. That is because I approached the matter upon the basis that the reduction in the applicant’s income earning ability was not
the result of any wrong that had been done to her by the other party: it
was the effect of the division of functions between them.
Accordingly I took the
view that the claim should be compensated out of the relationship property pool.
That approach to the matter
does not sit completely easily with the words of s
15 which speak baldly of compensating Party A by ordering Party B to pay Party
A
a sum of money out of Party B’s relationship property. The ongoing
negative financial impact of the relationship upon Party
A was caused by the
division of functions between the parties, not by something that was done to
Party A by Party B.
[44] That approach has not generally been followed. For example it was not
part of the process applied in P v P [2005] NZHC 1219; [2005] NZFLR 689, nor by the Court of
Appeal in M v B.
[45] My view of this matter has been nudged forward by the broad
discussion of the historical development of this legislation contained
in the
judgment of Hammond J in M v B. I now regard it as reasonably just that the
respondent in this case should be compensated
by the applicant in respect of the
ongoing financial curb which their division of relationship functions places
upon her.
18.102 In W v W the Family Court discussed the halving step and rejected it in diminished earnings claims, acknowledging that it would
be more suited to enhancement claims.159 However, the courts
applied the halving step more often after P v P. It was applied
157 John Caldwell “The Various Disparities of section 15” (paper presented to Family Court Judges’ Conference, Gisborne, 24
October 2008).
158 P v M FC Manukau FAM-2004-092-924, 29 May 2006.
159 W v W FC Auckland FAM-2007-004-663, 12 December 2007.
in five further cases before the leading case, X v X.160 There the
Court of Appeal was split on the issue. The majority supported the halving
step but Robertson J did not.161
18.103 The majority in X v X explained the rationale for the halving
step as follows:162
[232] During the relationship, the economic consequence of the decision is that there is no earnings contribution by one partner (or a lower contribution than would otherwise be the case),
and the cost of that is borne by the relationship partners. In some cases, there will be no overall cost to the partners because the division of roles allows the earning partner to increase his or her earnings by more than the non-earning partner would have contributed. To the extent that the foregone income impacts on the relationship property available at the end of the
relationship, the cost is also shared through the 50/50 regime for
division of relationship property. If the relationship endured,
the consequences
of the disadvantaged partner’s diminished income- earning capacity would
continue to be shared. The end of
the relationship prevents that sharing from
occurring unless the Court intervenes under s 15.
[233] The object of the award under s 15 should be to ensure that the disadvantaged partner is not worse off after the end
of the relationship than he or she was during the relationship. In effect, what he or she has lost is the ability to continue the position that applied during the relationship, ie the sharing of the ongoing consequences to the disadvantaged partner as a result
of the division of roles. In principle, therefore, we consider that it is
appropriate that the income shortfall amount derived from
the methodology used
in this case should be halved. That means that Mr X, as the advantaged partner,
is required to pay his share
of the loss represented by the reduced future
income-earning capacity of Mrs X.
18.104 Since X v X we have only seen the halving step used in two cases:
E v E163 and Scott v Williams.164 In
J v J the High Court rejected the
160 X v X [2009] NZCA 399, [2010] 1 NZLR 601.
596 (DC); see also Fischbach v Bonnar where the Family Court calculated the award as a percentage of the respondent husband’s relationship property (the wife received a total of 65% of the relationship property which included 40% of the husband’s portion of the relationship property pool) thus the question did not arise: Fischbach v Bonnar [2002] NZFLR
705 (FC).
162 X v X [2009] NZCA 399, [2010] 1 NZLR 601 at [232]- [233].
163 E v E [2012] NZFC 830.
164 Scott v Williams [2016] NZCA 356, [2016] NZFLR 499.
halving step, referring to the Court of Appeal’s emphasis in X v X
that the halving step was not always necessary, and noting that the Court of
Appeal’s primary consideration, that the disparity
could be shifted from
Mrs X to Mr X, did not arise in that case.165
Other issues with section 15
Cost of making a section 15 application
18.105 We understand from our preliminary consultation that lawyers will advise clients that a section 15 application is only worthwhile if the income discrepancy is large (for example if partner B’s income is at least two times the income of partner A) or if the relationship property pool is significant, so that even an award of
a small percentage of the relationship property pool would merit the time and
cost involved. The cost of making an application would
otherwise mean that
any compensation awarded under section 15 would not make it worthwhile.
18.106 Section 15 claims that proceed to hearing can incur significant
legal fees and fees for expert evidence from actuaries and
forensic accountants.
Despite the guidance in X v X on how to determine the amount of an
award, there is still room for argument and this can cause significant costs.
Green noted in
her thesis:166
In practice the evidence of experts, human resource consultants and
accountants has become the means to gather the requisite evidence
required...this approach may have a flow-on effect that creates problems in
practice that are associated with additional costs, uncertainty
regarding
projections, and extensive input from experts.
18.107 As noted at paragraph 18.288 above, it seems unlikely that a partner can make an application under 15 without also applying for orders dividing relationship property under section 25(1) of the PRA.167 This might involve significant additional costs, such
as preparing valuation evidence for different items of relationship
property.
165 J v J [2014] NZHC 1495 at [85].
167 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.3].
18.108 An unsuccessful claim will also risk an order for costs against the
applicant. The courts’ approach to costs in PRA cases is discussed in
Chapter 25.
Length of time for section 15 applications to be decided
18.109 We have tried to estimate how long section 15 applications take
to be finally determined.168 Keeping the limitations of the method
in mind, we estimate that the average time it takes to determine a case that
includes a section
15 application is approximately three years. We found only
one case which was determined in the same year it was filed.169 The
majority of cases took two to three years. The longest time taken (excluding a
14-year case struck out for time delay) is Scott v Williams, which has
so far taken eight years with the case being heard by the Supreme Court in
March 2017 and the decision pending. These
findings are broadly consistent
with case disposal data from the Family Court. As we discuss in Chapter 25,
half of all PRA cases
disposed of in 2015 had taken over two
years.170
18.110 A key consequence of the time it takes to obtain a decision under
section 15 is that it can leave partner A with reduced
economic resources for a
long time. Simply having the resources to pay for legal assistance to bring a
section 15 claim can be difficult.
18.111 There will be an unknown number of cases where section 15
compensation is agreed between the partners (often on the advice
of their
respective lawyers as to likely
outcomes).
the filing date represents the original application rather than the specific application under s 15 of the Property
(Relationships) Act 1976.
169 W v W FC Auckland FAM-2007-004-663, 12 December 2007.
Section 15 awards are restricted to the relationship
property pool
18.112 Section 15 awards can only be paid from partner B’s share of the pool of relationship property.171 This is problematic when the size of the relationship property pool is limited. Take for
example the partners who stay together for a decade and during that period partner A manages the household and looks after the children, supporting partner B who undertakes studies to become a surgeon. During this period income is limited and the partners cannot accumulate any assets. At the date of separation, partner
B has just signed an employment contract worth $300,000 a year
(expected to rise rapidly). A section 15 claim is established but
the relationship property pool is minimal, so Party A receives very little. Party B however retains the benefit of his future income. There is no ability under the PRA to order future payments to
Party A from Party B’s income. This leaves the potential for an
otherwise established section 15 claim to go without an effective
remedy.
18.113 It is difficult to say how often this restriction hampers an otherwise strong section 15 claim, as a claim in this scenario is unlikely to ever make it to court. As discussed at paragraph
18.1054 above, a lawyer would likely advise their client that it is not worthwhile making a section 15 claim if the relationship property pool is minimal. In her research, Green identified
that such a scenario was “not isolated”.172 Green referred to the reasoning of Lord Nicholls in the House of Lords in McFarlane v McFarlane when he said:173
If one party’s earning capacity has been advantaged at the expense
of the other party during the marriage it would be extraordinary
if, where
necessary, the court could not order the advantaged party to pay compensation to
the other out of his enhanced earnings
when he receives them. It would be most
unfair if absence of capital assets were regarded as cancelling his obligation
to pay compensation
in respect of a continuing economic advantage he has
obtained from the marriage.
171 Property (Relationships) Act 1976, s 15(3).
173 McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618 per Lord Nicholls of Birkenhead at [32].
18.114 The widespread use of trusts in New Zealand is discussed in Part
G. We note that the use of trusts may remove assets which would otherwise be in the pool of relationship property. This has the potential to negatively affect the scope of relationship property, undermining the ability of section 15 to address economic disparity.
Chapter 19 – Options for reform
Is reform needed?
19.1 Our preliminary view is that section 15 is failing to achieve its
objective of providing for a just division of property
in circumstances where
equal sharing would not lead to an equitable result. Reform is needed. As
Green concludes “New Zealand
needs a practical, solution-based outlook to
solve economic disparity”.174
Is there still a need for section 15 or a replacement adjustment
mechanism?
19.2 Relationships that are characterised by a division of functions into income-earning and household management roles are common.
In 2016, 33 per cent of couples with children were characterised by one partner working full-time and with the other partner not in paid employment.175 While some socio-economic groups may be experiencing a generational shift, with more partners sharing the functions within a relationship more equally (such as more women remaining in the workforce after having children and more men taking on greater childcare responsibilities),176 there
remains a strong correlation between having children and reduced workforce participation for women. As discussed in our Study Paper, Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (Study Paper),177 women are more likely to leave the workforce or work part-time when they have children, while men tend to remain in
work and provide the family income.178
174 Claire Green “The impact of section 15 of the Property (Relationships) Act 1976 on the vexing problem of economic disparity” (PhD Thesis, University of Otago, 2013) at 327.
175 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 6 citing Bryan Perry Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2016 (Ministry of Social Development, July 2017) at 147.
176 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 6.
177 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) (Study Paper).
178 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 6.
19.3 There will also always be relationships where, for a range of
reasons, partner A stops work or takes a sideways or backwards move in his
or her career in order to support partner B’s career.
For example, partner
A might relocate so partner B can take up a job opportunity.
19.4 We think that there remains a need to provide for situations where the
division of functions within a relationship results
in an economic disadvantage
for partner A and/or economic advantage for partner B.
Summary of options
19.5 In this chapter we set out three options for reform:
(a) Option 1: Retain section 15 but lower the hurdles that partner A must overcome for a claim to succeed. Under this option the need to establish economic disparity would be replaced with a simpler requirement to show “financial inequality” at the end of the relationship.
The requirement to establish causation would also be replaced with a rebuttable presumptive entitlement
to compensation if there was financial inequality and a division of
functions within the relationship. We also explore options for
satisfying a
section 15 award from future income, rather than being limited to the
relationship property pool.
(b) Option 2: Repeal section 15 and address financial inequality in other
PRA rules. Here we consider whether financial inequality
attributable to the
relationship is better addressed elsewhere in the PRA. Specifically, whether the
PRA should treat the earning
capacity of partner B as “property”
that can then be divided equally as relationship property to the extent it has
been
enhanced by the relationship.
(c) Option 3: Replace section 15 with financial reconciliation orders.
These orders would be a hybrid of compensating loss and
meeting needs. Such
orders would likely replace maintenance at the end of a relationship.
19.6 Our preliminary preference is for option 3. We express this view mindful of the significant further work required to develop any of
the options presented, and the possibility that other viable reform
options may be identified during consultation.
19.7 Before exploring these options we first set out some common objectives
and characteristics of any option for reform.
Common objectives and characteristics of section 15 reform
Replacing the narrow concept of economic disparity with financial
inequality
19.8 Section 15 currently only applies where the income and living
standards of partner B are likely to be significantly higher
than partner A. We
refer to this as “economic disparity.”
19.9 As explained in Chapter 18 the concept of economic disparity is not sufficiently wide enough to cover every scenario of financial inequality between the partners at the end of the relationship. We consider in particular that the requirement to demonstrate a
significant disparity in living standards in section 15 is not useful. Living
standards imply choice. If, for example, partner A chooses
to invest in a large
house rather than to rent a modest property and invest the resulting savings
for future use, then Partner
A’s living standards might differ. We doubt
the value of comparing choices about living standards in the context of section
15. We consider the focus should be on disparity in income or other financial
resources, not on living standards. We refer to
this as “financial
inequality”.
Balancing a clean break with a just result – the case for future
payments
19.10 Currently section 15 awards are limited to partner B’s share
of relationship property. An important consideration in these options is whether the property pool for any payments or transfers of property to address financial inequality should be broadened to include separate property and/or future income.
19.11 Broadening the scope of section 15 or a replacement adjustment
mechanism to include future income may offend the concept of a “clean break”. While we acknowledge the general attraction of a clean break in property matters, we consider it is less relevant when there are children of the relationship or the end of the relationship gives rise to financial inequality due to the division
of functions. In these circumstances we consider the clean break concept is a
secondary consideration. As Lord Hope stated in McFarlane v
McFarlane:179
...achieving a clean break in the event of a divorce remains desirable, but if this means that one party must adjust to a lower standard of living then this result is that the clean break is being achieved at the expense of fairness. Why should a woman who has chosen motherhood over her career in the interests of her family be denied a fair share of the wealth that her husband has
been able to build up as his share of the bargain that they entered
into?
19.12 While we do not consider the clean break concept should be a
paramount concern in cases of financial inequality, we are
however interested
in an option that will help the partners to move on with their lives as
quickly as possible.
Any reform must promote the principles of the PRA
19.13 In Chapter 3 we set out the explicit and implicit principles of the
PRA. Any reform of section 15 must promote the principle
that:180
... a just division of relationship property has regard to the economic advantages or disadvantages to the spouses or partners arising from their marriage, civil union or de facto relationship
or from the ending of their marriage, civil union or de facto
relationship:
19.14 The following principles should also underpin any option for
reform:
(a) Questions arising under the PRA should be resolved “as
inexpensively, simply, and speedily as is consistent with
justice.”181
179 McFarlane v McFarlane [2006] UKHL 24, 2 AC 618 at [120] per Lord Hope.
180 Property (Relationships) Act 1976, s 1N(c).
181 Property (Relationships) Act 1976, s 1N(d).
(b) Men and women have equal status, and their equality
should be maintained and enhanced.182
(c) A just division of relationship property should have regard to the
interests of children of the relationship.183
(d) All forms of contribution to the relationship are to be treated as
equal.184
19.15 Green observes that “research findings are conclusive:
traditionally the non-monetary contributions of one partner
are under-valued or
disregarded”.185 To the extent that section 15 fails to treat
monetary and non-monetary contributions equally, this should be addressed in
any option
for reform.
Simple and inexpensive enforcement mechanisms may be needed
19.16 We are aware from our preliminary consultation that one of the principal concerns in relation to any reform is enforceability. Child support and maintenance payments are deducted from a payee’s salary at source if there is a child support or maintenance debt. Any enforcement measure will have associated costs and resource implications to be borne in mind. Our preliminary view is that any option ultimately recommended should have built-
in enforcement mechanisms. This may require the State to play a role, as it
does in the child support and maintenance recovery regimes.
The need to provide clear guidance for the courts
19.17 The courts’ approach to section 15 cases over the last 16 years has been at times inconsistent and generally conservative, resulting
in few awards of small amounts. This is in part due to the lack of statutory guidance on key issues such as the requirement to establish causation (the causation hurdle) and the appropriate
method for deciding the amount of a section 15 award.
182 Property (Relationships) Act 1976, s 1N(a).
183 We refer to this as an implicit principle of the Property (Relationships) Act 1976, as is reflected in ss 1M(c) and 26(1).
184 Property (Relationships) Act 1976, s 1N(b)
19.18 Any change to the law must provide clear direction on how
Parliament intends any discretion within section 15 or its replacement to be
exercised and how the discretion should be used in
order to give effect to the
policy of the PRA. One potential solution is to include examples or case
studies after the relevant
statutory provisions to illustrate the statutory
objective.
How should the amount of an award for financial inequality be
decided?
19.19 One key consideration for further development is how to determine the
amount of a financial inequality award. Effective implementation
of the options
below would “require the development of proxy measures of economic loss
that will inevitably involve some sacrifice
of accuracy and theoretical
purity”.186 To avoid using extensive expert evidence (with
its associated costs), our preliminary view is that it would be preferable to
have
adaptable measures to quantify the loss and determine the increased share
of property or payment to be taken by partner A.
Consideration needed of children’s interests and interaction with child
support
19.20 Whether the options should be conditional on there being children of the relationship is another matter that requires further consideration. A variation on this would be to impose a higher threshold for qualifying for an adjustment in the share of relationship property if there were no dependent children. If a distinction was drawn on this basis issues under human rights law may rise.187
19.21 How any reform would interact with child support will also require
consideration.
186 Carol Rogerson and Rollie Thompson Spousal Support Advisory Guidelines (Department of Justice Canada, July 2008) at
7.
187 See our discussion in Chapter 2 on New Zealand’s human rights obligations.
Option 1: Retain section 15 but lower the
hurdles that partner A must overcome
19.22 This option retains section 15 but makes some important changes
to:
(a) remove reference to living standards, and focus instead on financial
inequality (see paragraph 19.9 above);
(b) replace the causation requirement with a rebuttable presumptive
entitlement to compensation if there are both financial inequality
and a
division of functions;
(c) broaden the property that can be used to satisfy a section 15
award.
Replacing the causation requirement with a rebuttable presumption
19.23 A key issue undermining the effectiveness of section 15 is the difficulty in establishing causation. One solution would be
to remove the causation test and replace it with a rebuttable presumptive
entitlement to compensation. The section 15 hurdles would
then be:
(a) financial inequality between the partners at the end of the
relationship;
(b) a division of functions during the relationship (that is, partner A
was responsible for the household management or made some
other contribution to
the relationship that reduced partner A’s earning capacity or enhanced
partner B’s earning capacity);
and
(c) compensation is just in the circumstances.
19.24 Replacing causation with a presumptive entitlement may help reduce litigation. It sends the clear signal that if partner A was responsible for the household management or made some other contribution to the relationship and at the end of the relationship there was financial inequality between the partners, then partner B must pay compensation. The key question that remains is how much that compensation should be. Without a clear indicator, the
question of how much to pay will continue to lead to disputes,
including the need to go to court to resolve the issue.
19.25 Consideration would be required as to when it would not be
just in the circumstances to award compensation. Without clear guidance, this
test could itself lead to an increase in litigation.
19.26 Compensation could then take one of two forms:
(a) a share of partner B’s future income for a specified period;
or
(b) an increased share of the relationship property.
Presumptive entitlement to a share of partner B’s future
income
19.27 We have identified three advantages with this approach:
(a) It addresses scenarios where the payment of a capital sum may not be
possible due to a limited relationship property pool.
(b) Periodic payment awards do not require speculation about future
contingencies because they can more easily be altered in response
to a change
in circumstances.
(c) We understand from our preliminary consultation that ongoing payments
may be more palatable than lump sum payments, especially
when there are
children of the relationship.
19.28 We have also identified four disadvantages of this approach:
(a) To the extent it is of concern, this approach undermines the concept of a clean break. Future periodic payments from one party to the other create an ongoing tie. This may build resentment. Should partner A enter a new relationship, partner B may feel resentful about having
to continue to provide payments. Should partner B enter a new relationship
there is the potential for resentment to broaden, and there
will likely be
greater burdens on partner B’s income.
(b) This approach may risk incentivising improper behaviour in order to avoid having to share income,
such as leaving the work force or taking a lower paid
job.
(c) If variation of the order was needed and could not be agreed upon by the parties then returning to court
would take additional time and cost more money. Issues of enforcement may
also arise.
(d) Having to continue to rely on a former partner for money can be
demoralising and negatively affect an ongoing relationship
between the former
partners, especially as parents. We have heard about partners using the threat
of non-payment of money to intimidate
and “punish” the other party.
If there are children of the relationship then the negative relationship between
the partners
can have flow-on effects to the children.188
Presumptive entitlement to an increased share of the relationship
property
19.29 The second approach is to adjust the relationship property division
based on a percentage that reflects the financial
inequality.189
For example, an additional 2.5 per cent of the relationship property pool
could be given to partner A for every year spent not in
paid work up to a set
maximum of the total relationship property pool (partner A being entitled to 50%
of the relationship property
pool in any event).
19.30 We have identified three advantages with this approach:
(a) Over time these percentage bands could become established and be used
by lawyers and their clients in negotiations, avoiding
the need to go to
court.190
(b) It provides the partners with a clean break.
(c) It may also address some issues highlighted elsewhere in this Issues
Paper in relation to the interests of children of the
relationship.191
For example, if the
188 For more on this discussion see Chapter 3.
191 See Part I.
primary caregiver received a greater proportion of the
relationship property he or she might be able to keep the family
home.
19.31 The main disadvantage that we have identified with this option is
that it may fail to achieve a just outcome if the relationship
property pool is
small, but partner B’s future earning capacity is significant. A small
relationship property pool would mean
little improvement in partner A’s
situation.
Option 2: Repeal section 15 and address financial inequality in other PRA
rules
19.32 Some commentators suggest that a solution to the problem of
financial inequality is to include earning capacity as property
in its own
right. It could then be divided equally alongside the partners’ other
relationship property.192
19.33 In Chapter 9 we considered whether a partner ’s income earning capacity should be treated as an item of property for the purposes of the PRA. In Chapter 11 we then considered whether a partner ’s earning capacity should be divisible as relationship property to
the extent it had been enhanced by the relationship. We outlined the
advantages and disadvantages for each question.
19.34 In addition to the advantages identified in the earlier chapters, treating enhanced earning capacity as relationship property could address many of the problems section 15 was intended to
resolve. In many relationships, partner B’s earning capacity is the main economic resource the partners have been able to build up, due in part to the efforts of partner A who performed household management functions.193 Dividing partner B’s earning capacity
as relationship property to the extent it has been enhanced by the relationship allows both partners to share equally in the economic advantages the relationship has bestowed on partner B. Conversely, equal sharing of the enhanced earning capacity
may address the disparity and economic disadvantages partner
A suffers from sacrificing paid work in order to support the
relationship.
19.35 By considering a partner ’s enhanced earning capacity as
property divisible between the partners, the PRA would actively
implement the
principle that a just division of relationship property has regard to the
economic advantages or disadvantages to
the partners arising from the
relationship.194
19.36 Also, the PRA’s equal sharing rules would apply. Many of the
problematic elements of section 15, such as establishing
a division of
functions, disparity and causation, and then persuading the court it is just to
award compensation, would be avoided.
19.37 On the other hand, in Chapter 11 we identified some major challenges which, in our preliminary view, mean on balance it is not feasible to treat a partner ’s enhanced earning capacity as
relationship property. These challenges include the complexities and
imprecision of valuing enhanced earning capacity and the difficulties
of
measuring the extent to which the relationship has enhanced a partner ’s
earning capacity.
19.38 An alternative approach could be to give the court power to adjust
the partners’ shares in relationship property when
the court is
satisfied that equal sharing of relationship property does not fairly
allocate the economic and advantages a partner
derives from the relationship and
the economic disadvantage a partner suffers from the relationship. Scotland
takes a similar approach.195 The aim of the Scottish law is to
equalise any imbalances in the economic impact of the partners’
contributions to the relationship.196
19.39 When assessing economic advantages and disadvantages, the court will
take into account any gains in income and in earning
capacity a partner
receives during the relationship.197 Importantly, the court does
not divide the partner ’s earning capacity as if it were an item of
property. Rather, the court
divides the partners’ conventional property
but with regard to the partners’ relative earning capacities.
197 Family Law (Scotland) Act 1985, s 9(2); and Family Law (Scotland) Act 2006, s 28(9).
19.40 It is likely, however, that the option would suffer from similar
difficulties as section 15 or if earning capacity were to be treated as property. Partners would still be required to prove they suffer economic disadvantages, or that the other partner unfairly enjoys economic advantages, because of the relationship. When deciding a fair adjustment of shares in relationship property, a court
would probably have to measure the respective advantages and disadvantages
each partner faces after the relationship.198 This will require an
assessment of future earning capacity which is subject to the same speculation
and imprecision.199
Option 3: Replace section 15 with financial reconciliation orders
19.41 The third option is to introduce a regime of “financial
reconciliation payments” to support partner A until
the financial
inequality resulting from the division of functions during, and after, the
relationship, ends. This combines the
functions of section 15 awards and
maintenance payments under the Family Proceedings Act
1980.200
19.42 We propose this option in recognition of the practical difficulties
the courts have grappled with in trying to compartmentalise
the different
roles of section 15 and maintenance. In reality both can achieve the same
outcome of transferring value from the partner
with a higher income to the
partner with the lower or no income. As Miles notes:201
up her career. The court held that had the wife continued to work the husband would have had needed to hire help for childcare and household management. But the court noted at [38] that if the wife had worked she would have brought more income to the household. The proper measure, the court said, was whether the husband’s position had been advantaged beyond what it would have been had he not been married. The court was not satisfied it was: at [39].
Mordaunt and Fran Wasoff Built to Last: The Family Law (Scotland) Act 1985 – 30 years of financial provision on divorce
(University of Glasgow, 2015) at 75.
200 Since 2001 maintenance has been available to de facto partners as well as married (and now civil union) partners. In this
Issues Paper we refer to “maintenance” rather than “spousal maintenance” as it is commonly termed.
Where claimants seek compensation these claims will often
correspond with claimants’ needs. Where this is so, whether the
claim is conceptualised in terms of need or compensation will
make no practical
difference...
19.43 Financial reconciliation orders would have a dual function: to meet
partner A’s reasonable needs post-separation,
and to compensate partner A
for the loss suffered as a result of the end of the relationship.
19.44 We start with a brief summary of what we know about the financial
needs that arise when a relationship ends. We then
give a brief overview of
maintenance and discuss the overlap between section 15 and maintenance before
outlining what it would look
like to unite the two concepts. We also discuss
the Canadian experience of spousal support (similar to maintenance in New
Zealand)
which addresses both financial need and financial inequality.
Financial needs that arise when a relationship ends
19.45 The end of a relationship almost always has negative financial consequences for both partners, as the resources that were used to support one household must now support two. The benefits from economies of scale will be lost, and the costs of establishing a new household and rearranging lives (such as increased childcare costs to meet longer hours at work, or reduced work
hours and income to facilitate childcare arrangements) need to be
met.
19.46 We explore the economic cost of separation in our Study Paper.202
Recent research by Fletcher into the economic consequences of separation among couples with children confirms that on average total family incomes decline substantially for both men and women following separation.203 On average women experience
a reduction in family income by 41 per cent and for men
the
202 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 8.
for Families dataset who separated in 2009 and who, prior to separating had at least one child living with them, and comparing outcomes with similar, still partnered individuals. For further information about this dataset see Study Paper at Chapter 8.
reduction is 39 per cent in the first year after separation.204
However because men on average experience a larger reduction
in family size post-separation compared to women (reflecting the care arrangements for children) their available income needs to
be shared among fewer people. After equivalising family incomes to account for differences in family composition women are substantially worse off post-separation, and on average experience a drop in equivalised income of 19 per cent.205 In contrast, men
are on average better off, experiencing a rise in equivalised income of 16
per cent.206 Beyond those averages, however, lies a wide dispersion
of incomes and effects. Among both men and women, some are significantly
better
off and some are significantly worse off.207 These results are
broadly consistent with studies carried out in other
countries.208
19.47 Fletcher also compared the relative financial consequences of
separation between partners.209 He identified that:
(a) It is rare for separation not to be associated with a significant
financial impact for at least one of the partners.210 In only 3 per
cent of cases neither partner
economic consequences of marital separation among New Zealand parents” (draft PhD thesis submitted for examination, Auckland University of Technology, 2017) at 122 and 183.
experienced a change in income of at least 10 per cent
in the first year after separation.211
(b) The impact of separation on incomes persists over the medium term, in
the three years’ following separation.212
(c) The most common scenario is where the woman is worse off after separation while her former partner is better off.213 In 35 per cent of cases the woman’s
equivalised income reduced by more than 10 per cent and her partner ’s income increased by more than
10 per cent. These couples were characterised by a high average income
before separation which came primarily from the man’s
earnings. After
separation the average number of children living with the man had fallen
substantially (from 1.99 to 0.16 children),
and while the woman’s
post-separation earnings increased substantially, this is insufficient to offset
the loss of her partner
’s income.214 This group had the
largest gap in terms of the average number of children living with the partners
in 2010 (1.4 for women and 0.16
for men).215
(d) Another way of analysing post-separation outcomes
is to compare the relative consequences of separation, irrespective of whether individuals are better or worse off compared to their own situation prior to separation. On this analysis, Fletcher identified that 70 per cent
of men had equivalised incomes that were higher than
their partners, and 25 per cent of men had equivalised
incomes more than double their partner ’s.216
(e) Child support payments provide little support to many separated partners with the primary care of children.217
Of those partners receiving child support, average receipts were $2,367 for
women and $709 for the men per annum.218
(f ) Separation significantly increases benefit uptake in
the short and medium term. In the first year following separation, 24 per
cent of men and of 47 per cent of women received a
benefit.219
(g) Separated partners are also more likely to be in poverty.
The estimated impact of separation was to raise the poverty rate by 9 per
cent for men and by 16 per cent for women.220
19.48 Overall, Fletcher identified that average total family income
(that is, the combined income of the former partners) rises
by $14,600 (23 per
cent) in the year following separation.221 This is due to a
combination of increased workforce earnings, benefit receipt222 and
child support. However this increase is not sufficient to avoid an overall
decline in average equivalised incomes across both
households.223 Men are, on average, approximately $5,000 better
off in equivalised income terms and women are approximately
$7,000 worse off.224
19.49 Fletcher also identified that couples where the woman was significantly better off and the man worse off post-separation were characterised by more equal sharing of pre-separation earning and a reasonable combined level of income.225 It is possible that as full-time employment becomes more common
among women with dependent children, this pattern of outcomes will become
more common.226
19.50 We recognise there are also societal factors (unrelated to
any particular relationship) that mean the negative financial consequences of a relationship breakdown can be harsher and longer-lasting for women.227 This includes the “gender pay gap”, which was last assessed by Statistics New Zealand as 9.4 per cent, and the “motherhood penalty”, last assessed at 12 per cent.228
Another factor is the availability of subsidised childcare. In New Zealand there is no universal entitlement to subsidised childcare for children under the age of three. Childcare can be a significant post-separation cost, especially when those costs are borne by one partner. Caregivers who work shift work or non-standard hours
face additional challenges in organising and paying for
childcare.
227 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 7.
The role of maintenance in addressing financial
inequality
19.51 Maintenance is available at the end of a marriage, civil union or de facto relationship229 when one partner cannot meet his or her reasonable needs because of one or more of the circumstances listed in sections 63 and 64 of the Family Proceedings Act 1980.230
These circumstances include the division of functions within the
relationship, ongoing responsibility for daily care of any minor
or dependent
children, the standard of living of the partners when they were together and any
undertaking of training by a partner
to eliminate the need for maintenance of
that partner.
19.52 Maintenance seeks to give temporary relief to enable the applicant to construct a new life after separation.231 Section 64A is, on the face of it, an adoption of the clean break concept.232
Section 64A(1)(a) provides that:
each spouse, civil union partner, or de facto partner must assume
responsibility, within a period of time that is reasonable in all
the
circumstances of the particular case, for meeting his or her own
needs;
market may affect ability to work whereas in the latter they do not. Second, the requirement in s 64A that parties must assume responsibility for meeting their needs within a reasonable time does not apply to a marriage or civil union that has not been dissolved. Third, maintenance is not available at the end of a short-term de facto relationship (lasting
less than three years) unless the test in s 70B is met. No such test applies to short-term marriages and civil unions. Fourth, maintenance is available during a marriage or civil union under s 63. No such entitlement exists for de facto relationships.
231 The courts have confirmed that maintenance is a temporary entitlement. In Slater v Slater [1983] NZLR 166 (CA) at 174 maintenance was described as for a “transitional period” and at [176]: “Maintenance is ordinarily...a bridge to assist the party concerned while he or she is consciously moving towards self-sufficiency”. Similar sentiments were expressed in
C v G [Maintenance of Former Partner: Period of Liability] [2010] NZCA 128; [2010] NZFLR 497 (CA) at [31] and [32]. The Court of Appeal cautioned in Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 293 and 295 that nothing “requires this objective to be carried through to the point where the provisions operate unfairly and harshly on one or other of the spouses”, cautioning against “undue rigidity” in applying the principles expressed in Slater v Slater.
Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
19.53 Yet section 64(2) provides such broad exceptions as to undermine
that policy intention. Any “relevant circumstances” may be
grounds for extending the temporary nature of maintenance.233
19.54 A court may order interim maintenance. We understand that this is a vital source of aid for many applicants as it gives them access to funds for daily living and for paying legal fees while relationship property matters are being resolved. We understand, however, that there can be delays in applications being heard. The fact that interim maintenance can only be ordered for a maximum of six months (after which a further application is needed) places
a heavy burden on the applicant and his or her lawyer to make ongoing
applications.
19.55 Partners may also enter a maintenance agreement, which can be administered by the Inland Revenue Department. Such
an agreement does not preclude a party from applying for maintenance from the
Family Court. The Family and District Courts have a
wide power to vary,
discharge or suspend any existing maintenance order.
19.56 A court may order maintenance to be paid as periodic payments or as a lump sum (in instalments if needed). A court must
have regard to the following factors in determining how much maintenance is
to be paid:234
(a) the means of each partner, including potential earning capacity, and
means derived from any division of property under the
PRA;
(b) the reasonable needs of each partner, having regard to the standard of
living of the partners while they were living together;235
(c) the financial and other responsibilities of each including support of
any other person;
(d) conduct by the applicant to prolong the inability to meet his or her
reasonable needs or misconduct that would make granting
maintenance repugnant
to justice; and
233 Family Proceedings Act 1980, s 64A.
234 Family Proceedings Act 1980, ss 65(2) and 66.
235 Family Proceedings Act 1980, s 65(5).
(e) any other circumstances that make one party liable to
maintain the other.
19.57 Although maintenance is collected and enforced by the Inland Revenue Department, it is separate from child support. Section 62 of the Family Proceedings Act also confirms that “the liability to maintain any person under this Act is not extinguished by reason of the fact that the person’s reasonable needs are being met by a domestic benefit”. The Court of Appeal confirmed in Richardson
v Richardson that the domestic purposes benefit and Working
for Families Tax Credits are not to be considered when assessing
maintenance.236
19.58 There are several key points of difference between section 15 and
maintenance:
(a) Maintenance focuses on the present needs of the applicant without
requiring reference to the history of the relationship.
(b) Maintenance is a response to unmet needs whereas section 15
compensates for economic disparity, whether or not the applicant
has financial
needs.
(c) At least in theory, maintenance and section 15 applications are considered at different times. Interim maintenance can be ordered soon after an application is made (with final orders being made at a later stage) whereas a section 15 application takes a notoriously long time to be heard and it is made at the time
relationship property is divided. We have also been told that interim
maintenance applications can take a long time to prepare and
several weeks, if
not months, to be heard.
The overlap between section 15 and maintenance
19.59 Despite being in different statutes and with different statutory
objectives, there is a clear link between section 15 and
maintenance.237
236 Richardson v Richardson [2011] NZCA 652, [2012] 1 NZLR 796.
19.60 Claims to maintenance are often conflated with section 15 claims.
During our preliminary consultation we were told that in practice when partner A makes a claim under section 15, partner B may be more inclined to resolve that claim out of court by making a lump sum payment, which partner B is likely to view as similar to a payment for maintenance. Section 15 claims may also be resolved where partner B agrees to pay periodic maintenance. In these cases, partner A’s financial needs may be met and he or she may
be less inclined to pursue a section 15 claim.
19.61 These observations suggest that people may perceive section 15
claims as directed toward addressing post-separation financial
need, rather
than compensating partner A for economic disparity caused by the division of
functions within the relationship. This
perception raises two questions:
(a) Do New Zealanders prefer a response to post-separation financial
inequality that addresses need (often with the children as
indirect recipients
of the payment) rather than providing compensation to partner A for loss linked
to the division of functions
in the relationship?
(b) Or is the willingness to pay for and accept a maintenance-based sum
only a pragmatic reflection of the time, cost and uncertainty
involved with
pursuing a section 15 claim?
19.62 Empirical research by Green also indicates that in practice maintenance is often relied upon to do the job of section
15.238 This results in a mixing of the tests for meeting needs
(maintenance) and compensating for financial inequality (section
15).
19.63 One approach is simply to merge the two and deal with them
together.239
Case law dealing with
maintenance and section 15
19.64 We have identified 14 cases in which both a section 15 award and
maintenance were ordered.240 The approach taken by the courts in
considering the overlap and procedural ordering of maintenance and a claim under
section 15 is
inconsistent.
19.65 In Williams v Scott the Family Court traversed the case law on
the relationship between maintenance orders and section 15 awards, providing a
useful
summary. The key points are:241
(a) An award under section 15 should not be capitalised
maintenance.
(b) A decision on whether partner A should receive a
section 15 award should be made before any assessment of the need for
maintenance.
(c) A court must have regard to any means deriving from relationship
property in determining whether partner A cannot meet their
own reasonable
needs.
(d) An assessment of partner A’s reasonable needs cannot be made
until relationship property is divided.
19.66 There are several cases where, as occurred in Williams v Scott, an adjustment to one award has been made in light of the other.242
For example, in Barnett v Barnett the Family Court declined an application for ongoing maintenance, and one reason given was the existence of a section 15 award which provided recognition of the lower living standards the wife would enjoy post separation and compared to during the marriage.243 In other cases, such
as Monks v Monks, maintenance has been determined entirely
independently of a section 15 award.244 In E v E there was
a lump
240 The cases that are recognised as authoritative on the relationship between maintenance and section 15 awards are: M v B
[2006] NZCA 535; [2006] 3 NZLR 660 (CA); P v P [2005] NZHC 1219; [2005] NZFLR 689 (HC); and S v C [2007] NZFLR 472 (HC).
sum section 15 award of $170,000 but this was not considered in
calculating maintenance.245
19.67 Crawshaw observes that “it is questionable whether
Parliament intended that a section 15 claim would be thwarted
by the payment of
maintenance or a statutory period of occupation, especially at the stage of
determination of living standards.
Importantly, Parliament has not made spousal
maintenance and [section] 15 mutually exclusive”.246
Uniting maintenance and section 15
19.68 In 1988 the Working Group established to review the Matrimonial Property Act 1976 dismissed the role of maintenance to remedy financial inequality. The Working Group said that “a move to reinstate long term periodical maintenance would bring about no improvement in the situation of women”.247 It raised criticisms
that continue to apply to the maintenance regime in 2017,
namely:248
(a) the practical financial difficulty of supporting two households on
one income;
(b) the resentment felt by one partner (and potentially his or her new
partner) over the legal obligation to provide permanent maintenance
to a former
partner; and
(c) difficulties in enforcing payments by unwilling payers.
19.69 The Parliamentary select committee considering the 2001 amendments viewed maintenance as “complementary” to section
15.249 The 2001 amendments extended coverage of maintenance to include de facto partners and to provide the courts greater
flexibility when awarding maintenance.250 The
committee
was relevant.
247 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12.
248 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
12–13
250 The select committee noted that while s 64 of the Family Proceedings Act 1980 applies to married and civil union
couples as well as de facto couples, s 63 does not. It explained that the difference is because de facto relationships end on
noted that the “maintenance provisions list more factors than
the new economic disparity sections for the court to consider when
determining whether to make an award.”251 Given that
maintenance was viewed as complementary but ultimately different to section 15,
the committee did not believe that “the
factors governing the exercise
of the Court’s discretion need[ed] to be
parallel”.252
19.70 Uniting section 15 and maintenance into one doctrine could, however,
help address existing problems. There are parallels
between section 15 and
maintenance; however an approach that combines them would be new to New
Zealand. Such an approach would not
solely be focused either needs or
compensation, nor would it be limited to the short term; rather it would be a
hybrid of meeting
needs and compensating loss and could continue indefinitely
if appropriate. This approach is taken in Canada.
19.71 We have looked with interest at the Canadian experience for two reasons. First, maintenance (or spousal support, as it is known
in Canada) is used to address both financial inequality arising from the
division of functions in the marriage and financial
needs arising at the end
of a marriage. Second, non-binding guidelines have been developed to enable
lawyers and couples to determine
how much spousal support is to be paid
without the need to go to court.
The Canadian experience – spousal maintenance and the spousal support
guidelines
19.72 Canada deals with the division of relationship property separately
to maintenance. Every Canadian province has its own laws
to
separation and do not need to wait for a two year period prior to dissolution, in which maintenance still may be required: Ministry of Justice SOP to Matrimonial Property Amendment Bill Departmental Report (August 2000) at 21–22. This
does not account for the fact that s 63 allows maintenance to be awarded whether a married or civil union couple have separated or not. The effect is that de facto couples do not have the same entitlement to maintenance as married and civil union couples. This difference is aggravated due to the grounds in s 64 being narrower than those in s 63, as they do not include physical or mental disability or the inability to obtain work (being grounds unrelated to the relationship).
address the division of matrimonial property.253 Spousal support is
dealt with by federal law, under the Divorce Act 1985.254
19.73 The Divorce Act provides that a court may make an order (including
an interim order) requiring a spouse255 to pay such lump sum or
periodic sums as the court thinks reasonable for the support of the other
spouse.256 There are four statutory objectives of spousal support
and these cover both compensation for disparity and meeting financial
needs.257 The objectives are to:258
(a) recognise any economic advantages or disadvantages to the spouses
arising from the marriage or its breakdown;
(b) apportion between the spouses any financial consequences arising from
the care of any child of the marriage over and above
any obligation for the
support of any child of the marriage;
(c) relieve any economic hardship of the spouses arising from the breakdown
of the marriage; and
(d) as far as practicable, promote the economic self- sufficiency of each
spouse within a reasonable period of time.
19.74 To achieve these objectives when ordering spousal support,
a court must consider the condition, means, needs and other circumstances
of each spouse, including:259
(a) the length of time the spouses lived together;
61. In provinces where legislative schemes do not apply to them, common-law couples must make a claim under the common law doctrine of unjust enrichment in order to receive a share of relationship property upon the dissolution of a relationship. However, an award for unjust enrichment does not trigger a presumption of equal sharing of property as do statutory schemes for spouses.
254 Divorce Act RSC 1985 c 3.
256 Divorce Act RSC 1985 c 3, s 15.2(1).
257 Reflecting the two approaches taken in the Supreme Court in Moge v Moge [1992] 3 SCR 813 and Bracklow v Bracklow
258 Divorce Act RSC 1985 c 3, s 15.2(6).
259 Divorce Act RSC 1985 c 3, s 15.2(4).
(b) the functions performed by each spouse when living
together ; and
(c) any order, agreement or arrangement relating to support of either
spouse.
The Canadian Spousal Support Guidelines
19.75 In 2008 the Canadian Spousal Support Advisory Guidelines (the Guidelines) were prepared for the Canadian Department of Justice to provide a framework for determining the amount and duration of spousal support in any given case. This was in response to “growing concern expressed by lawyers and judges
that the highly discretionary nature of the current law of spousal support had created an unacceptable degree of uncertainty
and unpredictability”.260 The Guidelines and the formulas underlying them are not based on any particular theory; instead they reflected the practice of the courts at the time they were drafted.261 The formulas typically generate relatively wide ranges for amount and duration of spousal support, rather than precise figures, necessitating a fact-specific determination in each case.262
Amount and duration can be traded off against each other, to front-end load support or to convert it into a lump sum.263 The Guidelines do not have legal force, are advisory only and provide
a starting point for negotiation between the partners or for use by the
courts. They have, however, been judicially endorsed.264 The
Guidelines were revised in 2016.265
19.76 The Guidelines take one of two approaches, depending on whether there are children of the relationship. If there are no children
the formula is based on two factors: the gross income
difference
260 Carol Rogerson and Rollie Thompson Spousal Support Advisory Guidelines (Department of Justice Canada, July 2008) at
9.
261 Advice to the Law Commission from Carol Rogerson and Rollie Thompson (February 2017), on file with the Law
Commission.
262 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 252.
263 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 252.
264 They have been cited in over 230 appeal court decisions and over 2,900 trial decisions: Carol Rogerson and Rollie
Thompson Spousal Support Advisory Guidelines: The Revised User ’s Guide (Department of Justice Canada, April 2016) at
1.
2010).
between the spouses and the length of the marriage.266 Both the
amount and duration of spousal support increase incrementally as the length of the marriage increases.267 This reflects the premise that as a marriage lengthens, spouses increasingly merge their economic and non-economic lives in direct and indirect ways.268
The longer the marriage, the more intertwined the life choices of the
spouses are with the expectation of sharing benefits accrued
during the
marriage.
19.77 A different formula applies when there are children. This formula reflects the distinct concerns in cases involving children. First priority is given to child support over spousal support, with
the result that there is usually reduced ability to pay spousal support.269 The formula is based around sharing the net pool of income after tax and child support. The basis for spousal support when there are children is also different, captured by the concept of “parental partnership”.270 The Guidelines state:271
On the theoretical front, marriages with dependent children raise strong
compensatory claims based on the economic disadvantages flowing
from assumption
of primary responsibility for child care, not only during the marriage, but also
after separation.
the marriage by 1.5–2 percent per year: 1.5 x 20 years = 30 per cent to 2 x 20 years = 40 per cent. Apply the applicable percentage to the income difference: 30 per cent of $60,000 = $18,000/year ($1,500/month) to 40 per cent of $60,000 =
$24,000/year ($2,000/month).
267 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 253.
268 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 254.
269 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 255.
270 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 255–256.
271 Carol Rogerson and Rollie Thompson Spousal Support
Advisory Guidelines (Department of Justice Canada, July 2008) at [3.3.4]. The
authors of the Guidelines, Rogerson and Thompson, further explain in Carol
Rogerson and Rollie Thompson “The Canadian Experiment
with Spousal Support
Guidelines” (2011) 45 Family Law Quarterly 241 at 256 that:
The formula is profoundly compensatory in nature, reflecting the need in these cases, not only to compensate for the economic disadvantages that result from past care-giving roles, but also the continuing, indirect costs of childcare on the custodial or primary-care parent.
19.78 The length of the marriage is considered, but it does not play
as large a role under this formula. Other factors such as the number and ages of the children and shared care arrangements are considered. There is a different, hybrid formula for cases where spousal support is paid by the spouse who is the primary
caregiver. The Guidelines are also adaptable to situations involving
stepchildren272 and provide for variation in response to changing
circumstances such as changes in income, re-marriage and subsequent
children.273
19.79 Because the Guidelines are non-binding it is easy to amend an agreement if there is a change of circumstances. In order to reduce the risk of an agreement being set aside by a court,
the Guidelines provide a list of exceptions to help lawyers and partners
assess and deal with any necessary departure from the formulas
provided by the
Guidelines.274
19.80 An example adapted from the Guidelines illustrates how the formula
works to give an indicative range of what spousal support
should be
paid:275
Case study: The Canadian Spousal Support Guidelines
– With children
Ted and Alice separated after 11 years of marriage. Ted earns $80,000 per year. During the marriage Alice stayed at home with the two children, now aged 8 and
10. After the separation the children live with Alice and she finds a part-time job earning $20,000 per year. Alice’s mother provides after-school care for the children. Ted pays child support in accordance with the formula calculation every month. Using the Guidelines, Ted would also be paying spousal support in the range of
$474 to $1,025 per month. This means that Alice and the children would
receive between 52 to 57 per cent of the combined family income
(being the
combined incomes of Ted and Alice). If Ted and Alice had only one child, the
spousal support range would be higher
(reflecting Ted’s reduced child
support obligations), and if there were three children Ted’s ability to
pay spousal
support would be reduced further. The spousal support figure would
also be adapted to take into account
various factors such as childcare. If Alice was paying for after-school care and Ted
was paying his share then the range of spousal support would reduce
further.
19.81 Canada has taken a pragmatic approach to dealing with the financial
need and financial inequality that can arise when partners
separate. As is
always the case when an approach taken in another country seems attractive,
care and consideration must be given
to ensure whether this approach would be
compatible with the unique attributes of the New Zealand context. A key point to
consider
would be how such an approach would work with the current child support
regime; although we note that in Canada spousal support
likewise sits
alongside a formula child support regime.
19.82 The authors of the Guidelines, Rogerson and Thompson, note that spousal support is “undoubtedly a contentious remedy”.276
Legal systems around the world have struggled with the difficult question of the appropriate role, if any, for spousal support given the basic principles and values of modern family law.277 The Canadian approach has answered this question by shifting away from the “clean break” concept and recognising a basis for spousal support on both compensatory and needs-based grounds.278
Rogerson and Thompson highlight the cultural acceptance of this approach in Canada.279 Any disputes tend to relate to the amount of spousal support to be paid rather than whether spousal support should be paid at all. There is not necessarily the same acceptance of paying maintenance in New Zealand. Section 64A
of the Family Proceedings Act directs that a partner “must assume responsibility, within a period of time that is reasonable in all
the circumstances of the particular case, for meeting his or her
276 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 246.
277 Carol Rogerson and Rollie Thompson “The Canadian Experiment with Spousal Support Guidelines” (2011) 45 Family Law
Quarterly 241 at 246.
“[w]hile spouses would still have an obligation after the marriage
breakdown to contribute to their own support in a manner
commensurate with their
abilities, the ultimate goal is to alleviate the disadvantaged spouse’s
economic losses as completely
as possible, taking into account all the
circumstances of the parties, including the advantages conferred on the other
spouse during
the marriage.”
In Bracklow v Bracklow [1999] 1 SCR 420 the Supreme Court noted there was no single theory underpinning spousal support, which must instead retain the flexibility to adapt to the varied circumstances of relationships. See also discussion in Carol Rogerson and Rollie Thompson Spousal Support Advisory Guidelines (Department of Justice Canada, July 2008) at 7–9.
own needs”. In contrast section 15(6)(d) of the Divorce Act 1985
(Canada) provides that an order for spousal support should “so far
as practicable, promote the economic self-sufficiency
of each spouse within a
reasonable period”.
Could financial reconciliation orders replace section 15 and maintenance in
New Zealand?
19.83 Whether the Canadian approach is appropriate for New Zealand requires consideration of first, whether there is an appetite in New Zealand for financial reconciliation orders as a concept and second, what financial reconciliation orders would comprise; notably what the test for qualifying for an order would be and how the amount of any award would be assessed. Consideration
would also need to be given to the utility of developing guidelines or a
formula that could be used by practitioners and partners
themselves to enable
an agreement to be reached without going to court.
19.84 A court could be required to consider an interim application for
financial reconciliation orders within a specified timeframe,
such as within
six weeks from the date of application.280 If, on final resolution
and distribution of relationship property, there was an ongoing financial
inequality, a final financial
reconciliation order could be made.
19.85 We do not explore here the different methodologies that could apply
to the calculation of financial reconciliation payments,
or factors that
should be taken into account.281 Significant further work would be
needed if this option is preferred.
19.86 The development of guidelines to help partners manage and negotiate
the amount and duration of any financial reconciliation
payments by themselves,
or with the help of their lawyers, would
280 Also see Chapter 14 for a discussion on interim distributions of property under the Property (Relationships) Act 1976.
would be via the implementation of a combined “income equalisation payment approach.” Such an approach might
be adopted for financial reconciliation orders. This involves determining the parties’ respective future incomes for the
12-month period after their relationship ended and then adding these two figures together to determine the parties’ total combined annual income. The parties’ total combined income is then divided equally between them, which means the economically stronger party will need to top up the other partner ’s income until it reaches half of the parties’ total combined annual income figure. This annual income equalisation payment should then be multiplied by half of the number of years the parties have been together, up to a maximum of 10 years. Once the annual equalisation payment
has been established, the court must use its discretion to make allowances for relevant contingencies such as the parties’ respective age, length of time before retirement, health and stability of employments. The final figure might be awarded as a lump sum or be paid on a periodic basis.
greatly aid the effective implementation of financial reconciliation
orders.
C ONSU LTATION QUESTIONS
F1 Should partner A be entitled to more than an equal share of the
relationship property pool if there is financial inequality
at the end of the
relationship as a result of the division of functions in the
relationship?
F2 Does your view depend on whether the partners have children?
F3 Do you agree that reform or replacement of section 15 is
required?
F4 Which option do you prefer and why?
F5 If option 3 is adopted, do you think there should be a maximum duration
for financial reconciliation orders? If yes, should the
maximum duration be one
year, two years, five years or ten years?
F6 Are there any other options we should consider?
Part G –
What should happen to property held on trust?
Chapter 20 – Trusts
Introduction
20.1 Part G addresses the intersection between the PRA and the laws
governing trusts. Parliament has sought a balance between the
division of
relationship property under the PRA and the rules that apply to property held on
trusts. This Part considers whether
the right balance has been struck between
enabling a just division of property and the preservation of trusts.
20.2 In this chapter we describe what a trust is and why New Zealanders use
trusts to hold property. We then examine how the PRA
and the wider law apply
when property is held on trust. In particular, we look at the legal remedies
available to a partner to seek
an interest in the trust property at the end of a
relationship. The rest of Part G is arranged as follows:
(a) In Chapter 21 we discuss how problems may arise when partners come to divide their property at the end of a relationship and a trust is involved. We look at how a trust can frustrate the just division of property under
the PRA. We also examine the interplay between the PRA and the other remedies
outside the PRA in respect of trusts.
(b) In Chapter 22 we suggest some possible options for reform.
20.3 This Part focuses mainly on the ways trusts can interfere with the division of the partners’ property when a relationship ends on separation. If one partner to a relationship dies, the surviving partner may elect to divide the couple’s property under the PRA rather than accept whatever provision is made in the will. The rules that apply to relationships ending on death are discussed
in Part M. Many of the same issues discussed in this Part may, however, arise if a surviving partner elects to divide property under the PRA.
The Use of Trusts in New Zealand
20.4 New Zealand has one of the highest numbers of trusts in the world as a proportion of its population. The Law Commission has previously estimated there may be anything between 300,000 to
500,000 trusts in New Zealand.1 In the 2013 Census, 14.8 per cent of households reported that their home was held on trust.2 In
2015, Statistics New Zealand found that 19 per cent of households had
involvement with a trust, meaning at least one member of
the household was
involved as a settlor, beneficiary or trustee.3 Cron described New
Zealand’s use of trusts in these words:4
The growth of trusts in New Zealand over the past two decades has been
nothing short of phenomenal. Trusts seem to be on par with
motor vehicles
– every family has one and in some cases two.
20.5 Widespread use of trusts is potentially a big issue because as a general rule, property held on trust is not divided equally between the partners when the relationship ends. Instead, when someone places his or her property on trust (sometimes referred to as “settling” the property on trust), he or she passes legal ownership of the trust property to the trustees. As a result, the
trust property is only divisible to the extent each partner is said to be the
beneficial owner of the property. The effect of these
rules is that the PRA
has no application to a lot of the property used and enjoyed by New Zealand
families.
20.6 Many people argue that the PRA should deal with trusts more effectively. Apart from some limited changes made by the 2001 amendments, the PRA’s application to trusts has remained largely unchanged. The debate has intensified in recent years as disputes over trust property have gone to court, resulting in several significant developments in the law.5
20.7 In 2013, the Law Commission released its final report in a project
reviewing the law of trusts, including the relationship
between
1 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [2.3].
2 Statistics New Zealand 2013 Census QuickStats About Housing (March 2014) at 12.
4 J Cron Family Trusts in New Zealand (Penguin Books, North Shore, 2010) at 9.
5 See for example Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551; Clayton v Clayton
[Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590; and Vervoort v Forrest [2016] NZCA 375, [2016] 3 NZLR 807.
the PRA and trusts.6 During the project the Commission invited
submissions on that issue and the majority of submitters believed that the PRA is ineffective at dealing with trusts.7 Some submitters said that the PRA did not produce a just division of property. They said that the courts needed greater powers to deal with property held on trust.8 In spite of these responses, the Commission was cautious about proposing changes to the PRA because relationship property law was broader and involved different considerations
to trust law, which was then the Commission’s focus.9 A
comprehensive review of the PRA’s relationship with trusts was left for
another day.
What is a trust?
20.8 At a basic level a trust is a legal relationship in which the owner of property holds and deals with that property for the benefit
of certain persons or for a particular purpose.10 The person who establishes the trust and provides the initial property is called
the settlor. The person who receives the property from the settlor to hold
on trust is called a trustee.11 The individuals who will receive the
benefit of the property are beneficiaries.12 The property held on
trust is called trust property. Trust property can be most forms of property
provided there is enough certainty
about what property is the trust property.
Trust property may therefore be land, a sum of money or shares in a
company.
20.9 The law that applies to trusts distinguishes between the legal owner
of the trust property and the equitable owner of the trust
property. The legal
owner is the trustee. For instance, if the trust property comprises land, the
trustee will be recorded as the
registered proprietor of the land in the land
register. As
6 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013).
7 Law Commission Review of the Law of Trusts: Preferred Approach (NZLC IP31, 2012) at [17.2].
8 Law Commission Review of the Law of Trusts: Preferred Approach (NZLC IP31, 2012) at [17.2].
9 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [19.2].
a fiduciary relationship in which the trustee holds or deals with property for the benefit of the beneficiary or for a permitted purpose: Trusts Bill 2017 (290-1), cl 13(a).
12 It is possible for a settlor and/or a trustee to be a beneficiary. But he or she cannot be the only beneficiary.
the trustee must hold the trust property for the benefit of the
beneficiaries, the trustee is not the equitable owner. Instead, the equitable owners (or beneficial owners) of the trust property are usually the beneficiaries.13 A beneficiary’s entitlement to the trust property will depend on the nature of his or her interest under
the trust.
20.10 The law imposes duties on trustees to act in the best interests of the beneficiaries. Trustees are required, among other things, to
act in accordance with the terms of the trust, to avoid conflicts of
interest, and to act honestly and in good faith.14
20.11 The most common form of trust is an express trust. This is a trust which has been expressly established by the settlor. The trust instrument identifies or explains the method for identifying the trustees, the trust property and the beneficiaries.15 Most trusts used by families in New Zealand are express trusts. There are different types of interest that a beneficiary can have in a trust.16
The most common are summarised below.
Discretionary Interests
20.12 Often the trust deed gives the trustees or other specific individuals
a power to decide how to distribute the trust’s
property to the
beneficiaries.17 The trustee may then determine when and to who
(amongst the beneficiaries) to give the trust property. In such cases the
beneficiaries
have a discretionary interest and the trust is usually known as a
“discretionary trust”.
13 It is possible that the equitable estate of the trust property will not be held by the beneficiaries. This may be the case in
a purpose trust or charitable trust. There is also debate on where the equitable estate of the trust property is to be found when the trustee has discretion to appoint the property to any beneficiary.
14 There has been some debate regarding a trustee’s duties and to what extent they can be excluded by the trust instrument.
The Trusts Bill currently before Parliament sets out mandatory trustee duties that cannot be excluded by the trust instrument: Trusts Bill 2017 290-1, cls 22–26.
15 See Andrew Butler “The Trust Concept, Classification and Interpretation” in Andrew Butler (ed) Equity and Trusts in New
Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 69–84. Not all trusts have a document that records the terms
of the trust. An express trust can arise by virtue of the settlor declaring that he or she holds the property on trust for the beneficiaries. See for example S v S [2012] NZFC 2685 where the settlor declared that he held some paintings hanging in his house on trust for his children. Some trusts, like constructive trusts, will arise by operation of the law and so will not have documents which set out the term of the trust.
16 The complexities are illustrated by Tipping J’s decision in Johns v Johns [2004] NZCA 42; [2004] 3 NZLR 202 (CA) at [46].
Vested
Interests
20.13 A vested interest gives the beneficiary an absolute right to the use
and enjoyment of the trust property and does not depend
on the trustee’s
discretion. For example, if money is held on trust and the beneficiary has an
interest vested in both interest
and possession, then the beneficiary can ask
the trustee to transfer the money to him or her.18
Contingent Interests
20.14 A contingent interest arises where the vesting and possession of the interest depend on the satisfaction of a condition.19 For example, a trust deed may state that the trustees are to hold the trust property for 20 years. During that 20 year period, the trustees may distribute the trust income to the discretionary beneficiaries. At the end of the 20 year period, the deed may require the trustees to distribute any residual trust property
to certain named beneficiaries. These beneficiaries20 have a
contingent interest because their interest depends on them being alive at the
end of the 20 year period and trust property
being available for
distribution.
Trusts used by New Zealand families
20.15 There is very little official information on how trusts are typically
structured in New Zealand. There is no official register
that lists all
trusts,21 unlike companies or other incorporated
entities
is entitled to $1,000 when he or she reaches the age of 21. In that scenario, the extent of the beneficiary’s interest is determined as $1,000 so it is vested in interest. It cannot, however, be enjoyed until the beneficiary reaches the age of
21 so the beneficiary’s interest is yet to vest in possession.
19 Johns v Johns [2004] NZCA 42; [2004] 3 NZLR 202 (CA) at [47]; and Jeff Kenny & Jared Ormsby “Powers of Appointment and Powers of Advancement: What Every Lawyer Needs to Know” (paper presented to New Zealand Law Society Trusts Conference, June 2011) at 177.
which must register their formation documents.22 In any event,
the structure of trusts used by families in New Zealand is likely to vary
according to the needs of the family and the professional
advice given to
them.23 The structure will also differ from trusts used in other
areas. For example, a charitable trust is different to a trust used to hold
the
family home.
20.16 Nevertheless, we have observed some recurring characteristics from
our review of cases and literature, and our consultations
with trust
experts.
20.17 Before describing these characteristics, we wish to address terminology. In this Part we will sometimes use the term “family trust” to refer to an express trust that families in New Zealand commonly use. Several other commentators use this description.24
We use the phrase purely for convenience. By terming a trust a family trust,
we are not implying any particular legal categorisation.
Rather a family trust
will usually bear the legal characteristics we discuss in the following
paragraphs.
20.18 Family trusts are usually discretionary trusts. The deed will then state what happens when the trust comes to an end. A common provision requires all remaining trust property to be distributed
to the named beneficiaries.25 The trust therefore has beneficiaries with discretionary interests and beneficiaries with contingent interests.
20.19 We have also seen that some trust deeds contain provisions that
allow the settlor(s) to retain control over the trust.26 For example,
the trust deed may give the settlor the power to appoint
22 This is one of the central attractions of trusts: to keep financial affairs confidential.
a transfer of the property and then each partner would settle the property on trust. Under the trust the other partner would be named as beneficiary along with the partners’ children. These types of trusts were known as mirror trusts as the trust each partner settled would be in exactly the same terms for the benefit of the other partner. The ultimate goal of the mirror trust structure was to allow both partners to use and enjoy the whole of their assets through the trusts
without attracting gift duty. See WM Patterson “When is a Trust a Trust?” (paper presented to Legal Research Foundation
Seminar “A Modern Law of Trusts”, Auckland, 28 August 2009) at 4.
24 See for example Andrew Butler “The Trust Concept, Classification and Interpretation” in Andrew Butler (ed) Equity and
Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 43 at 62.
or remove trustees. The trust deed might also give the settlor the
power to add or remove any of the beneficiaries, producing even greater
control over the trust.
20.20 To explain how a typical family trust might look, we have used the
example of Kim.
Case study: The K Family Trust27
In 1998 Kim bought a house. Kim’s lawyer advised her to set up a
trust to hold the house. In July 1999 Kim executed a deed
and established the K
Family Trust. The trust deed provides that:
a. The trustees of the K Family Trust are Kim and her accountant.
b. Kim has the power to appoint or remove trustees.
c. The beneficiaries of the K Family Trust are Kim, her spouse, and her
children.
e. The K Family Trust runs until 27 July 2079.
Shortly after the trust deed is executed, Kim transfers the house to the
trustees to be held on the K Family Trust.
In this scenario, Kim, her husband and her children have a
discretionary beneficial interest under the K Family
Trust.
Kim’s children also have a contingent beneficial interest under
the K Family Trust.
27 The following example is based loosely on the trust that was the subject of the Court of Appeal case N v N [2005] 3 NZLR
46 (CA). The terms of the trust deed are set out in the High Court judgment N v N [2003] NZFLR 740 (HC) at [19].
Kim has control over the trust property (the house) as she is a
trustee with discretion to distribute property to the beneficiaries. She also
has power to appoint and remove beneficiaries.
Why do New Zealand families use trusts?
20.21 The proportion of New Zealand families that use trusts exceeds that
of comparable jurisdictions, such as the United Kingdom,
Australia and
Canada.28 The reason New Zealanders rely so heavily on trusts is
mainly due to New Zealand’s tax and legal landscape from the 1950s
onwards.29
20.22 We think that one reason New Zealand families use trusts is to protect assets from a claim under the PRA. This is because property held on a discretionary trust is largely excluded from the PRA’s equal sharing regime. Trusts have therefore emerged as a way for partners to keep property separate when they enter relationships. We have been told that it is common for people entering second or subsequent relationships to want to protect
property from potential claims of their new partner, particularly if they want to preserve the assets for the benefit of the children of
a former relationship. We have also been told that trusts are often
perceived as a more suitable way of excluding assets from the
PRA rather than
contracting out agreements.30
20.23 There are other reasons New Zealanders have set up trusts, including
to:31
(a) shield assets from creditors;32
28 Law Commission Review of Trust Law in New Zealand: Introductory Issues Paper (NZLC IP19, 2010) at [1.13].
on the other hand, is more likely to prompt awkward conversations between the partners. Third, contracting our agreements are perceived to be more vulnerable to challenge as the court may set them aside under s 21J of the Property (Relationships) Act 1976 on the grounds they cause a serious injustice. Nicola Peart has discussed the reasons why partners prefer trusts over contracting out. See Nicola Peart “The Property (Relationships) Act 1976 and Trusts: Proposals for Reform” (2016) 47 VUWLR 443 at 460.
31 To research the motivations behind the use of trusts in New Zealand, we have relied on WM Patterson “When is a Trust
a Trust?” (paper presented to Legal Research Foundation Seminar “A Modern Law of Trusts”, Auckland, 28 August 2009). We have also searched the websites of over 40 professional trustee companies, law firms, accountancy practices and community advice bodies for the reasons they give for establishing trusts. The reasons summarised in this paragraph are consistently identified on these websites.
(b) provide a means of intergenerational transfers of
wealth;33
(c) manage property for someone who is unable to manage his or her own
affairs (for example a minor or person suffering mental
incapacity);
(d) put property aside for specific purposes (for example, for a
child’s education);
(e) avoid estate duty and gift duty; (f ) minimise taxable income;34 and
(g) qualify for residential care home subsidies.35
20.24 Many of these reasons no longer apply. Estate duty and gift duty have now been abolished.36 Likewise, tax laws have been tightened to prevent tax payers from redirecting income through
a trust to take advantage of more favourable tax rates.37 A person’s ability to use a trust as a means of qualifying for residential care subsidies has also been largely limited by a change in the Ministry of Social Development’s policy towards trusts.38 Nevertheless, because the life of a trust can span several decades,39 many trusts will continue to exist even though they were established for
reasons that are now irrelevant.
2013) at 161–162.
36 Estate duty was abolished through the Estate Duties Abolition Act 1993. Gift duty was later abolished through the
Taxation (Tax Administration and Remedial Matters) Act 2011, s 245.
39 The law provides that an interest must vest within 80 years or the lifetime of a relevant person plus 21 years.
20.25 We also recognise that the use of trusts has been heavily
promoted by professional advisers. The Law Commission has previously noted a
“commodification” and “marketing”
of
trusts.40
20.26 There have, however, been no comprehensive studies on why contemporary New Zealand families settle trusts. There are likely to be different reasons for each family. It is nevertheless
important to understand the role that trusts play in contemporary New
Zealand so that the right balance between relationship property
rights and the
preservation of trusts can be found.
C ONSU LTATION QUESTION
G1 Why do families in New Zealand set up trusts? Are there major reasons
other than those we have identified?
The PRA and property held on trust
The definition of property under the PRA
20.27 The PRA only applies to property owned by the partners to the
relationship. To understand how the PRA deals with property
held on trust, the
starting point is to look at the PRA’s definitions of
“property” and “owner”.
The PRA
provides:41
owner, in respect of any property, means the person who, apart from this
Act, is the beneficial owner of the property under any enactment
or rule of
common law or equity
...
property includes— (a) real property:
(b) personal property:
(c) any estate or interest in any real property or personal
property:
‘Unwelcome Beneficiaries’” (2009) 2 Journal of Politics and Law 17 at 17. The Law Commission’s 2012 review of trusts received submissions that legal and accounting professionals recommend that clients establish trusts as part of a package of work being done. Other submitters commented that trusts are sometimes seen as status symbol which people set
up to keep up with the neighbours: Law Commission Review of the Law of Trusts: Preferred Approach (NZLC IP31, 2012) at [1.26]. Sometimes, an adviser may have recommended that a client establish a trust even if the client did not fully appreciate whether they needed the trust, or the implications of the trust.
41 Property (Relationships) Act 1976, s 2.
(d) any debt or any thing in action:
(e) any other right or interest
20.28 The PRA’s definition of owner means the “beneficial owner” of the property. A trustee, however, is not the beneficial owner of the property. Consequently, the property a partner owns in his or
her role as trustee will be excluded from division under the PRA.42
Neither will the settlor of the trust be considered the owner of the trust
property under the PRA. Like trustees, settlors have no
beneficial ownership of
the property they settle on trust.43
20.29 The PRA’s definition of property does, however, include any “estate or interest” in property or “any other right or interest”. Therefore,
a beneficial interest under a trust may constitute property under this
definition and that interest may be eligible for division
under the
PRA.
20.30 Not all types of beneficial interests under a trust, however, will constitute property. The courts have looked to the general law of property and trusts in order to determine which types of beneficial interests are property for the purposes of the PRA.44
The courts have said that the PRA’s use of a standard definition
of property strongly indicates that the PRA was intended to draw on a
conventional understanding of property law principles.45 We now turn
to look at which types of beneficial interests the courts have said amount to
property under the PRA.
Vested interests
20.31 The courts have held that if a beneficiary has a vested interest
in a trust, that interest constitutes property under
the PRA and the
beneficiary is an owner to the extent of his or her beneficial interest. This is
because a beneficiary with a vested
interest can
44 This is because the definition of property in the Property (Relationships) Act 1976 is also found in many other statutes that deal with property generally. In Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 279 the Court of Appeal listed the statutes that, at the time, had the same “standard” definition of property (albeit sometimes with adaptations): Property Law Act
1905, Child Support Act 1991, Crimes Act 1961, Domestic Actions Act 1975, Family Proceedings Act 1980, Forest and
Rural Fires Act 1977, Housing Corporation Act 1974, Legal Services Act 1991, Mortgagors and Lessees Rehabilitation Act
1936, New Zealand Government Property Corporation Act 1953, Property Law Act 1952, Public Trust Office Act 1957, Receivership Act 1993, Simultaneous Deaths Act 1958, Trustee Act 1956 and Wills Amendment Act 1955.
45 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 279. See Chapter 8 for more discussion on the definitions of “property” and
“owner” in s 2 of the Property (Relationships) Act 1976.
force a trustee to let him or her enjoy his or her beneficial share of
the trust property.46
Case Study: The AB Family Trust47
Atamai and Brenda wish to help their daughter, Caroline, by providing her
with a house. Atamai and Brenda buy a house. They then
execute a deed of
trust to set up the AB Family Trust. Under the deed, Atamai and Brenda are the
trustees. Caroline is named as
the sole beneficiary. The deed states
that:
“The trustees will hold the house in trust for Caroline”. Atamai and Brenda let Caroline live in the house.
Caroline has a vested interest under the trust. The trust deed provides
without limitation that she is beneficially entitled to
the house. Under the
PRA’s definitions, Caroline’s interest under the trust is
property.
Discretionary interests
20.32 A discretionary interest in a trust is not considered property.48
The reasoning is that a discretionary beneficiary will only obtain the
benefit of the trust property if the trustee distributes
the property to the
beneficiary.49 The most a beneficiary can have is an expectation or a
hope that the trustee will distribute the property to him or her.50
The trustee may decide never to exercise their discretionary power in
favour of the beneficiary.51
47 The facts of this example are based on the case Yu Ping Gao v Elledge [2003] DCR 145 (DC).
293 (CA) at [54]. Compare B v M [2005] NZFLR 730 (HC) at [98] in which the High Court said it was “certainly arguable” that the definition of “property” in s 2 of the Property (Relationships) Act 1976 was sufficiently wide to cover the rights and interests of a spouse as a beneficiary under a discretionary trust.
49 The beneficiary does, however, have a number of other rights which are enforceable against the trustee. For example, a discretionary beneficiary has a right to be considered when the trustees decide whether to distribute trust property. Likewise, the trustees have a duty to perform the trust honestly and in good faith.
50 Hunt v Muollo [2003] NZCA 66; [2003] 2 NZLR 322 (CA) at [11].
Case Study: The DW Family Trust
Doris and Warren have run a successful furniture making business for many years. They employ many staff and the business has a bright future. Doris and Warren operate the business through a company in which they are the only shareholders. Doris and Warren are about to retire. They want their
two adult children to continue to benefit from the business. They do this by
creating the DW Family Trust. Under the trust deed,
Doris and Warren’s
lawyer and accountant are named as the trustees. Doris and Warren transfer their
shareholding in the company
for the trustees to hold on trust for their
children.
Doris and Warren think that their children would not be prudent shareholders if they held the shares personally. They also expect that the children will
ask the trustees to distribute money to them regularly. Instead, Doris and
Warren want the trustees to manage the shares to ensure
the future
profitability of the company rather than respond to the children’s
requests.
Doris and Warren ensure the trust deed gives the trustees discretion on when
and how they distribute the company’s profits to
their children. The
children are therefore beneficiaries with a discretionary interest. Under the
PRA, the children’s discretionary
interest under the trust would not
constitute property.
Contingent interests
20.33 Whether a contingent interest constitutes property under the PRA is
more difficult. It is common for trust deeds to provide
that when the trust
comes to an end, the residual trust property is to be divided in equal shares
between several beneficiaries,
sometimes referred to as residual or final
beneficiaries. The interest of these beneficiaries is contingent on them
surviving until
the date the trust is wound up and there being property
available for distribution.
20.34 Some courts have said that a contingent interest constitutes
property under the PRA.52 In the case of a discretionary interest,
the interest cannot be property because enjoyment of the property is always
subject to
the discretion of the trustees. A contingent interest is enjoyed as
of right under the trust deed provided the condition is satisfied.53
As we explain further below, some commentators have reservations about
this position.
Case study: The R Family Trust
Raewyn has unexpectedly come into some money. She has no present need for the money and she would like her children and grandchildren to receive the benefit of it. Raewyn sets up the R Family Trust on which to hold the money. Raewyn’s accountant is the trustee. The accountant recommends that the money be invested in several funds that will provide a good
return over the coming years. To maintain a good rate of return,
Raewyn’s accountant says it is important to preserve the capital
as a
whole.
The R Family Trust deed provides there are two types of beneficiaries: discretionary beneficiaries and final beneficiaries. The discretionary beneficiaries are Raewyn’s children. The final beneficiaries are Raewyn’s grandchildren.
The trust deed states that during the lifespan of the trust the trustee
may distribute any of the income to the discretionary
beneficiaries as the
trustee decides. At the end of the trust, which will be in 2097, the trustee
is to take the capital out of
the investments and divide it equally between any
of the final beneficiaries who are still alive. The idea is to maintain the
capital
in the investments during the life of the trust to ensure a steady
stream of income.
The final beneficiaries have a contingent interest under the R Family Trust.
Their interest is conditional on them surviving until
2079 and there being
capital in the investments left to distribute. A court may consider that the
final beneficiaries’ interest
in the trust is property under the PRA. The
discretionary beneficiaries’ interest, on the other hand, will not be
considered
property under the PRA.
Classification of an interest in a trust as relationship property or
separate property
20.35 If a partner ’s beneficial interest in a trust amounts to
property, the next step is to consider whether it is relationship
property or
separate property. Section 10 of the PRA provides that if a partner acquires
property because he or she is a beneficiary
under a trust settled by a third
person, the property will be separate property. The PRA is silent on the
classification of the
interest if the trust has been settled by one of the
partners.
of ascertaining the applicable limitation period for an action for breach of trust. At [49] Tipping J emphasised that
the question of whether a future interest constituted an interest must recognise the vital importance of the statutory context and the purpose of the legislation. Notably, his Honour was not determining whether a contingent interest should be deemed property for the purposes of the Property (Relationships) Act 1976 (PRA). Nevertheless, the Court of Appeal’s finding that a contingent interest constitutes an interest (albeit for the purposes of the limitation legislation) was applied by the Family Court in Q v Q (2005) 24 FRNZ 232 (FC). The Court relied on Tipping J’s distinction between
a discretionary interest and a contingent interest. It said that Mrs Q’s future contingent interest was property for the purposes of the PRA even though the interest in the trust was contingent on Mrs Q’s survival to the date of distribution (in 2028) and on there being trust property available for distribution. The reasoning has been questioned. See RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [4.47]; and Kate Davenport
and Stephanie Thompson “Piercing the trust structure at a relationship’s end: interesting developments in trust law from the New Zealand Supreme Court” (2016) 22(8) Trusts & Trustees 864 at 871–872.
Powers as property – Clayton v Clayton [Vaughan Road Property
Trust]
20.36 The Supreme Court has recently decided that a person’s powers to control a trust can constitute “property” in their own right under the PRA. As explained above, it is common for the people who establish trusts to retain control over the trust property.54
The Supreme Court case of Clayton v Clayton [Vaughan Road
Property Trust]55 is an extreme example. Mr Clayton had settled
a trust called the Vaughan Road Property Trust. Mr Clayton was the trustee. He was also a discretionary beneficiary along with
his children. The trust deed gave Mr Clayton the role of “Principal
Family Member”. In this capacity, the trust deed empowered Mr Clayton to appoint and remove discretionary beneficiaries, distribute any of the trust property to any beneficiary, and effectively bring the trust to an end. The Supreme Court described the combination of these powers as amounting to a general power of appointment. That is, Mr Clayton had the power to distribute
all the trust property to himself for his personal benefit rather than for
the benefit of the other beneficiaries.56 Importantly, the trust
deed specifically stated that, in exercising these powers, Mr Clayton was not
constrained by the normal
duties that dictate the standards of behaviour
expected of a trustee. He could therefore disregard the interests of the other
beneficiaries
and effectively treat the trust property as his
own.57
20.37 The Supreme Court held that the powers afforded to Mr Clayton under
the trust deed amounted to “property” within
the meaning of section
2 of the PRA. The Court noted that although the law traditionally distinguished
between powers and property,
strict concepts of property may not be appropriate
in a relationship property context.58 The Court felt that
“worldly realism” is needed (although this must be balanced with
respect for the legal affairs
55 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.
56 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [54].
57 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [57]–[58].
58 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [79]
of trusts).59 The Court concluded that Mr Clayton’s powers were
rights that gave him an interest in the trust and its assets.60
Because the powers were “acquired” after the relationship began
they were relationship property and their value should
be divided equally
between Mr and Mrs Clayton.61
20.38 On the question of how Mr Clayton’s powers were to be valued, the Court noted that Mr Clayton could appoint the assets of
the trust to himself at any time. The Court saw no reason to differentiate
the value of this power from the value of the trust property.62
Therefore the value of Mr Clayton’s powers was equal to the value of
the net assets of the trust.
20.39 The Supreme Court’s decision in Clayton v Clayton [Vaughan
Road Property Trust] confirmed a new way of looking at a partner ’s
interest in a trust when dividing property under the PRA. Besides looking at
a
partner ’s beneficial interest in a trust, the courts may now inquire
into whether a partner ’s powers to control
the trust can also be
considered property for the purposes of the PRA. As we explain further below,
the Supreme Court stressed that
the trust and the powers it gave to Mr Clayton
were unusual.63 It is therefore doubtful that the Clayton decision
will apply to many trusts.
Summary of the PRA’s treatment of property held on trust
20.40 It is helpful at this point to recap how the PRA treats property
held on trust. First, the property a partner holds as trustee
will not be
eligible for division under the PRA because the partner is not the beneficial
owner of the property and therefore
the PRA does not see the trust property as
his or her property. Second, the courts have said that a partner ’s
interest as
a beneficiary under a trust may be property under the PRA, but only
if the beneficiary has a vested or contingent interest. A discretionary
interest does not constitute property. Third, following the Supreme
Court’s decision in Clayton v Clayton [Vaughan Road Property
Trust], a
59 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [79].
60 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [80].
62 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [104].
63 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [14].
partner ’s extensive powers to control a trust may amount to
property within the meaning of the PRA.
Ways in which property held on trust can be shared between the
partners
20.41 The PRA will generally not apply to property held on discretionary
trusts. When property is settled on a discretionary trust,
the partners may
lose rights to an equal share in that property under the PRA. There are,
however, a number of legal avenues
available to address injustice that might
arise from the use of trusts. The main avenues are:
(a) section 44 of the PRA; (b) section 44C of the PRA;
(c) section 182 of the Family Proceedings Act 1980;
(d) the High Court’s power to ensure a trust operates
properly;
(e) a claim that the trust is invalid or is a sham; and
(f ) a constructive trust over property held on an express trust.
20.42 As can be seen, some of these avenues are provided in the PRA.
Many, however, are found outside the PRA. These avenues have various
limitations. We look at each of them in turn.
Powers within the PRA to recover property – section 44 and section
44C
20.43 Section 44 applies when a person has disposed of property to a trust
in order to defeat a partner ’s claim or rights
under the PRA. In these
circumstances, section 44(2) gives a court the power to unwind the disposition
and recover property from
a trust, or order that compensation be paid in order
to satisfy a partner ’s rights to relationship property.
20.44 The key element of section 44 is that the person who disposed of the property to the trust must have intended to defeat the other partner ’s rights. The courts have clarified that this requirement will be met if a person disposes of property to a trust knowing
that as a consequence his or her partner risks losing rights to that
property. There will be an intention to defeat the partner ’s rights,
even if the person transferring the property did not wish to cause the partner loss.64 Although equating knowledge of consequences with an intention to bring about those consequences is a lower threshold than proving an actual intention, the test is still described by commentators as a “significant hurdle”.65 The Court
of Appeal has said that the task is to assess the intention or purpose of
the person disposing of the property at the time the disposition
is made. That
requires an assessment of all the relevant evidence.66
20.45 Consequently, the court’s powers under section 44 are not used
often. In very few cases can a partner show that a
disposition of property to
the trust was made with the knowledge that his or her rights under the PRA
would be defeated.67
Case study: The D Family Trust68
Desmond has been seeing Malosi for several months now. They decide to start living together. The partners plan that Desmond will sell his apartment and use the sale proceeds to buy a larger house which will be their family home. Desmond and Malosi agree that Desmond will take out a mortgage to cover any shortfall between the price of the new house and the sale proceeds from
Desmond’s apartment. Both Desmond and Malosi will pay the mortgage
payments equally even though Desmond is the only borrower
under the
mortgage.
A few years ago Desmond went through a painful separation from his former partner. There was a long dispute over relationship property. Desmond knows
that if he and Malosi separate, he might be forced to share the equity in
their new
64 R v U [2009] NZHC 2627; [2010] 1 NZLR 434 (HC) at [33] per French J applying Regal Castings Ltd v Lightbody [2009] NZSC 87, [2009] 2
NZLR 433 at [53] per Blanchard J. See for example Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293. Mr Clayton had established two “education” trusts purportedly for the education of the children of the marriage. Mrs Clayton was not named as a beneficiary under the trusts. The trusts were, however, used within Mr Clayton’s group of companies for the purpose of minimising business risk. Mr Clayton had funded the purchase of the trust property from, among other sources, the proceeds of a family holiday home. Mr Clayton’s fellow trustee gave evidence that Mr Clayton was
concerned about the risks identified to his company and banking arrangements if his marriage broke down. The Court of
Appeal concluded that exclusion of Mrs Clayton as a beneficiary was “uppermost in Mr Clayton’s mind”. It was therefore a disposition made to defeat Mrs Clayton’s rights for the purposes of s 44 of the Property (Relationships) Act 1976. See too P v D [2012] NZHC 2757; G v G [2013] NZHC 2890; W v C [2013] NZHC 396, [2014] NZFLR 71; and P v H [2016] NZCA
514[2016] NZCA 514; , [2016] NZFLR 974.
65 N Peart, M Henaghan and G Kelly “Trusts and relationship property in New Zealand” (2011) 17 Trusts & Trustees 866 at
869.
66 M v ASB Bank Ltd [2012] NZCA 103, [2012] NZFLR 641 at [53]; Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293 at
[134].
271; and Bruce Corkill and Vanessa Bruton “Trustee Litigation in the Family Context: Tools in the Family Court, and Tools in the High Court” (paper presented to New Zealand Law Society Trusts Conference, Wellington, 2011) 103 at 116.
68 The facts of this example are based on the cases R v U [2009] NZHC 2627; [2010] 1 NZLR 434 (HC); and O v S (2006) 26 FRNZ 459 (FC).
house, even if he contributes the majority of the purchase funds. To avoid this Desmond arranges with his lawyer to establish the D Family Trust. Desmond is the trustee. The beneficiaries of the trust are Desmond and his children. When
Desmond and Malosi find a house they like, Desmond signs the sale and
purchase agreement. The purchaser in the agreement is named
as Desmond or
“his nominee”. Desmond then arranges for the trustees of the D
Family Trust to purchase the house.69 The result is that
Desmond’s and Malosi’s home is held on the D Family Trust in which
Malosi has no interest even though
he contributed to the mortgage.
Malosi may have a claim under section 44 of the PRA. Desmond appears to have intentionally structured the acquisition of their family home
so Malosi can claim no rights in the property under the PRA.
Case study: The E Family Trust
Emily has worked as an engineer for nearly 15 years. About five years ago
Emily bought a house. Emily’s lawyer advised her
to set up a trust
through which to buy the house. Emily did not understand what a trust was, but
followed the advice of her lawyer
because the lawyer said the trust would
protect her assets. Consequently, Emily set up the E Family Trust and the house
was bought
in the names of the trustees (Emily and her lawyer). About a year
ago, Emily started seeing Felicity. They recently got engaged.
They intend to
make the house their family home once they are married.
If Emily and Felicity later separate, it would be difficult for Felicity to
claim under section 44. She may not be able to show Emily
intended to defeat her
rights. Emily established the trust before she met Felicity. Emily does not
appear to have understood the
nature of a trust and how that might affect any
rights her future partner would have under the PRA.
20.46 To overcome the limited application of section 44, the 2001 amendments introduced a new provision: section 44C. Section
44C applies when a disposition of property to a trust has the effect of defeating one partner ’s claim or rights under the PRA. There is no need to prove an intention behind the disposition. However, section 44C has several conditions. The property disposed of
must have been relationship property. The disposition must have been made after the relationship began. It is also implicit that the disposition of property must only defeat the rights of one partner, not both of them. This is made clear in the wording of section
44C(1)(b) and it is captured in the notion of compensation.
The courts have said the section is aimed at ensuring equality
69 In both R v U [2009] NZHC 2627; [2010] 1 NZLR 434 (HC); and O v S (2006) 26 FRNZ 459 (FC) the courts said that procuring the trustees to purchase the property rather than the partner in his or her personal capacity constituted a “disposition of property” for the purposes of s 44 of the Property (Relationships) Act 1976.
between the parties when a disposition of property has the
effect of defeating one partner ’s rights, but leaving the other
partner ’s rights intact.70 Even if section 44C applies, the
court’s power to recover the property disposed of to the trust is limited.
Under section 44C(2),
the court can only order one partner to compensate the
other from relationship property or separate property. As a last resort the
court can require the trustees of the trust to pay the affected partner
compensation from the income of the trust. However, the court
has no power to
order that the property be recovered from the trust’s
capital.
Case study: The E Family Trust continued
In the case of Emily and Felicity, Felicity probably could not make a successful claim under section 44C of the PRA against the E Family Trust. The trust property is a key family asset; the family home that would usually be classified as relationship property. Nevertheless, because the property was acquired
by the trustees before Emily and Felicity used the house as their home, it
would not have been relationship property when it was
acquired by the E Family
Trust. Consequently, section 44C would not apply. Even if the home was
relationship property when it was
acquired by the E Family Trust, the court
would have no power under section 44C to order that the home be recovered from
the Trust
and shared equally between Emily and Felicity.
Case study: The I Farming Trust71
Ida is a farmer. She has been married to John for about 15 years. During the
relationship Ida inherited a farm from her grandparents.
Since acquiring it, Ida
and John have lived on the property and farmed it as a partnership.72
About ten years ago Ida’s accountant came up with a plan to
restructure her financial affairs. First, Ida set up the I Farming
Trust. Ida
is trustee. Ida, John and their children are all discretionary beneficiaries.
Ida then transferred the farm assets to
the trust.
Ida’s accountant said that the transfer could be structured in a way that
meant the trustees did not have to pay the purchase price for the farm assets. Instead, the transfer would be for an interest free loan. The accountant
then planned a gifting programme under which Ida would forgive
the
72 Section 10 of the Property (Relationships) Act 1976 provides that the property a partner inherits is separate property.
However, ss 10(2) and 10(4) provide that the property may become relationship property if it is intermingled with relationship property or used as the family home or family chattels. In this scenario it is possible that the farm has become relationship property.
debt owed to her by the trustees. Each year Ida forgave an amount of
the debt up to the threshold at which gift duty was payable. When gift duty
was abolished in 2010, Ida forgave the balance of the
debt.
Ida and John have separated. Ida still lives on the farm and continues to operate the farm business. John has moved to the city. The farm is now valued at nearly $3 million. Ida and John look at what relationship
property they have in order to divide it equally between them. It comprises
some savings in a bank account, a vehicle and some furniture.
John is dismayed
to find he will receive about $60,000 in the relationship property settlement
but Ida will continue to enjoy the
value of the farm property.
John goes to see a lawyer. John’s lawyer advises him that, although he
may be able to make a claim under section 44C, the court
probably will not be
able to grant John any meaningful compensation. The court cannot recover the
farm assets from the trust under
section 44C; it can only make compensatory
orders from Ida’s share of the relationship property, her separate
property, or
the Trust’s income. None of these sources of property are
sufficient to compensate John.
The lawyer also says that before gift duty was abolished, claims under section 44C were often more successful because there would be a
debt owed by the trustees to the partner who disposed of the assets to the
trust. Often a court could make compensatory orders from
this debt. Here,
however, Ida has forgiven the debt completely.
20.47 The limitations of section 44C are deliberate. In 1988, a Working
Group was established to review the Matrimonial Property Act
1976.73 The Working Group was dissatisfied with section 44. It said that the main problem was with dispositions to trusts where an intent to defeat the legislation does not arise or could not
be proved.74 The Working Group concluded that a court should have wider powers to intervene, and in particular, should have discretion to distribute the capital of the trust in order to make a just division under the PRA.75 The 2001 amendments partly
adopted the Working Group’s recommendations. Section 44C was enacted as an alternative remedy to section 44. It differed from the Working Group’s recommendation, however, because section
44C does not give the court the power to order compensation
payments from trust capital. The reasons for limiting the
court’s
74 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
30.
75 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
30.
powers under section 44C were to ensure minimal interference
with trusts. The Parliamentary select committee considering the Matrimonial
Property Amendment Bill in 1998 received advice from
the Ministry of Justice.
In its report to the Select Committee, the Ministry
explained:76
The proposed new sections do not, however, give the Court power to order that the capital of the trust be distributed to the affected spouse. This acknowledges that trusts are created for legitimate reasons (such as estate planning or protection from creditors) and should be permitted to fulfil that purpose, when there was
no intention to defeat the spouse’s claim when the trust was
established. The power to claw property back from a trust could,
effectively,
result in the trust being unwound to the detriment of other beneficiaries who
are likely to include the children of
the marriage and the negation of the
intended benefits.
20.48 The Select Committee appears to have accepted the Ministry’s
advice. In its commentary on the Bill, the Committee explained
that the reason
the new section did not give the court power to make orders from the capital of
a trust was that trusts are created
for legitimate reasons. They should be
allowed to fulfil those purposes where there was no intention to defeat a
partner ’s
claim when the trust was established.77
20.49 Despite its limitations, the courts have granted relief through section 44C in several cases. In many cases, however, section 44C has not been an effective remedy.78 This was either because the section could not apply because the property in question was not relationship property prior to the transfer to the trust, or because the disposition had not occurred during the relationship. In
some cases, there was insufficient property from which to order
adequate compensation.
76 Ministry of Justice Effect of Clause 47 Matrimonial Property Amendment Bill (MPA/MJ/3, Ministry of Justice, 7 October
1998) at 3.
77 Matrimonial Property Amendment Bill 1998 (109-2) (select committee report) at xii.
78 In its final report in the Review of the Law of Trust project (Law Commission Review of the Law of Trusts: A Trusts Act for
New Zealand (NZLC R130, 2013) at [19.12]), the Law Commission reviewed judgments decided between 1 February
2008 and 1 February 2013 in which s 44C of the Property (Relationships) Act 1976 was discussed. The Commission found that often there was insufficient relationship property or separate property outside the trust from which the court could adequately compensate a spouse or partner whose interests were defeated by the disposition to the trust (although in some cases relief was available through s 182 of the Family Proceedings Act 1980). Likewise, Nicola Peart states: “...[section 44C’s] ability to achieve a just division of assets produced or enhanced by the relationship is limited both by the section’s requirements and by the remedies ... it is easy to avoid being caught by section 44C. The section cannot be involved if the trustees acquired the assets directly from third parties, rather than from either of the parties to the relationship. Nor does it apply to trusts that affect both parties equally or that were settled by third parties”: see Nicola Peart “Equity in Family Law” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 1161 at 1190–1191.
20.50 The final provision in the PRA relating to trusts is section 33(3)
(m). This section gives a court the power to vary the terms of any trust when it is necessary or expedient to give effect to any other orders the court makes under the PRA. The effect of section
33(3)(m) is not to give a court unrestricted power to vary a trust when it considers it fair to do so. Rather, the power can only be used as a means of implementing other orders when a court has jurisdiction to make orders under the PRA affecting a trust. So
if a court has the power to order payments from a trust under sections 44 or
44C, or if a partner has a beneficial interest in a
trust that is relationship
property, a court may be able to make orders under section 33(3)(m).79
Unless any of these provisions apply, the court cannot use section
33(3)(m).
The power to vary a nuptial settlement - section 182 of the
Family Proceedings Act 1980
20.51 Section 182 of the Family Proceedings Act 1980 (section 182) has become an important provision to deal with trusts after a marriage ends. Section 182 applies to what it terms “nuptial settlements” and consequently does not apply to settlements connected with de facto relationships.80 The courts have held that property held on a discretionary trust can constitute a nuptial settlement provided there is a sufficient connection between the trust and the marriage.81 Section 182 gives the court power to
vary the nuptial settlement for the benefit of the children of the marriage
or the spouses.
20.52 Section 182 is very different in approach and philosophy to the PRA.
This is because it comes from a very different historical
background. The
wording of section 182 is similar to the first time the powers were introduced
into legislation in England and Wales
79 B v M [2005] NZFLR 730 (HC) at [223]. See also discussion in Nicola Peart (ed) Brookers Family Law — Family Property
(online looseleaf ed, Thomson Reuters) at [PR33.13].
80 Section 182 of the Family Proceedings Act 1980 also applies to civil unions.
in 1859.82 This accounts for the old fashioned language of “nuptial
settlements”.
20.53 The nuptial settlements to which the legislation was originally intended to apply were marriage settlements. Marriage settlements were used extensively in England during the nineteenth century. They were usually a settlement of property on trust for the benefit of the spouses, the wife alone or their children.83 The settlement was focused on the marriage. Often the legal instrument creating the settlement would describe it as being “in consideration of the marriage”.84 By the end of the nineteenth century, marriage settlements were less common in both the United Kingdom and New Zealand. Nevertheless, the power to vary nuptial settlements was applied to other forms of
nuptial settlements beyond the traditional marriage settlement.85
Today, section 182 is used almost entirely to address discretionary
trusts.
20.54 The Supreme Court explained how the power in section 182 should be applied in Clayton v Clayton [Claymark Trust].86 Mr Clayton had settled a trust called the Claymark Trust just after the birth of the partners’ second child. The beneficiaries of the trust were Mr and Mrs Clayton and their children.87 Mr Clayton said the reason he established the Claymark Trust was to distance certain assets from creditors connected with his business interests.
The trust assets comprised properties adjacent to Mr Clayton’s sawmilling operations, the shares in a company which owned an
avocado orchard, and a vehicle. The trust also held investments
in
82 Matrimonial Causes Act 1859 (UK) 22 & 23 Vict c 61, s 5. The power to vary nuptial settlements was brought into New
Zealand law in 1867: Divorce and Matrimonial Causes Act 1867.
83 For the reasons for marriage settlements see RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [1.17]. Importantly, a marriage settlement was a device through which a wife could retain separate property distinct from her husband: see Bennet v Davis [1725] EngR 7; (1725) 2 P Wms 316 (Ch); Rollfe v Budder (1724) Bunb
187 (Exch Ch) referred to in RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [1.17]. As the settlement was usually in the form of a trust, the early Divorce Court established under the Matrimonial Causes Act 1857 (UK) 20 & 21 Vict c 85 could not treat it as the property of the parties in order to apportion it after the divorce. In response, the legislation soon adopted a provision to allow the court to vary marriage settlements, namely s 5 of the Matrimonial Causes Act 1859 (UK) 22 & 23 Vict c 61 (see comments of Merivale P in Bosworthick v Bosworthick [1926] P 159 (Div & Mat) at 163 explaining the history of the legislation).
84 See the description of the “classic” marriage settlement in W v W [2009] NZSC 125, [2010] 2 NZLR 31 at [14] per Tipping
J.
86 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590.
other companies associated with Mr Clayton. When Mr and Mrs
Clayton divorced, Mrs Clayton applied to the Court to vary the
Claymark Trust under section 182.
20.55 The Supreme Court said that section 182 should be applied in two
stages:
(a) Is the settlement is a nuptial settlement?
(b) If it is, should the court use its discretion to vary the
settlement?
20.56 To determine whether the settlement is a nuptial settlement, the Supreme Court said that the settlement must make some form of continuing provision for one or both of the parties to a marriage in their capacity as spouses. This means there must be some connection between the settlement and the marriage.88 The
Court observed that where a trust is set up during a marriage with one or both spouses as beneficiaries, there will almost inevitably be that connection.89 The Court raised the possibility, but did
not ultimately decide, that where a future spouse is named as a beneficiary but no marriage has taken place, the trust might be
a nuptial settlement.90 Similarly, the Court raised the
possibility that a trust may still be a nuptial settlement even though other
beneficiaries may obtain
considerable benefits from the
trust.91
20.57 On the question of whether the court should exercise its discretion, the Supreme Court explained that the purpose of the court’s discretion was to address the failure of the spouses’ expectations that the marriage would continue. To do this, the
Supreme Court said the first step is to examine what the husband or wife reasonably expected of the nuptial settlement when they assumed the marriage would continue. The second step is to compare those expectations to the husband or wife’s expectations of the settlement in the circumstances after separation.92 The Court said it was unnecessary to fix a specific point in time to
assess the expectations, but rather it is a general
comparison
88 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [34].
90 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [36].
91 Clayton v Clayton [Claymark Trust] [2016] NZSC 30 [2016] 1 NZLR 590 at [35]–[37].
92 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [53].
between the position under the settlement had the marriage
continued and the post-separation position.93
20.58 The Supreme Court then considered other factors which would influence how it exercised its discretion. The Supreme Court said there was no comprehensive list of relevant factors, but particular attention must be paid to the interests of children.94 The Court identified other relevant factors: how the trustees would have exercised their discretion, assuming a continuing marriage, the source and character of the assets, the length of the marriage
and the suitability of the trust structure because of the changed
circumstances.95
20.59 In this case, the Court decided that, had the marriage continued,
it was reasonable to assume that Mrs Clayton would have enjoyed the
continued use of the vehicle, which was trust property, and
the availability of
other trust property for family purposes.96 The Court recognised that
in the current circumstances Mrs Clayton was unlikely to enjoy distributions as
a discretionary beneficiary.
As Mr and Mrs Clayton had settled their dispute
before the Supreme Court issued its judgment, the Court did not state what
specific
orders it would have made.
Case study: The KM Family Trust
Kazamir and Mary have been married for about 15 years. They have two
children. Five years ago Kazamir inherited a large sum of money
under the will
of his grandmother. Kazamir and Mary use this money to buy a holiday house for
their family holidays. They bought
the house jointly in their names. They
then executed a deed of trust which established the KM Family Trust. Under the
deed, Kazamir
and Mary declared that they held the house on trust for the
benefit of their family. Kazamir and Mary are named as discretionary
beneficiaries with their children.
Two years ago Kazamir and Mary went through an acrimonious separation. They
have just formally divorced. Mary no longer wishes to
spend family holidays
at the holiday house. She says she associates the place with the arguments she
and Kazamir used to have
in the later stages of their relationship. Kazamir
likes the house and he wants to continue to spend holidays there. He does
not want to change the trust. Kazamir also believes that because the house
was bought with
94 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [58].
95 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [59].
96 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [75]–[76].
his inheritance from his grandmother ’s estate, Mary should not have a say in
what happens to the property now that they have separated. Kazamir and
Mary’s teenage children say they do not like the house.
Instead they
would prefer to spend their holidays closer to home and closer to their
friends. Mary asks Kazamir whether the
house can be sold, and the sale proceeds
resettled onto two separate trusts. Under one trust, she and the children would
be beneficiaries.
Under the other trust, Kazamir and the children would be
beneficiaries. Kazamir refuses.
Mary may be able to obtain orders from the court that vary the KM Family Trust under section 182 of the FPA. The trust is probably a nuptial settlement as it
is closely connected to the marriage. There is also a strong case that Mary’s reasonable expectations of the KM Family Trust have been defeated because of the divorce. While the marriage continued, Mary expected to use the holiday house for family holidays. Now that the marriage has broken down and Mary
no longer wants to use the holiday house, her expectations of the trust are very different. It is also important that the children no longer want to use the holiday house. These factors may well persuade the court to exercise its discretion to
vary the KM Family Trust even if Kazamir does not want the trust to be
varied.
20.60 The power in section 182 is much more far reaching and gives a court
much more discretion than the powers under the PRA.
This has led some people to
say that section 182 is an anomaly and inconsistent with the
PRA.97
High Court powers to ensure a trust operates properly
20.61 The law of trusts equips the High Court with powers to ensure that trusts are operated properly and efficiently. These powers may be useful if the partner seeking the court’s intervention is a
beneficiary under the trust and wishes to ensure the other partner does not
interfere with or otherwise unfairly administer the trust.
The High
Court’s powers arise under the Trustee Act 1956 and the High
Court’s inherent jurisdiction.98
20.62 For example, under section 51 of the Trustee Act 1956, the High
Court has the power to appoint and replace trustees when
it is inexpedient,
difficult or impracticable to do so without the court’s assistance. The
power has been used in cases where,
following a
1980, although the Supreme Court rejected the submission.
relationship break-up, the soured relationship between the parties
has affected the administration of the trust. The High Court also has power
to review decisions made by the trustees99 or order that information
be provided to the beneficiaries.100
The LM Family Trust101
Malu and Leigh have just been through a bitter break up. Malu and Leigh are both trustees of the LM Family Trust. They are both discretionary beneficiaries together with Leigh’s children from her first marriage. The home in which the partners reside is held on the trust. Now that they have separated, Leigh wants them to sell the house and distribute the sale proceeds between them. Malu, still angry following their break up, refuses to talk to Leigh. He won’t reply
to her phone calls or messages. When Leigh goes around to the house Malu
says there is no way he will sell the house and he slams
the door on
her.
Leigh applies to the High Court to have the Court replace both her and Malu
as trustees with the Public Trust. The Court will probably
order that Malu and
Leigh are replaced by the independent trustee. The hostile breakdown of their
relationship will impact on
their ability to discharge their duties as
trustees.
20.63 Although these powers can be very useful in ensuring that a trust
is administered properly, their usefulness for partners
who have separated may
be limited. Notably, the High Court cannot divide and distribute the trust
property between the partners,
which remains within the discretion of the
trustees.
20.64 It should also be noted that if the Trusts Bill currently before Parliament is enacted, it will give wider powers to the Family Court to exercise in PRA proceedings.102 The purpose of the Trusts Bill is to clarify and simplify core trust principles and trustees’ essential obligations.103 It will govern matters like when a trustee
is obliged to provide information about a trust and when the court can remove a trustee. Clause 136 of the Bill provides that, if the Family Court has jurisdiction to hear and determine a proceeding, it may make any order or give any direction available under the
Trusts Bill if it is necessary:
99 Trustee Act 1956, s 68. Note an application under this section cannot be initiated by a discretionary beneficiary.
101 The facts of this example are based on the case K v K HC Wellington CIV-2010-485-2444, 8 March 2011.
102 Trusts Bill 2017 (290–1), cl 136.
103 Trusts Bill 2017 (290-1) (explanatory note).
(a) to protect or preserve any property or interest until
the proceedings in the Family Court can be properly resolved; or
(b) to give proper effect to any determination of the proceeding.
Claim that a trust is invalid or a sham
20.65 There have been several cases where, following a relationship break up, one of the partners has argued that a trust was not
a proper trust.104 If the court declares that no trust exists,
the property reverts back to the person who purported to settle the property on
the
trust and thus may be relationship property under the PRA.
20.66 The argument that no trust exists generally takes one of two forms in this context. The first is that the trust is invalid because the person who settled the trust did not intend to create a trust. This might be because the trust did not meet the essential elements required of a trust and so no intention to create a trust existed. There are very few cases where this argument has succeeded. In recent judgments, the courts have been reluctant to declare there was no trust. In Clayton v Clayton [Vaughan Road Property Trust] the Supreme Court considered whether the Vaughan Road Property Trust was actually a trust.105 Mr Clayton had reserved for himself such broad powers to access the trust property it was arguable
that he had not actually intended to dispose of the property settled under the trust deed in favour of another. The breadth of the powers also conflicted with what has sometimes been called the “irreducible core of trustee obligations”, that is, the
basic duties a trustee must observe in order for there to be a valid trust.106 Ultimately the Supreme Court did not decide the issue.
It said that the judges did not have a unanimous view and, as the case had settled, it did not need to decide that issue.107
20.67 The second argument that no trust exists is that the instrument
purporting to create the trust is a sham. The instrument
gives the
105 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.
106 The phrase “irreducible core of trustee obligations” comes from the English case Armitage v Nurse [1998] Ch 241 (CA).
107 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [207].
appearance that a trust has been created but the parties intended
to create different rights and obligations regarding the trust property. The legal test for establishing a sham is whether both
the settlor and the trustee held a common intention that the trust instrument was a sham.108 Poor administration of the trust or
even breaches of trust do not of themselves establish a sham.109 A
sham can be difficult to prove and therefore the claim is of limited use to a
partner at the end of a relationship.110
Case Study: The N Family Trust111
Nigel and Chloe have been in a de facto relationship for about five years. Over the past six months they have been drifting apart. The house in which Nigel and Chloe live is held on the N Family Trust. The trustees are Nigel’s lawyer and accountant. Nigel makes all the decisions about the house and treats the property as his own. Once Nigel requested that the trustees borrow money so Nigel could build an extension to the house. The trustees refused
as they were concerned about the trust’s finances, but at all other
times, the trustees have carried out Nigel’s instructions
without
question.
It is unlikely that Chloe can prove the trust is invalid even though Nigel treats the property like his own. There is no evidence to suggest that Nigel did not intend
to create a trust. The trustees also appear to be independent third
parties and do not appear to have had a common intention
with Nigel that
there was a sham.
Establishing a constructive trust over property held on an express trust
20.68 Before the PRA was amended to apply to de facto partners, the main
remedy non-married partners had for claiming an interest
in each other ’s
property was through a constructive trust. If the property was owned by one
partner, but the other had made
contributions with the reasonable expectation of
obtaining a
109 Official Assignee v W [2008] NZCA 122, [2008] 3 NZLR 45 at [94].
that control over a trust alone does not justify the court piercing the trust. In Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 the Supreme Court rejected the concept of an illusory trust. That is a trust that is illusory in the sense that there is an illusion that the trust exists, but in reality the settlor never intended to part with the assets purportedly settled on the trust. The Supreme Court said at [124] there was no value in the “illusory” label.
The trust is either valid or invalid.
111 The facts of this example are based on the case Official Assignee v W [2008] NZCA 122, [2008] 3 NZLR 45 (CA).
beneficial interest in the property, the courts would often decide
that the non-owning partner ’s contributions gave him or her an interest in the property. The courts gave effect to this interest by declaring that the owner partner held the portion of the value
of the property attributable to the partner ’s contributions on
constructive trust for the non-owner partner.
20.69 As many de facto partners took their disputes through the courts,
the requirements a partner needed to satisfy to claim
a constructive trust have
become fairly well settled. The requirements are that:112
(a) the person claiming the constructive trust made direct or indirect
contributions to the property in question;
(b) he or she had an expectation of an interest in the property;
(c) the expectation was reasonable; and
(d) the property owner should reasonably expect to yield an interest in
the property to the claimant.
20.70 The courts have often said that the same principles can apply when the property to which a partner has contributed is already held on an express trust, including in three recent Court of Appeal cases.113 Each of the three cases concerned partners who lived in a house that was held on a trust. The trusts were closely
associated with one of the partners. When the relationships broke down, the PRA did not apply to the houses because they were
held on trust. Instead, the partner who did not stand to benefit under the trusts argued that, because of their contributions in maintaining or enhancing the houses, and their expectations
in respect of the contributions, they had an interest in the property under a constructive trust. In all three cases the Court of Appeal allowed the claims. The Court reasoned that the cases were straightforward applications of the principles applying to constructive trusts as summarised above.114 The Court further
explained that if there was no constructive trust, the
beneficiaries
112 The elements were summarised in the leading case of Lankow v Rose [1994] NZCA 262; [1995] 1 NZLR 277 (CA) at 294 per Tipping J.
under the express trusts would receive a windfall from the
partners’ contributions and therefore be unjustly
enriched.115
20.71 The potential for a constructive trust claim to be widely used as an alternative to claims under the PRA is explored at paragraph
21.73145 to 21.75147.
Case study: The P Inheritance Trust
Prudence and David have been in a de facto relationship for about two years. During that time they have lived together on a farm held on the P Inheritance Trust. The farm originally belonged to Prudence’s grandparents. Prudence’s grandfather settled the farm on the trust to avoid estate duty and to ensure that it stayed in the family. The beneficiaries of the trust are Prudence and her parents. The trustees are Prudence’s parents. Since living
on the farm, David has done a lot of work by fencing large parts and
installing water storage tanks all by himself. David has
never been paid for
his efforts, but he has been encouraged to work on the farm by Prudence’s
father ’s assurances that
“now he’s part of the family, the
farm belongs to him”.
Prudence and David have recently separated. David feels like he should have
some compensation for all the work he did on the farm.
David might claim a constructive trust over the farm. He has undoubtedly
made contributions to the property. The comments made by
Prudence’s
father also suggest there was a reasonable expectation that David would have an
interest in the
farm.
115 Murrell v Hamilton [2014] NZCA 377 at [30]; Vervoort v Forrest [2016] NZCA 375, [2016] 3 NZLR 807 at [68]; and Hawke’s
Bay Trustee Company Ltd v Judd [2016] NZCA 397 at [47].
Chapter 21 – The Issues
Issue 1: The priority trusts have over rights under the PRA may be causing
problems
21.1 The PRA’s approach is that, except in narrow circumstances, a
partner ’s entitlement to relationship property
does not justify
interfering with property held on a trust.116 The issue we address
here is whether this approach is appropriate. In other words, should the
purposes that trusts achieve and the
interests of beneficiaries be given first
priority? Or is a partner ’s right to the trust property that he or she
would otherwise
have had under the PRA more deserving?117
21.2 In this section, we focus on the following:
(a) First, we discuss the main problems arising from the
PRA’s limited provisions to deal with trusts.
(b) Second, we identify the main arguments that support the view that
trusts should prevail. We also make observations about
these views.
21.3 Our intention is to promote discussion and submissions that identify
the merits of each position. This will assist us in assessing
whether the
current approach of the PRA in prioritising trusts needs
reform.
be fulfilled: Matrimonial Property Amendment Bill 1998 (109-2) (select committee report) at xii.
[16.5]): “A clear decision needs to be made about whether the equal sharing concept should be paramount. If it is to be paramount, the legislation should clearly say so and contain wider discretions giving the courts freedom to make appropriate orders in relation to trust assets that would otherwise have been relationship property or separate property subject to a court order.”
The main problems arising from the PRA’s limited
provisions to deal with trusts
21.4 The PRA gives the courts limited powers to deal with property held
on trust when a relationship ends. This gives rise to
three main
problems.
The PRA may be powerless to ensure a just division of significant amounts
of property
21.5 We believe that a significant amount of what otherwise would be relationship property is held on trust in New Zealand. This removes that property from the application of the rules of the PRA. Given the PRA’s limited powers to bring these assets within the pool of relationship property, we consider that the PRA
often lacks effective mechanisms to achieve a just division of
property.118
21.6 From our research, review of the court decisions and preliminary
consultation, we can identify several areas of potential unfairness
because the
PRA does not apply:
(a) Where the trust holds what would otherwise be key items of
relationship property. In some cases a partner may have a strong legal or
moral claim to trust property, such as the family home. If the trust did not
exist, a partner may have a claim to the property under the PRA but a trust
prevents recognition of a partner ’s interest in
the property held on the
trust.
Case study: The QR Family
Trust119
Quinn and Rosaline have been in a de facto relationship for three years.
They have just had their first child. Quinn is 32. He
works as a builder.
Rosaline is 27. She works as a carer at a rest home.
To date, they have been renting their home. They now decide to buy a house. Quinn and Rosaline have a little money they have saved from their respective incomes. Quinn insists that they buy a house through a trust because, he says, the trust will “protect their assets if anything goes wrong”. Rosaline is unsure about the suggestion, but she agrees because
she thinks that Quinn knows more about these things than her. Quinn and
Rosaline set up the QR Family Trust. Quinn and his lawyer
are the trustees.
Quinn, Rosaline and their children are all discretionary
beneficiaries.
Quinn and Rosaline advance their savings to the trustees to use as a
deposit. The trustees then buy a house and fund the balance
of the purchase
price through a mortgage. Quinn and Rosaline pay the mortgage from the income
they earn from their jobs.
A year later Quinn and Rosaline separate. Very little relationship property exists. Rosaline asks Quinn if they can sell the house so she can recoup her savings and start a new life. Rosaline argues that she should be entitled to half the home’s equity because she helped finance the house purchase. Quinn says Rosaline can’t recover money out of the house because the house “belongs to the trust” and the trustees don’t want to sell it. Rosaline must make a claim under section 44 or section 44C of the PRA. Alternatively she could apply
for a remedy outside the PRA. In either case, she bears the onus of making a claim which is more burdensome than using the general classification
and division rules of the PRA. It is also uncertain whether her claims would
be successful and actually meet her desired goal,
which is to recover the
property she has contributed to the relationship through the trust.
(b) Where the trust is unsuitable for post-separation circumstances. In some cases, a trust will be an inappropriate means through which a family holds and uses property after the relationship ends. Often, the partners may have set up a trust assuming that
their relationship would continue. Many trusts may be structured to provide financial support for the partners on the premise they remain together. If the partners separate, the PRA provides no mechanism through which to revisit trust structures. Property may be locked
in the trust and there may be difficulties in working
119 The facts of this example are based on the case O v S (2006) 26 FRNZ 459 (FC).
out how the trust is to be administered if the partners’
ability to deal with each other has deteriorated.
(c) Where trust assets are controlled by one partner. As we have noted, it is quite common for a partner to exercise
a high degree of control over a trust. The partner may be a trustee and have the power to distribute the trust property to the beneficiaries (including to himself
or herself ) at his or her discretion.120 Yet, the PRA’s conventional analysis of beneficial interests may
often ignore who in reality enjoys or controls the trust property as if he or she were owner.121 In light of the Supreme Court’s decision in Clayton v Clayton [Vaughan Road Property Trust], the courts may be prepared to deem that powers expressly stated in the trust deed
are property. That case was, however, unusual because of the extent of the
powers Mr Clayton had under the trust. It is, therefore,
uncertain (and probably
unlikely) that in future cases the courts will consider lesser powers than
those held by Mr Clayton to
be property.122
Case study: The U Family Trust123
Umar and Ariana have been in a de facto relationship for nearly four years.
Last year they moved into a house that was under construction.
The house was
held on the U Family Trust, of which Umar and his accountant are the trustees.
Umar and his children from a former
relationship are the discretionary
beneficiaries. Ariana helped Umar finish the house. She helped landscape the
garden and
Law of Trusts Second Issues Paper (NZLC IP20, 2010) at [5.34]. Similarly, many submitters reported the problem to the Commission: see Law Commission Review of the Law of Trusts: Preferred Approach (NZLC IP31, 2012) at [16.7]). Subsequent commentators have identified the control of a trust as an area where the law has inadequate remedies. See Anthony Grant “An important case on constructive trusts and settlor control” Law News (online ed, Auckland, 2
September 2016) at 4.
1692[2017] NZHC 1692; , [2017] NZFLR 529.
123 The facts of this example are based on the case Murrell v Hamilton [2014] NZCA 377.
decorate the interior. Ariana says she did all this work because she and Umar
planned to live at the house as partners and she would enjoy the
benefits.
Ariana knew the house was owned by the U Family Trust, but Umar treated the property like he was the owner. Umar had managed the construction of the house by himself. He would regularly contract tradespeople by himself
without the involvement of his co-trustee. There are no trust records,
financial statements or trustee resolutions. Umar seldom
contacts his
co-trustee.
Ariana and Umar have recently separated. Umar currently lives in the house. Ariana has moved out. Ariana feels she should have some compensation
for all the work she put into the property. Ariana goes to see a lawyer and complains that it is unfair that Umar gets to keep the fruit of all her hard work. Ariana’s lawyer says that even though it might look like the house
belongs to Umar, it is actually held on a discretionary trust. The lawyer advises
Ariana she probably cannot claim an interest in the house under the
PRA.
In practice, partners may divide trust property as if the trust did not
exist
21.7 The second reason the PRA’s limited powers against trusts may
be a problem is because the PRA does not authorise what appears to be common practice. During our preliminary consultations,
we have received anecdotal evidence that often partners will agree to a division of the trust property as if the trust did not exist.124 Although there is no way for the Commission to test whether the division of trust property is contrary to the terms of the trust in each individual situation, it is reasonable to assume that sometimes the division would constitute a breach of some principles of trust law. For instance, the partners’ decision and the trustee’s agreement may be an improper surrender of the discretion given to the trustees by the trust deed. Alternatively, the division between the parties may be contrary to the interests
of other beneficiaries, such as the children of the relationship. The PRA gives the parties no mandate to divide the trust property in this way. Rather, its aim is to preserve trust structures. This may suggest that some New Zealanders want more flexibility to deal
with trusts than the PRA currently gives.125 In Part J we
discuss
124 For example, in the recent Supreme Court case Thompson v Thompson [2015] NZSC 26, [2015] 1 NZLR 593 at [18] and
[73] the partners had agreed to treat the assets held on a trust as in effect relationship property.
whether the law should provide the partners and trustees with
more flexibility to deal with trusts through a contracting out agreement
under Part 6 of the PRA.
Inconsistencies within the PRA
21.8 The PRA’s limited powers to affect trusts are arguably incongruous with its provisions regarding contracting out agreements (which allow partners to enter an agreement that determines how the parties will deal with their property if the relationship ends).126
A trust can have a similar effect to a contracting out agreement because the
creation of a trust can also exclude property from division
under the
PRA.
21.9 The major difference between using a contracting out agreement to exclude property from the PRA and using a trust is that contracting out agreements require the agreement of both partners and are subject to safeguards. The PRA requires that the contracting out agreements be in writing.127 Each party to the agreement must have independent legal advice before signing the agreement.128 The signature of each party must be witnessed by
a lawyer.129 The lawyer who witnesses the signature of the party
must certify that, before the party signed the agreement, the lawyer explained
to that party the effect and implications of the agreement.130 If
any of these requirements is not satisfied, the contracting out agreement is
void.131 While the PRA allows people to manage their financial
affairs differently to the PRA, these safeguards ensure that partners do
not
give away their rights under the PRA without knowing what they are
doing.132
21.10 In contrast, partners can settle property on trust during the
course of their relationship without any safeguards to ensure
they know what
rights they are giving up under the PRA. If the property is held in the name
of only one of the partners, that
partner can unilaterally settle the property
on trust without having to involve the other partner. There is therefore real
scope
for trusts, more
126 Property (Relationships) Act 1976, pt 6.
127 Property (Relationships) Act 1976, s 21F(2).
128 Property (Relationships) Act 1976, s21F(3).
129 Property (Relationships) Act 1976, s21F(4)
130 Property (Relationships) Act 1976, s 21F(5).
131 Property (Relationships) Act 1976, s 21F(1).
132 For further discussion see Part J of this Issues Paper.
than contracting out agreements, to be used to take property
outside the PRA, in a potentially unfair way.
Why should the protection of trusts be more important than relationship property rights?
21.11 We have identified three main reasons to justify the PRA’s
limited application to trusts.
Trusts serve legitimate purposes and bestow interests on third party
beneficiaries
21.12 Throughout our preliminary consultation, most people we spoke to
supported measures to increase the PRA’s powers to
access property held on
trust. Nevertheless, as we have explained, the PRA is founded on the view that
the PRA should not interfere
with trusts so that the legitimate purposes that
trusts serve may be fulfilled, and the legitimate interests of beneficiaries may
be protected.133 We make the following observations in
response.
21.13 First, we note that what is considered the “legitimate use of trusts” has changed over time. The abolition of estate duty and gift duty has removed a key motivation for New Zealanders to set up trusts. The Ministry of Social Development will now take into account any disposition of property made to a trust during the applicant’s lifetime when deciding whether the applicant has deprived himself or herself of property in order to qualify
for a residential care subsidy.134 Also, the practice of using trusts to redirect income through a trust to beneficiaries in order to
be taxed at the minor beneficiaries’ lower marginal tax rate was restricted by legislative amendment in 2001.135 These changes
demonstrate that Parliament has been willing to prioritise other
and Expenditure Committee explained that the goal of the amendment was to prevent some families from gaining an advantage over others through the use of a trust: Taxation (Beneficiary Income of Minors, Services-Related Payments and Remedial Matters) 2000 (70-2) (select committee report) at 2–3.
considerations over what has traditionally been regarded as a
permissible use of a trust.136 There nevertheless remain many
reasons why families in New Zealand choose to create trusts, such as to provide
property for vulnerable
persons or to pass assets to the next
generation.
21.14 Second, a partner ’s freedom to remove assets from the relationship property pool by settling those assets on trust (subject to sections 44 and 44C of the PRA) is inconsistent with the PRA’s provisions that apply when partners enter a contracting out agreement. Under those provisions, an agreement that affects a partner ’s relationship property entitlements but does not
comply with the requisite formalities under section 21F is void. In contrast,
there is relatively little preventing one partner altering
the partners’
respective entitlements under the PRA by using a trust.
21.15 Third, trusts are used to protect assets from claims by creditors or from a challenge to a person’s will.137 Even if a court could recover assets from trusts to meet relationship property entitlements, it does not mean that the remainder of the trust assets can then
be claimed by third parties. Any third party claims would still be
governed by a different part of the law.
21.16 Fourth, a focus on a trust’s ability to protect property from creditors, or from tax liability, may overlook the fact that the preservation of the trust property is not the overall objective. Rather, the purpose of the trust is the protection of assets
for the benefit of the beneficiaries. The view that trusts serve legitimate purposes should arguably focus on the nature of the beneficiaries’ interests under the trust and how the trust deals with the property for their benefit. If, for example, a trust is
used to protect assets for partners’ use, there may be compelling reasons to distribute the trust property under the PRA’s equal sharing regime when the partners separate. Conversely, if a trust has been established to ring fence assets for children’s education costs or for charitable giving, there is arguably less fairness in
redistributing those assets to meet relationship property
claims.
the Property (Relationships) Act 1976 would probably provide greater powers so that trust property could be divided as relationship property.
137 In particular, a will can be challenged under the Law Reform (Testamentary Promises) Act 1949 and the Family
Protection Act 1955 whereas a trust cannot.
In short, it is more helpful to analyse for whose benefit or for
what purpose the trust assets are protected, rather than upholding
protection of assets as an end in itself.
21.17 Fifth, in some circumstances it may not seem right that a
beneficiary should have a greater interest than the partners
to what would
otherwise be relationship property. A beneficiary will not normally have
provided valuable consideration in return
for the interest he or she receives
under the trust. The interest will usually be a gift. In contrast, a partner
’s interest
in relationship property under the PRA is usually to recognise
that a partner is entitled to the property because of his or her
contributions
to the relationship.138 The PRA’s priority of those
entitlements is central to the PRA’s concept of a just division of
property.139
21.18 On the other hand, there may be cases where it would be unfair
to deny beneficiaries their interest under the trust. In some cases, the partners may have jointly settled the trust expressly for the benefit of a third party knowing the consequences of the trust on their personal rights. For example, parents may have genuinely wished to gift property to their children to provide for their
needs and chose to use a trust to do so. In those circumstances, it is
arguably less fair to allow the partners to reclaim the trust
property as
relationship property.140
21.19 There may also be cases where the trust property is provided
from an external source rather than through the joint and several efforts of the partners in the course of their relationship. For example, a partner may have settled the trust long before the relationship began. Alternatively, a third party may have settled the trust. In New Zealand, some families have created what can
be described as “dynastic trusts”. Dynastic trusts are established to hand down key family assets from parents to children and
grandchildren.141 Dynastic trusts have commonly been used
to
138 See Part C – on the definition of relationship property.
hold farm property.142 If the trust property is not attributable
to the relationship, the partners have a very weak claim to that property
based on the principles of the PRA. The case of dynastic
trusts raises the
question of whether the wishes of a person (most likely from a previous
generation) to pass assets to his or
her descendants should stop a partner
from making claims against that property under the PRA.143
21.20 It is important to note that a partner may be able to make claims in relation to property held on a trust settled by a third party. There may be cases where a partner has made significant contributions to the trust property. Those contributions may have maintained or enhanced its value.144 For example, partners who have lived and worked for over twenty years on a farm held on trust will usually have had an impact on the farm’s sustained or enhanced value. If those contributions were coupled with a
reasonable expectation that the partner would gain an interest in the
property, the partner could potentially claim a constructive
trust over the
trust property.145 It may be preferable that all remedies that a
partner may bring against a trust in respect of contributions made during a
relationship
are contained within the PRA. We discuss this point and
constructive trusts claims further below.
21.21 It is difficult to weigh up the competing claims of the partners,
settlors and the beneficiaries to trust property. In each
case their interests,
needs and expectations regarding the trust will differ. The following examples
indicate some of these difficulties.
Case study: The TT Education Trust
Clarissa and Anuj have two daughters: Tabitha and Tessa. Tabitha and Tessa
are aged 14 and 12. They are both doing very well at school.
They both say that
one
Proposals for Reform” (2016) 47 VUWLR 433 at 456.
145 See discussion on constructive trusts above at paragraphs [20.68]–[20.71].
day they would like to study at university. Clarissa and Anuj recently subdivided
the land on which their home sits. They then sold the new section. Clarissa and Anuj agree that they will settle the sale proceeds on a trust called the TT Education Trust. The purpose of the trust is to save money for Tabitha and Tessa to use
in the future towards their university fees. Clarissa and Anuj are the
trustees of the TT Education Trust. Tabitha and Tessa are
discretionary
beneficiaries.
A year later Clarissa and Anuj separate. As they divide their property they
realise that the property and income they had collectively
as a family will
not stretch as far, once divided across two households. Clarissa and Anuj start
to wonder whether they can unwind
the TT Education Trust.
Case study: The H Trust
Vincent and Maia have recently decided to live together. They would like to buy their own house but cannot afford to do so. Vincent’s parents purchase a house through the H Trust. The H Trust was created several years ago by Vincent’s parents. Vincent is a discretionary beneficiary along with his parents and siblings. Vincent’s parents allow Vincent and Maia to live in the house. Over
the course of the relationship Vincent and Maia pay no rent to the trustees
for living in the house. They do, however pay all other
outgoings, such as
rates, insurance and the costs of basic maintenance, from their
incomes.
Their relationship lasts four years and then they decide to separate. Maia
would like to claim an interest in the house. Vincent and his parents reject
the claim. They say that the house was provided through
the trust. Maia is
not a beneficiary. Any contribution Maia made over the course the relationship
was offset by the considerable
benefits she received by living there rent
free.
Case study: The Z Family Trust
Hao and Yu worked very hard over the course of a 30 year marriage to build up a successful pharmaceutical business. Hao was a skilled salesperson and was the public face of the business. Yu was a very good administrator and performed an invaluable role in keeping the company’s accounts and records in order. Some years ago, the partners made plans to return to China for their retirement. They wanted
to provide an income stream for their two children in New Zealand.
Consequently, they set up the Z Family Trust. The trustee is
their accountant.
The discretionary beneficiaries of the trust are their two children and
grandchildren. Hao and Yu then settled
the shares they held in the
pharmaceutical company on the Z Family Trust.
About six months ago Hao told Yu he was leaving her. He returned to China and took with him the majority of the partners’ savings. Since the separation, Yu has also become estranged from her two children.
She now wishes to unwind the trust. She wants to regain control of
the shares in the business she spent so many years building
up.
Case study: The J Family Trust
Micah and Yvonne live in Hamilton. They have been married for 8 years. Micah’s parents are farmers. They hold the farm on the J Family Trust. They created the trust to ensure the farm property could pass intact to any of their children who had an interest in continuing the farm. Micah is a discretionary beneficiary of the J Family Trust. Micah’s parents decide it is time for them to retire, but they would like Micah to carry on the family farm. Micah and Yvonne agree. They sell their home in Hamilton and move onto the farm. They decide to invest the proceeds
from the sale of their Hamilton home into the farm by funding the
development of raceways and an irrigation system. Micah and Yvonne
work long
hours on the farm.
Some years later Micah and Yvonne separate. The partners own few assets. Yvonne would like to recover a portion of the farm’s value which she says has been enhanced by the investment of the proceeds from the sale of their house in Hamilton and her labour. Micah does not accept Yvonne’s claim to the
farm. He thinks that the farm was provided by his parents and it is a key
asset that he would like to remain in his family. If
Yvonne is to be paid what
she claims, part of the farm must be sold. Micah is reluctant for that to
happen.
These scenarios are intended to show how partners’ wishes regarding a trust can compete with the other interests in respect of the trust. It
is often difficult to decide whose interests should take
priority.
There is no proper basis to grant partners greater rights to recover trust
property over other deserving parties
21.22 Just as trusts have the potential to defeat a partner ’s rights to property under the PRA, a trust may prevent other parties from claiming against the trust property. For example, a debtor ’s creditors will (subject to exceptions such as fraud) have no ability to claim against property that the debtor has on trust. Similarly, if a person owes money to the state, such as an unpaid tax liability, property cannot be recovered from the trust. If the PRA was amended to give a partner greater rights to recover
property held on trust, the amendment might be seen as giving a partner superior rights regarding trusts than other deserving third
parties.146
146 Peart has written about the Law Commission proposals to extend the ambit of s 44C: Nicola Peart “Protecting Children’s
Interests in Relationship Property Disputes on Separation” (paper presented to NZLS CLE Ltd Conference “The PRA
21.23 In our view, there are two reasons why it might be appropriate for
a partner to have greater rights. First, a partner ’s claim to
property under the PRA is different to the claims of most creditors.
A partner
’s claim to the property is not a debt or liability; it is an entitlement
to the property that arises because of
the equal contributions of the partners
to the relationship.147
21.24 Second, partners should not be treated the same way as creditors because the nature of the relationship is different. Voluntary creditors enter an agreement balancing the benefit with the
risk that the other party may fail to pay the debt and there may be no
assets that the creditor can touch. Partners contribute
directly and
indirectly to accumulate relationship assets without undertaking the same risk
analysis.148 Given that partners do not approach each other
“at arm’s length” as creditors do, it is perhaps unreasonable
to
expect them to do so.
The law ought to allow people to hold and deal with property as they
wish
21.25 A partner ’s freedom to deal with his or her property during the relationship as he or she wishes is a key feature of the PRA. Section 19 provides that nothing in the PRA prevents a partner from disposing or entering any legal transaction as if the PRA did not exist. Section 19 allows a partner to settle his or her property on trust even if that property is in fact relationship property and would therefore be divided equally if the partners
were to separate.149 The ability to unwind a partner ’s actions and take property out of a trust would arbitrarily interfere with the freedom to deal with his or her property. Indeed, the PRA would not usually restrict a partner ’s rights to gift his or her property outright to third parties. Why should there be an exception for
trusts?
in the GFC – uncertainty in uncertain times”, Wellington, 22 February 2013). Among other things, Peart says it is not obvious why spouses or partners should have far reaching remedies to recover property from trusts, when other deserving groups, such as creditors and the taxpayer, do not enjoy these rights and protections: at 32.
148 Nicola Peart “Intervention to Prevent the Abuse of Trust Structures” 2010 NZ L Rev 567 at 570.
149 The main exceptions to this are if one partner disposes of the property in order to defeat the rights or claims of the
other partner under s 44 of the Property (Relationships) Act 1976, or, if the property in question is land, the non-owner partner has lodged a notice of claim on the title under s 42 of the Act.
21.26 The counterargument is that it has always been possible to
unwind transactions under the PRA when there is a threat to relationship property rights. Sections 44 and 44C are examples
of such provisions. The question is whether the right balance has been struck between a person’s freedom to deal with property on the one hand and properly recognising a person’s entitlements to relationship property on the other. The problems with the PRA’s current provisions, particularly sections 44 and 44C, suggest
the right balance may not have been struck and that greater protection of
entitlements to relationship property is needed.
C ONSU LTATION QUESTIONS
G2 Are there any other reasons why people create trusts that we have not
mentioned?
G3 Do you agree that the protection given to trusts over the rights of partners under the
PRA is a problem?
G4 Do you agree with the reasons we have identified for and against the
PRA’s current position towards trusts? Do you have
any other reasons to
add?
G5 For what reasons and in what circumstances should a partner have rights under the PRA
to recover property from a trust?
Issue 2: It is unclear whether an interest in a trust is
property
21.27 The second issue we have identified is that the PRA struggles to
analyse interests in a trust in a clear and consistent
way. There are three
particular areas of difficulty:
(a) interests under a trust and the PRA’s definition of
property;
(b) interests under a trust and section 44C of the PRA; and
(c) the classification of an interest in a trust.
Interests under a trust and the PRA’s definition of property
21.28 Under general legal principles, some of the interests that arise under a trust are property interests and some are not. As we have
explained earlier in this Part, the conventional position under the
PRA is that:150
(a) a vested beneficial interest constitutes property;
(b) a contingent beneficial interest constitutes property;
and
(c) a discretionary beneficial interest does not constitute
property.
21.29 The courts’ view that discretionary beneficial interests are not property is based on the conventional principle that a discretionary beneficiary has no more than a hope or expectation that the trustee will exercise his or her discretion in the beneficiary’s favour.151 The difficulty with this analysis is that
it does not address the situation where it is highly likely that the
trustees will in practice exercise their discretion in the
beneficiary’s
favour.
21.30 It may appear contrary to common sense that the courts should
ignore this likelihood, especially when the likelihood
can be clearly
discerned. Other laws go as far as to identify factors to assess whether a
discretionary beneficiary will receive
a benefit from the trust. For example,
regulation 8(4) of the Legal Service Regulations 2011 provides that when an
applicant’s
eligibility for legal aid is assessed, the Legal Services
Commissioner will assess an applicant’s discretionary beneficial
interest
in a trust with regard to:
(a) how the trust arose or was created;
(b) the terms and conditions of the trust;
(c) the person or persons who have power to appoint and remove trustees or
beneficiaries;
(d) the history of the trust’s transactions (for example,
distributions);
(e) any change in the membership of trustees;
(f ) any changes in the class of beneficiaries; and
(g) the source of income or capital that the trust receives.
151 See paragraph [20.32] above; and Hunt v Muollo [2003] NZCA 66; [2003] 2 NZLR 322 (CA) at [11].
21.31 Some expert valuers also suggest that a discretionary beneficial
interest under a trust can be valued like any other item of property.152
They list similar factors when assessing how the interest can be
valued.153
21.32 Nevertheless, in cases under the PRA the courts have been reluctant
to determine whether a discretionary beneficial interest
amounts to property
based on the likely benefit a beneficiary will receive from the
trust.154
21.33 Although the courts have said that a final beneficiary’s
contingent interest constitutes property under the PRA,
the courts’
analysis has not taken into account the likelihood that the beneficiary will
ultimately receive no property from
the trust.155 The courts appear
to have based their view on the Court of Appeal’s comments in Johns v
Johns that a contingent interest is enjoyed “as of right” when
the condition is satisfied.156
21.34 We understand that most family trusts in New Zealand are structured
so that:
(a) the trustees have power to distribute trust property to discretionary
beneficiaries; and
(b) at the date the trust comes to an end, the trustees are required to
distribute any residual trust property to the “final”
beneficiaries.
21.35 The final beneficiaries in this situation have a contingent interest.
But their interest is reliant on:
(a) their survival to the date the trust is wound up; and
152 Tobias Barkley “Valuing Discretionary Interests and Accompanying Rights” (2013) 7 NZFLJ 223; and Brendan Lyne
“Valuation and Expert Financial Evidence in PRA Cases” (presented at NZLS CLE Ltd PRA Intensive, October 2016).
154 In some cases, however, the courts have referred to a partner ’s powers to control a trust as a “bundle of rights” that
has value as property see M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [112]–[119]; and Walker v Walker [2007] NZCA 30; [2007] NZFLR 772 (CA) at [97]–[98]. Despite these references, the bundle of rights argument has not been widely adopted: see Chris Kelly and Greg Kelly “Trusts Under Attack: The Legal Landscape Following the Clayton Litigation” (paper presented to Cradle to Grave Conference, May 2016) at 14. The Supreme Court’s decision in Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 is an instance where the Court looked beyond Mr Clayton’s interest solely as a discretionary beneficiary. However, in that case, the Court found that Mr Clayton’s powers as “Principal Family Member” were tantamount to a general power of appointment, which is beyond the interest of a discretionary beneficiary.
155 Q v Q (2005) 24 FRNZ 232 (FC) at [125]; B v M (2004) 24 FRNZ 610 (HC) at [101]; O v S (2006) 26 FRNZ 459 (FC) at
([82]–[88]); Prasad v Prasad [2014] NZFC 8298 at [39]; and H v R [2017] NZFC 761 at [30]–[32].
156 Johns v Johns [2004] NZCA 42; [2004] 3 NZLR 202 (CA) at [49]. Followed in Q v Q (2005) 24 FRNZ 232 (FC) at [120]–[127].
(b) there being residual trust property remaining for
distribution.
21.36 Sometimes it may be very unlikely that the final beneficiary would receive a distribution of the residual trust property. The beneficiary may not survive until the date of distribution because that date extends beyond the expected lifespan of the beneficiary. Alternatively, it may be very likely that the trustees will distribute all the trust property to the discretionary beneficiaries before
the date of distribution. These considerations have prompted some commentators to say that a contingent interest should not constitute property under the PRA until the contingency is satisfied and the beneficiary is entitled to the trust property.157
Nevertheless, the courts have not relied on this analysis.
21.37 The courts’ focus on conventional principles rather than the actual nature of a trust may also have a bearing on procedural matters. Section 37 of the PRA provides that any person “having an interest in the property” which would be affected by a court order under the PRA has a right to be heard in proceedings before the court. In one case, the Family Court said that beneficiaries with only a discretionary interest will not have an interest in the trust property that entitles them to be heard.158 The Court relied on the cases that found a discretionary beneficial interest does not come within the PRA’s meaning of property.159 The Court said that beneficiaries with a contingent or vested interest, however, will have an interest in the property that will entitle them to be heard.160 On this analysis, it is possible that a partner could have settled a trust with a clear and informed intention that the trust
would provide irrevocable benefits to third party beneficiaries. The trust instrument may, however, only provide that the beneficiaries have a discretionary interest. In that situation, the beneficiaries would have no right under the PRA to defend their interest before the court if a partner challenged the trust. It may be fairer that all parties who have a realistic prospect of benefiting from the trust
are entitled to be heard.
158 H v R [2017] NZFC 761 at [26].
159 H v R [2017] NZFC 761 at [26].
160 H v R [2017] NZFC 761 at [30].
Interests under a trust and section 44C
21.38 In cases under section 44C of the PRA, the courts have not treated interests in a trust consistently. Section 44C offers a remedy in
the situation where placing property on trust means that only one partner ’s interest in the property is lost. However, in several cases a partner has disposed of property to a trust in which
both partners have only discretionary beneficial interests.161 If
a discretionary beneficial interest does not constitute property, section
44C could not apply because technically both partners’
rights to the
property under the PRA have been defeated.
21.39 The courts have been prepared to depart from this approach. In R v R partner A made a claim under section 44C.162 The other partner (partner B) argued that he was also disadvantaged by the disposition because he was only a discretionary beneficiary under the trust. The High Court observed that partner B was a shareholder and director of the company that acted as trustee of the trust and that he had personally made all decisions as to drawings from the trust property. The Court said these factors gave the partner control over the trust even though he was a
discretionary beneficiary.163 The Court concluded that section
44C applied. It said that section 44C should be interpreted in a way that
recognised the partner
’s control over the trust even if he only had a
discretionary beneficial interest.
21.40 The High Court’s approach in R v R is an unspoken acknowledgement that a partner who controls a trust in fact has
a property interest. It seems odd however that on the same facts, the court would probably find that the partner had no property interest for the purpose of dividing relationship property under
the PRA.164
161 See for example N v N [2004] NZCA 288; [2005] 3 NZLR 46, (CA); and R v R [2009] NZHC 774; [2010] NZFLR 82 (HC).
162 R v R [2009] NZHC 774; [2010] NZFLR 82 (HC).
163 R v R [2009] NZHC 774; [2010] NZFLR 82 (HC) at [31]–[34]. The Court drew on the reasoning of the Court of Appeal in the leading case
N v N [2004] NZCA 288; [2005] 3 NZLR 46 (CA). In that case Mr N made a transfer of relationship property to a trust under which he and Mrs N were both discretionary beneficiaries. The Court of Appeal noted at [149] that Mr N had considerable power over the trust and that this was a case in which Mr N could be required to compensate his wife under s 44C of the Property (Relationships) Act 1976. In the later case of S v L FC Taumarunui FAM-2007-068-78, 19 June 2009 at [72] the Family Court held that compensation orders under s 44C(2)(a) and (b) of the Property (Relationships) Act 1976 should only be made against a partner who had effective control of the trust.
property.
Classification of an interest under a trust as
relationship property or separate property
21.41 The PRA classifies property acquired by a partner because he or she
is a beneficiary under a trust settled by a third person
as separate
property.165 The PRA is silent on the classification of the property
if the trust has been settled by one of the partners. It is unclear how
that
property should be classified.
21.42 The Supreme Court has suggested that if the interest under the
trust was acquired after the start of the relationship,
it would be
relationship property (because of section 8(1)(e) of the PRA). In Clayton v
Clayton [Vaughan Road Property Trust], the Supreme Court said that Mr
Clayton’s powers over the Vaughan Road Property Trust amounted to
property. As those powers
had been acquired after the relationship with Mrs
Clayton began, the Court said they were relationship
property.166
21.43 The Court also decided that the trust property would have been
relationship property if it had not been settled on the trust.167 The
Court added that if the trust property had been separate property, it may have
been appropriate to invoke the exception to equal
sharing under section
13.168
21.44 Contrary to the Supreme Court’s view, the authors of Fisher on
Matrimonial and Relationship Property suggest that
if, before the partner
settled property on the trust, it was his or her separate property, the partner
’s powers or other
interest in that trust should remain the partner
’s separate property.169
21.45 The classification of an interest in a trust settled by one of the
partners therefore remains questionable, although the Supreme
Court’s
judgment suggests that the interest will be relationship property if acquired
after the relationship began.
165 Property (Relationships) Act 1976, s 10.
166 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [85]–[90]
169 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [4.47].
Issue 3: The Supreme Court’s decision in
Clayton v Clayton [Vaughan Road Property Trust] did not resolve the
tension between the PRA and trusts
21.46 The decision in Clayton v Clayton [Vaughan Road Property
Trust]170 is the first time the New Zealand Supreme Court has
held that powers to control a trust can constitute property under the PRA.
However,
the decision does not resolve the underlying tension between
relationship property rights and trusts.171
The Supreme Court’s reasoning in Clayton v Clayton
[Vaughan Road Property Trust] is fact specific
21.47 The Supreme Court found that Mr Clayton’s powers over the
Vaughan Road Property Trust amounted to property because
they were so extensive. In particular, Mr Clayton had a collection of powers
under the trust deed that allowed him to give all the
trust property to himself
without considering the interests of other beneficiaries. The trust deed
modified the fiduciary duties
that would ordinarily control Mr Clayton’s
actions as trustee. He was authorised to exercise his powers to benefit him
even
if it conflicted with the interests of the other beneficiaries.
21.48 The Supreme Court stressed that the terms of the Vaughan Road Property Trust deed were “unusual”.172 Evidently the Supreme Court did not think its decision in respect of the peculiar and
far reaching terms of the Vaughan Road Property Trust deed would apply to many trusts. There have been a small number
of subsequent cases in which one partner has argued the other partner ’s powers amount to property based on the Supreme Court’s decision in Clayton. In each of those cases the courts distinguished the terms of the trust from the Vaughan Road
Property Trust on the basis that the partner ’s powers in
those
170 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.
172 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [14].
cases were not as extensive as Mr Clayton’s and therefore did not
amount to property.173
The concept of trust powers as property is complex
21.49 We also think that partners will struggle to apply the Clayton v
Clayton [Vaughan Road Property Trust] decision to their disputes regarding
trusts.174 The basis of the Supreme Court’s approach in
Clayton v Clayton [Vaughan Road Property Trust] was its view that because
the PRA is social legislation, the definition of property should be interpreted
more broadly than traditional
concepts of property. The Court considered that
property may include rights and interests that would not, in other contexts,
be
property rights or property interests.175 To decide the case
before it, the Supreme Court did not need to explain what other rights and
powers to control a trust would amount
to property, nor what the position would
have been if Mr Clayton’s powers been less
extensive.176
21.50 Butler cautions that a departure from traditional property
principles without firm legislative guidance undermines the certainty
and
predictability that the law requires.177 Other commentators are
concerned with what they see as considerable uncertainty as to what powers will
amount to property and how
those powers are to be valued.178
21.51 A further question arising from the Clayton v Clayton [Vaughan
Road Property Trust] decision is whether a finding that powers amount to
property means that the person who holds the powers
173 Da Silva v Da Silva [2016] NZHC 2064; B v B [2017] NZHC 131; and Goldie v Campbell [2017] NZHC 1692, [2017] NZFLR
529.
to the high
degree of control the other partner exercised over a number of companies, the
property belonging to those companies
could be equated as the partner ’s
property. The Supreme Court of the United Kingdom rejected the submission that
a special
and wider principle applied when interpreting the concept of
property under the legislation. Lord Sumption reasoned (Prest v Petrodel
Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 at [37]):
Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere.
176 Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 at [80].
177 Andrew Butler in Mark O’Regan and Andrew Butler “Equity and trusts in a family law context” (paper presented to New
Zealand Law Society Family Law Conference, Christchurch, 21 November 2011) 269 at 292.
has a direct interest in the trust property.179 This issue becomes
particularly important in cases concerning a notice of claim over trust property.180 Section 42 of the PRA enables a partner who claims an interest in land to lodge a notice of that interest on
the title to the land. There have been three cases since Clayton v Clayton [Vaughan Road Property Trust] in which the courts have considered an application to remove a notice of claim one partner has lodged on the title to land held on trust.181 In each case, the partner seeking to justify the notice of claim argued that the other partner ’s powers to control the trust gave an interest in the trust assets, being the land. The courts came to different decisions. In U v M the High Court held that the partner was able support a notice of claim against land held on trust on the basis that the other partner had the power to appoint and remove the beneficiaries
of the trust.182 In contrast, in H v JDVC the Court of
Appeal held that a partner ’s power to appoint trustees and beneficiaries
could not give rise to an interest in
land.183 The Court held that
until the husband exercised the power to appoint himself as a beneficiary, he
did not have a present interest
in the trust property.
21.52 The concept of powers as property is unlikely to prove a workable
solution to resolve the many issues that trusts pose to
relationship property
rights.
179 At one point in the judgment, the Supreme Court said that Mr Clayton’s powers gave him an interest in the Vaughan
Road Property Trust and its assets: Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR
551 at [80]. Later in the judgment, the Court questioned whether Mr Clayton did indeed have a direct interest in the underlying assets of the trust, and preferred to “leave that issue for argument in a future case”: at [104], n 101.
180 The application of s 42 notices of claim to trust property is also discussed in Chapter 14.
181 U v M [2015] NZHC 742; H v JDVC [2015] NZCA 213, (2015) 30 FRNZ 521; and B v B [2017] NZHC 131.
the underlying trust assets. The High Court referred to U v M [2015] NZHC 742 but it did not refer to the later Court of
Appeal judgment H v JDVC [2015] NZCA 213, (2015) 30 FRNZ 521.
183 H v JDVC [2015] NZCA 213, (2015) 30 FRNZ 521 at [53]. The Court of Appeal did not refer to the High Court’s decision in
U v M [2015] NZHC 742.
Issue 4: remedies outside the PRA
to recover property held on trust are inconsistent and create procedural
difficulties
21.53 A partner whose relationship property entitlements have been
frustrated by a trust may look to avenues outside the PRA to
claim an interest
in that property. We have set out above the main alternatives to the PRA. To
summarise, they are:
(a) a claim under section 182 of the Family Proceedings Act
1980;
(b) a claim that the partner ’s contribution to the trust property
has given rise to a constructive trust;
(c) a claim that the trust is invalid or a sham; and
(d) the court’s intervention to ensure the proper administration of
the trust.
21.54 Generally, the alternative avenues do not sit happily alongside the PRA regime or even with each other. They are based on different policy grounds or seek to protect interests in the trust property which are different in nature. The courts appear to have relied
on these remedies because they are frustrated with discretionary trust structures and the limited powers under the PRA to deal
with them.184 The result is that the courts are developing
remedies that create inroads into trusts that are far wider than the PRA
would
otherwise allow.
21.55 The most striking contrast is perhaps between section 44C of the PRA
and section 182 of the Family Proceedings Act.185 Section 44C is
intended to protect a partner ’s rights to relationship property. It will
apply when transferring property
to a trust defeats a partner
’s
rights under the PRA. This section has been purposefully limited
so a court cannot make orders in respect of a trust’s capital. Section 182 of the Family Proceedings Act seeks to protect a partner ’s reasonable expectations regarding a nuptial settlement. This section rests on the philosophy that when those expectations are frustrated owing to changed post-separation circumstances, a court may justifiably vary the settlement. The focus under section
182 is not an equal entitlement to relationship property but a partner
’s reasonable expectations of the benefits he or she
would have received
had the marriage continued.186 A court has a largely unfettered
discretion as to how it varies a trust under section 182. It can therefore make
orders regarding
a trust’s capital.187
21.56 A partner may also invoke the High Court’s supervisory
jurisdiction under the Trustee Act 1956 or the Court’s
inherent
jurisdiction to ensure a trust is being properly administered. Under this type
of claim, the Court is primarily concerned
that the trust is being administered
in accordance with its trust deed and the law of trusts. The Court is not
focused on extracting
property from the trust to divide between partners.
Rather, the court’s aim is to ensure the trust structure is
respected.
21.57 Likewise, a partner ’s claim of a constructive trust over the trust property has a different focus. The courts’ approach has been to inquire into a partner ’s reasonable expectations of an interest
in the property to which he or she has made contributions. The courts have
also said they are keen to ensure the beneficiaries do
not obtain a windfall at
the contributing partner ’s expense. The focus is on the partner ’s
contributions to the property
rather than the PRA’s primary focus on
contributions to the relationship.
21.58 The inconsistencies between these remedies are a significant issue
for the following reasons:
(a) The PRA claims to be a code which applies over other law.188 Yet plainly it has not been drafted to provide comprehensive avenues of redress nor prevent the application of the wider law. Instead, the partners
will often rely on external avenues of redress that are
underpinned by differing, if not conflicting, principles.
186 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [51]–[54].
187 Also, the remedy under s 182 of the Family Proceedings Act 1980 is only available to married couples; unlike the
Property (Relationships) Act 1976 it does not apply to de facto relationships.
188 Property (Relationships) Act 1976, s 4.
This undermines the PRA’s intent to codify this area of
law.189
(b) The various remedies create procedural disharmony.
As we cover in detail in Chapter 26, the respective jurisdictions of the Family Court and the High Court to consider partners’ claims regarding trusts are unclear. In some instances, the courts’ respective jurisdictions overlap; sometimes they are distinct. This can create difficulties as to the appropriate court in which to start proceedings, particularly if the proceedings concern questions under the PRA and a claim against a trust under the wider law. There may also be an issue with timing. Section 182 provides that the Family Court has
jurisdiction to make orders to vary a nuptial settlement only on or within a reasonable time of making orders dissolving a marriage. Disputes under the PRA may be brought to court even if neither partner has applied
for a divorce. The discrepancy in timing may pose difficulties and
contribute to delays if a partner is attempting to bring all claims
in one
proceeding at the same time.190
(c) Some commentators have said that the various remedies lead to
inconsistent outcomes with inconsistent reasoning. This presents
challenges for
professional advisers who may struggle to draft effective documents and give
clear advice.191 The law is unpredictable given the evolving nature
of the remedies.
21.59 While the inconsistencies between the various avenues of redress are
a significant issue, the benefit is that the courts
have a range of powers to
use in different circumstances. It will be clear from the scenarios discussed in
this Part that trusts
are created for many different reasons and in many
different circumstances. The different remedies at the courts’ disposal
provide flexibility to address the particular circumstances of each
trust.
C ONSU LTATION QUESTIONS
189 Nicola Peart “Intervention to Prevent the Abuse of Trust Structures New Zealand” [2010] NZ L Rev 567 at 599; and Law
Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [19.4].
191 Greg Kelly “Recent Developments in Trusts” (paper presented to Legalwise Seminar, Wellington, 25 February 2016) at 18.
G6 Do you agree that the remedies to be used for property held on trust give rise to the
problems identified?
G7 Should the main avenues for redress be found solely under the PRA? Are there
disadvantages in this approach?
Issue 5: Section 182 of the Family
Proceedings Act 1980
21.60 In addition to the issues with section 182 of the Family Proceedings
Act 1980 (section 182) discussed earlier, we note the
following
problems.
Section 182 is very broad and its ambit remains uncertain
21.61 Commentators believe that the Supreme Court’s decision in Clayton v Clayton [Claymark Trust] will lead to more findings of a nuptial settlement and therefore increased application of section 182.192 That is because the Court confirmed that a
nuptial settlement simply requires some connection or proximity between the settlement and the marriage.193 The Court observed that where there is a trust set up during a marriage with either
or both parties to the marriage as beneficiaries, there will almost
inevitably be that connection.194
21.62 Commentators also say it is uncertain how section 182 will apply to
certain trusts.195 In particular, they consider that in Clayton v
Clayton [Claymark Trust] the Supreme Court left open the question of what
would happen where:
(a) a trust is settled by a third party during the marriage and one
spouse is included among a wider class of beneficiaries;
or
(b) one party settles a trust with no particular marriage in mind.
193 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [34].
21.63 The Supreme Court in Clayton v Clayton [Claymark Trust]
commented that a trust and any subsequent settlement of property to that trust are distinct.196 Peart likewise suggests that it is possible for a trust to continue in existence but any additional dispositions of property to that trust are to be seen as a fresh settlement.197 In contrast, the Court of Appeal in W v W rejected the argument that a subsequent disposition of property to a
trust after it is settled constitutes a new settlement.198 The
Court said, “[t]he settlement is the trust itself and any trust property
(whenever acquired) must be part of the
settlement.”199
21.64 It is difficult for partners to ensure that a trust will not be subject to a section 182 claim. Sometimes partners can agree that
they will not make a claim against a trust associated with the relationship. However, the courts have said that only in limited circumstances can the partners effectively make a contracting out agreement under Part 6 of the PRA that they will not make a section 182 claim. In W v W, the Supreme Court said that a contracting out agreement could only preclude a claim under
section 182 if the trust was part of the contracting out agreement, such as
by attaching the trust deed to the agreement or through
some other way so that
the precise terms of the trust formed part of the agreement.200
This requires a high degree of formality which many partners may not
observe.
21.65 Despite the uncertainties with section 182, there are advantages.
First, the remedy gives the court flexibility to intervene in cases
involving trusts to divide assets between the spouses. Second,
some people say
that section 182 respects trusts as the court may only intervene if the trust
was first intended to provide for
the
197 Nicola Peart “Relationship property and trusts: unfulfilled expectations” (paper presented to New Zealand Law Society
Relationship Property intensive: your big (legal) day out!, August 2010) 1 at 21.
198 W v W [2009] NZCA 139; [2009] 3 NZLR 336; [2009] NZFLR 665. Nevertheless, in Kidd v Van den Brink [2010] NZCA
169 the Court of Appeal granted leave to appeal on whether further property settled onto an existing trust could be considered a nuptial settlement.
received independent legal advice. The Court cautioned that if a deed of trust is not incorporated into the agreement, the parties may not have had independent legal advice before becoming bound by the terms of the trust. The Supreme Court approved this reasoning in Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [98].
spouses.201 If that purpose fails, the court will only vary the trust
to ensure the spouses’ reasonable expectations of provision from the
trust are not defeated.
Section 182 and its relationship with the PRA
21.66 Several commentators have said that Parliament’s decision to
retain section 182 alongside the PRA is strange.202 As we have
already noted, a court’s power to vary a trust under section 182 is far
wider than the limited powers the court
has under the PRA. It is odd that the
Family Proceedings Act and the PRA should take such different positions
regarding trusts
when both statutes are aimed at resolving partners’
property affairs after their separation.
21.67 A possible explanation for Parliament’s decision to leave section
182 untouched can be found in the legislative materials to the
2001 amendments to the PRA. The 2001 amendments were, in part, a response to
calls to increase the courts’ powers to make orders
regarding
trusts.203 When reviewing the Matrimonial Property Bill in 1998,
the Parliamentary Select Committee considered whether section 182 should
be
incorporated into the PRA. The Committee received advice from the Ministry of
Justice on the point. The Ministry explained
that, although the lower courts
had permitted the variation of trusts in which a spouse was a discretionary
beneficiary, the Court
of Appeal had not yet considered the issue. The Ministry
advised that it was unclear whether the application of section 182 to
discretionary trusts would be upheld by the Court of Appeal.204
Consequently, the terms of section 182 of the FPA were not brought into
the PRA.
201 Nicola Peart “The Property (Relationships) Act 1976 and Trusts; Proposals for Reform” (2016) 47 VUWLR 443 at 459.
(2016) 22(8) Trusts & Trustees 864 at 873; and B Atkin and W Parker Relationship Property in New Zealand (LexisNexis, Wellington, 2009) at 208.
203 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (1988) at 30.
204 Ministry of Justice Trusts – Effect of Clause 47 Matrimonial Property Amendment Bill (MPA/MJ/3, Ministry of Justice,
7 October 1998 at 3; Ministry of Justice Matrimonial Property Bill – Departmental Report – Clause by Clause Analysis (MPA/MJ/4, Ministry of Justice, 2 March 1999) at 31. The Ministry of Justice also advised that the proposed amendments to the Property (Relationships) Act 1976 were based on an underlying policy position that dispositions of property
to trusts should not be unwound so as to defeat the legitimate purposes for which the trust was created. Subsequent cases and commentators do not appear to have appreciated that the Government Administration Select Committee had considered the issue.
21.68 Since the 2001 amendments, the Supreme Court has confirmed
that section 182 does indeed apply to discretionary trusts.205 The power in section 182 has emerged as a useful provision to deal with property held on trusts that do not come under the PRA.206
Consequently, section 182 has taken on greater significance than expected.
This may be good cause to revisit whether the two regimes
should be brought
together.
Section 182 and de facto relationships
21.69 Section 182 applies to marriages and civil unions but not to partners in a de facto relationship. The Law Commission and some commentators believe section 182 should be changed so
de facto partners are treated the same as married partners.207 The
partners’ separation, rather than the married partners’ divorce,
would be the event which allows the court to exercise
its powers under section
182.
Issue 6: whether there are adequate remedies in the wider law to deal with
trusts and rights under the PRA
Invalid trusts
21.70 Arguably many of the difficulties caused by trusts in the context
of relationship property rights could be avoided if the courts more often
found that a trust is invalid, either because the
intended trust does not
meet basic requirements of a trust, or because the trust is a
sham.208
205 W v W [2009] NZSC 125, [2010] 2 NZLR 31; and Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590.
206 Several submitters made this point to the Law Commission during the Review of the Law of Trusts project: Law
Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [19.41].
207 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [19.43]–[19.44].
208 See for example Anthony Grant “Effective Control and Sham Trusts” Law News (online ed, Auckland, 23 September
2016); Mark Henaghan “Family Law” [2016] NZ L Rev 356 at 379; Nicola Peart and Jessica Palmer “Double Trouble – The Power to Add and Remove Beneficiaries and the Power to Appoint and Remove Beneficiaries” (paper presented to New Zealand Law Society Trusts Conference, June 2015) 35 at 39; and Kate Davenport and Stephanie Thompson “Piercing
the trust structure at a relationship’s end: interesting developments in trust law from the New Zealand Supreme Court” (2016) 22(8) Trusts & Trustees 864. In recent years the courts have not developed other types of claims to challenge the validity of a trust. In particular, the courts have dismissed the concept of an “alter ego” trust: see Official Assignee v W [2008] NZCA 122, [2008] 3 NZLR 45. More recently the Supreme Court has dismissed the concept of an “illusory trust” see Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.
21.71 In Review of the Law of Trusts: A New Trusts Act for New Zealand
the Law Commission expressed concern at the lack of remedies where trust
property is in reality under the settlor ’s control.209 The Law
Commission recommended a new Trusts Act that sets out the essential
characteristics of a trust and the limits of what settlors
can do.210
These recommendations have largely been taken up in the Trusts Bill which
is currently before Parliament.211
21.72 A claim that a trust is invalid is unlikely to be a useful tool in PRA disputes. This is mainly because it is difficult to make a claim, both in terms of the evidence required and the complex legal argument needed, to persuade a court that a trust is invalid. If
the proposed Trusts Bill is enacted, the claim that a trust does not meet
the essential characteristics of a trust may be more straightforward.
Nevertheless, it will continue to be difficult to determine whether some trusts
are legitimate or not.212
Constructive trusts
21.73 The recent cases in which the courts have recognised a constructive trust over property held on an express trust have been criticised.213 The main complaint about the remedy is that the trustees are not the beneficial owners of the trust property so there is no interest for them to pass on.214 The remedy is
therefore seen as taking the existing beneficiaries’ rights in order
to compensate a partner for his or her unpaid services
in respect of trust
property.215
21.74 A key aim of the 2001 amendments was to avoid the need for partners
in de facto relationships to make constructive trust claims.
Prior to 2001, this
was the main avenue through which a de facto partner could claim an interest in
his or her partner ’s
209 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [4.13].
210 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [3.23]–[3.41].
211 Trusts Bill 2017 (290-1).
212 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [3.29] in which the Law
Commission made a similar observation.
214 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [TU12.02(c)].
215 Charles Rickett: “Instrumentalism in the Law of Trusts: the Disturbing Case of the Constructive Trust Upon an Express
assets. It was a difficult process.216 Court proceedings were often
long and complex.217 Parliament considered that it was preferable
to extend the PRA to include de facto relationships as the PRA’s rules of
property
division were seen as a better way to resolve disputes inexpensively,
simply and speedily.218
21.75 We do not consider that constructive trust claims are a suitable remedy to address the problems caused by trusts in a relationship property context. To require partners to found their interests
on constructive trust principles would, in our view, be a step backward
given the policy and principles of the PRA.219
Ensuring proper administration of a trust
21.76 The remedies that are currently available to ensure the proper administration of a trust have a limited application to relationship property issues. The main remedies include reviewing trustee decisions,220 replacement of trustees when the partner ’s
separation has negatively affected the administration of the trust221
and seeking information about the trust.222 The key limitation
is that none of these remedies provide a means of dividing trust property
between the partners. A partner who
is not a beneficiary has no standing to
apply to the court to seek any of these remedies. These remedies therefore have
insufficient
impact to resolve relationship property disputes when trusts are
involved.
C ONSU LTATION QUESTION
G8 Are there any further issues that trusts cause when a relationship
ends?
216 The law culminated in the leading decision Lankow v Rose [1994] NZCA 262; [1995] 1 NZLR 277 (CA). Prior to the inclusion of de facto relationships in the Property (Relationships) Act 1976 (PRA) regime, constructive trust claims under the principles articulated in Lankow v Rose were the main avenue of redress for partners who stood outside the PRA.
217 See for example Department of Justice Report of the Working Group on Matrimonial Property and Family Protection
(1988) at 70.
219 See Chapter 3 for a discussion on the policy and principles of the Property (Relationships) Act 1976.
220 Trustee Act 1956, s 68.
Chapter 22
– Options for Reform
Reform is necessary – what are the options?
22.1 The central question in this Part is whether the PRA strikes the right balance between enabling a just division of property at the end of a relationship and the preservation of trusts. We recognise that there are good reasons to preserve property on
trust, particularly where a trust is legitimately created to provide for third party beneficiaries. On the other hand, we note the many problems that trusts can cause when the partners divide their property at the end of the relationship. Principally, a trust can prevent the partners from sharing in property attributable to the relationship. We have also observed that the effectiveness of
sections 44 and 44C of the PRA is limited. Our preliminary view is that the
PRA does not strike the right balance.
22.2 We also note that a partner can make several claims against
a trust which are outside the PRA. For example, where trusts are involved, many partners will make claims under section
182 of the Family Proceedings Act 1980. It is also becoming more common for partners to claim that a trust is subject to
a constructive trust in their favour. These claims are based on different
principles. They may need to be brought in separate proceedings
in a different
court. The result is that the law is complex, unpredictable and procedurally
inefficient.
22.3 Our preliminary view is that the PRA should be reformed so that partners’ rights under the PRA more readily prevail against trusts. While we have considered the option of making no change to the law as it stands, we do not consider that this is a real alternative.223
22.4 Any option for reform in this area would ideally have several
characteristics:
(a) The reform should enhance the PRA’s ability to provide a
just division of property when property is held on trust.
(b) Not all trust property should be subject to the PRA. Any new
provision needs to be able to distinguish between trust property
that should
and should not be classified or divided under the PRA. That is:
(i) The treatment of trusts should be consistent with the wider scheme of
the PRA. There are stronger reasons to subject trust
property to division be-
tween the partners if the property has the char- acter of relationship
property. Conversely, trusts
that contain what should be classified as the
sep- arate property of one of the partners, such as an inheritance from a
parent,
should not generally be subject to orders recovering that property
for division between the partners.
(ii) When one or both partners established a trust, or settled property
on an existing trust, and both partners knew the effect
of the trust or
the set- tlement and consented to it, there is less cause to recover the
property held on the trust.
(iii) When one or both partners established a trust, or settled property on
an existing trust, with the in- tention of irrevocably
providing third
party ben- eficiaries with the benefit of the property, there is greater
cause to prioritise the interests
of the beneficiaries over the interests of a
partner under the PRA.
(c) Any provision that makes trust property available to meet
relationship property entitlements should interfere with the trust
to the least
extent possible.
(d) Any provision that makes trust property available to meet
relationship property entitlements should be simple and lead to
predictable
outcomes as far as possible.
(e) There are good reasons for the remedies (in whatever form they ultimately take) to be within the PRA. The PRA rests on the implicit principle we identified in Part A that a single, accessible and comprehensive statute should regulate the division of property when partners separate. It is preferable that the remedies within the
PRA be broad enough that partners do not need to seek
relief outside the PRA.
22.5 We are conscious that there is no “silver bullet”
solution. Given the competing interests at stake in this area,
it is challenging
to craft an option for reform that will perfectly balance all the issues at
stake. There does not seem to be
any consensus on how the law in this area
should be reformed. We therefore expect that for all options we present below,
there
will be varying degrees of support and opposition. In short, there is no
obvious answer as to how to find the right balance between
enabling a just
division of property and the preservation of trusts.
22.6 We present four options for reform:
(a) Option 1: revise the PRA’s definition of property to include all
beneficial interests in a trust;
(b) Option 2: revise the PRA’s definition of relationship property to
include trust property that is attributable to the
relationship;
(c) Option 3: broaden section 44C;
(d) Option 4: introduce into the PRA a new provision modelled on section 182 of the Family Proceedings Act
1980.
22.7 The first two options are aimed at expanding the type of property to which the PRA’s equal sharing regime applies. These options could be brought into the PRA to complement the existing remedies in sections 44 and 44C, although section 44C would apply in fewer cases. Option 3 is different. It is aimed at
strengthening section 44C. If this option were to be implemented, it would replace the existing section 44C. Option 4 would introduce a power into the PRA to vary trusts. If implemented, it would probably exist alongside section 44C, either in its current
or amended form.
22.8 It is possible to implement some of the options in combination with one another. However, options 1 and 2 would both increase the extent of property the PRA would classify as relationship property and potentially overlap. It is also likely that each option individually would significantly increase the property available for division between the partners. For that reason, it may be preferable that only one of the options be implemented.
22.9 Whichever option is preferred, we support the repeal of section
182 of the Family Proceedings Act. It is preferable to have all remedies
within the PRA to ensure consistent principles and procedure.
It would also
improve the accessibility and clarity of the law to have all relevant
provisions in the same statute.
22.10 Section 44 of the PRA should not be removed. Section 44’s application is broader than dispositions of property to trusts. It applies generally to all dispositions intentionally aimed at
defeating claims and rights under the PRA. The law regarding the
application of section 44 is now fairly well settled and appears
sound.
Option 1: Revise the PRA’s definition of “property” to
include all beneficial interests in a trust
22.11 The PRA’s definition of property could be enlarged to include broader rights and interests than traditional concepts of property.224 One way of doing this could be to include any interest under a trust through which it is both likely and permissible that the partner will receive a distribution of the trust property.225
It may include a partner ’s power of appointment which is exercisable
in favour of himself or herself.226
22.12 In determining whether a distribution of trust property is likely,
the PRA could list several matters the court could take
into account, such as
the nature of the relationship between the partner and the trustees, the history
to the establishment of the
224 Jessica Palmer “What to do about Trusts?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming) in which Jessica Palmer discusses this option.
1993 would also be excluded, see Property (Relationships) Act 1976, s 6.
2011, ch 25, s 84(3)(b).
trust and the source of the trust property, whether the partner
has the power to appoint and remove trustees and beneficiaries, whether any
distributions from the trust have been made to the partner
in the past, and any
other relevant circumstances.227
22.13 A similar approach is adopted in many other statutory instruments.
For example, in the Child Support Act 1991 and the Legal
Service Regulations
2011 there are provisions that direct the court to look at the probable
benefits related to a person’s
interest in a trust.
22.14 These pieces of legislation do not, however, lead to the recovery of property held on a trust, which would be the consequence under the PRA. Rather, they are a way of deeming an interest in a trust to be a person’s personal property when undertaking a
means testing exercise. These examples also operate in a different policy context. The objective of the relevant legislation is to ensure the State does not shoulder a financial burden which a person is capable of meeting from property at his or her disposal. Nevertheless, the provisions show that it is possible to adopt
a definition of property that is focused on the actual benefits
a person is likely to enjoy from a trust rather than pursuant to traditional
legal concepts.228
22.15 The effect of including qualifying discretionary beneficial interests within the PRA’s definition of property would be that the interest can be treated like any other item of property under the PRA.
It will be classified as either relationship property or separate property.
If the discretionary beneficial interest is relationship
property, its value
will be shared equally between the partners.
22.16 Consequential amendments may be needed to clarify two issues.
First, although section 10 provides that property received under a trust settled by a third party is separate property, the classification of property received under a trust settled by one of the partners is not stated. The PRA may need to expressly provide that interests
in a trust settled by one of the partners during the relationship
are relationship property. Second, there is the argument that if
the
FLR 467; and Charman v Charman (No 4) [2007] EWCA Civ 503, [2007] 1 FLR 1246.
underlying trust assets are separate property the partner ’s interest
in that trust should be separate property.229 Our preliminary view is that a discretionary beneficial interest in a trust that arose under a trust settled by a partner during the relationship should be classified as relationship property in accordance with general rule of classification in section 8(1)(e). If the interest arose under
a trust settled by a third party, section 10 would apply and classify the
interest as separate property.
22.17 An approach which seeks to quantify the benefit a person can receive under a trust may not take into account the legitimate interests of other beneficiaries, particularly child beneficiaries. We consider that when the court comes to determine a partner ’s
interest in a trust it would need to ensure the legitimate interests and
needs of children under a trust are not neglected.230 This may
require a court to preserve an element of the trust property on the same terms
for the benefit of the children. Alternatively,
a court may wish to settle a
share of a partner ’s property interest on trust for the benefit of the
children under section
26 of the PRA.231
22.18 As noted above, the courts have held that beneficiaries with only a
discretionary interest in a trust do not have a sufficient
interest which
entitles them to be heard when a court considers whether to make orders in
respect of a trust in PRA proceedings.232 We suggest section 37 would
need to be amended to entitle all beneficiaries to be heard in PRA proceedings
concerning a trust, not
just those beneficiaries with a conventional property
interest under the trust.
Advantages and disadvantages of amending the
PRA’s definition of “property”
22.19 The main advantage of this option is that it addresses a partner
’s true interest in a trust. A partner could not hide
from the PRA’s
equal sharing regime by settling property on a trust under which he or she
holds only a discretionary beneficial
interest. The
230 See the Supreme Court’s comments in Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [58].
231 The Supreme Court in Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551 observed in
a footnote that s 26 of the Property (Relationships) Act 1976 gave the courts power to settle property for the benefit of children. A greater reliance on s 26 in this context may need to go hand in hand with reforms to s 26 to increase the section’s effectiveness. We discuss potential reforms in Part I of this Issues Paper.
232 See the discussion above at [21.37]. See also H v R [2017] NZFC 761 at [26].
focus on the likely distributions of property a partner would
receive from a trust could then avoid many of the anomalies that currently arise under the PRA. The inconsistent way in which the PRA currently handles the types of interest in a trust would be less of a problem. If a partner wished to ensure his or her interest under a trust stood outside the PRA regime, he or she would
need to enter a contracting out agreement with the other partner in
accordance with Part 6 of the PRA. The interests of the other
partner are better
protected by the safeguards in the contracting out regime.
22.20 The primary disadvantage of this option is the risk that trust structures could be devised in a way that conceals a partner ’s real interest in the trust. For example, a trust deed might not name a partner as a beneficiary but may give the trustees, or even a third party, the power to add or remove beneficiaries at a later point in time. Under such a structure a partner could
be added as a beneficiary and receive distributions of the trust property after a relationship has ended. It might be difficult for the PRA’s definition of property to capture such arrangements.233
Therefore the focus on a partner ’s interest in a trust as the basis
for dividing property under the PRA may not be a reliable
factor for determining
the extent of property that ought to be shared between the partners. The
appearance of the partner ’s
interest in the trust can be easily
manipulated.
22.21 Second, the extent or value of a partner ’s interest in a trust may not be as extensive as the interest the other partner feels he or she should have in the trust property. To take an extreme example, a trust holds significant property that, were it not for
the trust, would be considered relationship property. A court may find, however, that it is only likely that the partner will receive
a small distribution of property from the trust. Or the interest may have been granted before the relationship began, or from a third party, in which case the interest would not be relationship property. The result would be that the partner ’s limited interest, if any, would be subject to equal division, but the majority of the trust property, that would otherwise be shared equally, would be
untouched.
22.22 Third, discerning the true nature of a partner ’s interest in a trust
is not a simple exercise. The court would probably need to inquire into many matters to consider the likelihood that a partner would receive a distribution of the trust property, such as the terms of the trust deed, the relationship between a partner and a trustee, the history of the dealings between the trustees and the partner, and the nature of the other beneficiaries’ interests. When all this evidence is before the court (which may be challenging in itself if third parties are unwilling to provide information), it may still be
a difficult task to determine precisely what interest the partner holds.
There is then the further issue of how that interest is
to be valued. Although
there is consensus that many interests in trusts are capable of
valuation,234 the methodology is not simple. It will require a valuer
to take into account many factors.235 The valuation exercise will
involve predictions, namely how the trust is likely to be administered in the
future. Such factual and
valuation evidence may be expensive to obtain and the
issues arising may make any court hearing complex.
Option 2: Revise the PRA’s definition of “relationship
property” to include some property held on trust
22.23 An alternative way of enlarging the range of property to which
the PRA applies is to focus on the underlying trust property rather than a
partner ’s interest in the trust. This option would
involve three key
changes to the PRA.
234 See Tobias Barkley “Valuing Discretionary Interests and Accompanying Rights” (2013) 7 NZFLJ 223; Brendan Lyne
“Valuation and Expert Financial Evidence in PRA Cases” (presented at NZLS CLE Ltd PRA Intensive October 2016).
v Clayton: a step too far?” (2015) 8 NZFLJ 114. Kelly and Kelly, when commenting on the Clayton case, say that the valuation should also consider whether Mr Clayton would ever have removed the assets from the protection of the
trust: see Chris Kelly and Greg Kelly “Trusts Under Attack: The Legal Landscape Following the Clayton Litigation” (paper presented to Cradle to Grave Conference, May 2016) at 15–16.
(a) Include a new definition of “trust property” in
section 2 of the PRA
22.24 First, a new definition of “trust property” would be
introduced to section 2 of the PRA. It would provide that
trust property means
any property (within the meaning of the PRA’s existing definition of
property) held on a trust, regardless
of whether either or both partners
settled the trust or hold a beneficial interest under the
trust.236
(b) Include trust property attributable to the relationship within the
PRA’s definition of Relationship Property
22.25 The second change would be to amend the definition of relationship
property. A proportion of the value of the trust property
would be relationship
property where two elements are satisfied:
(a) that proportion of the value of the trust property is
“attributable to the relationship”; and
(b) the court is satisfied that it is just to treat that proportion of
the value of trust property attributable to the relationship
as relationship
property having regard to –
(i) whether, with informed consent, the partners in- tended to irrevocably
alienate the property for the benefit of third parties;
(ii) whether the trust was intended to meet the needs of minor or dependent
beneficiaries;
(iii) whether the trust was intended to provide bene- fits to the partners
on the basis that the relation- ship would continue;
(iv) whether either or both partners received consid- eration for any
property disposed of to the trust and if so the amount of
that
consideration;
(v) whether the partners received any benefit from
the trust during the relationship; and
(vi) any other relevant matter.
22.26 We discuss each of the two elements in greater depth
below.
First element: A proportion of the value of the trust property is
attributable to the relationship
22.27 The focus of this option is on the character of the underlying trust
assets rather than Option 1’s focus on the nature
of the partner ’s
beneficial interest in the trust.
22.28 The attribution test is used throughout the PRA where the property in which a partner claims an interest is held by
a different person. For example, superannuation scheme entitlements, which
are held by the superannuation scheme provider, are relationship
property under
section 8(1)(i) to the extent they are attributable to the
relationship.237 An increase in value of one partner ’s
separate property is relationship property pursuant to section 9A if the
increase was
attributable to the application of relationship property or
attributable to the actions of the non-owning partner.238
22.29 There is, however, some uncertainty about what “attributable” means. In interpreting the word as used in section 9A, the courts have relied on the Court of Appeal judgment in Hartley v Hartley.239
In that case, Somers J explained that the word attributable meant
“owing to or produced by”.240 Thus, in the context of
section 9A, it is only the increase in value of separate property owing to or
produced by the application
of relationship property or the direct or indirect
actions of the non-owning partner that becomes relationship property.241
Some causative link is required.
22.30 A difficulty is that the classification of property under the PRA
generally does not depend on establishing direct causation.
As we explained in
Part A, the PRA treats a qualifying relationship as a
238 Property (Relationships) Act 1976, ss 9A(1) and (2).
239 Hartley v Hartley [1986] 2 NZLR 64 (CA) at 75 relied on by the Supreme Court in Rose v Rose [2009] NZSC 46, [2009] 3
NZLR 1 at [29].
240 Hartley v Hartley [1986] 2 NZLR 64 (CA) at 75 per Somers J.
241 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 at [29]–[30].
partnership or joint venture to which each partner contributes
equally, although perhaps in different ways.242 When the
relationship ends, the PRA grants each partner an entitlement to an equal share
of relationship property based on the equal
contributions each partner has made
to the relationship. It is only in exceptional cases that a partner is required
to show that
his or her specific contributions have led to the acquisition or
enhancement of a specific item of property.243
22.31 Consequently, in order to maintain consistency with the general scheme of the PRA, the phrase “attributable to the relationship” should probably not be too strictly construed. It should be understood to encompass property that may have been produced indirectly by the partners’ contributions to the relationship.244
By way of example, in our view a proportion of the value of trust property is
likely to be attributable to the relationship where:
(a) The property was the partners’ relationship property before it
was settled on trust. For example, the partners settle
their joint savings
accumulated during the relationship on trust.
(b) The trust property was acquired from the proceeds of relationship
property. For example, the partners pool their savings acquired
during the
relationship and use them to fund the deposit for a house which is later
settled on trust.
(c) The trust property’s value has been sustained or enhanced by the application of relationship property. For example, the partners use their income to pay for
maintenance or improvements to a family holiday home which is held on
trust.
(d) The trust property’s value has been sustained or enhanced by the
direct actions of either or both partners during the
relationship. For example,
during
242 This is reflected in the explicit and implicit principles of the PRA, discussed in Chapter 3.
244 In discussing the meaning of “attributable to the relationship” in respect of superannuation scheme entitlements in s
8(1)(i), Fisher on Matrimonial and Relationship Property suggests that the test will be satisfied when the portion of the superannuation scheme entitlements can be linked to an activity which is recognised as a contribution under s 18 of the Property (Relationships) Act 1976: RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [10.27].
the relationship either or both partners invest a
significant amount of time into making a family business successful, and the
shares of the company are held on trust.
(e) The trust property’s value has been sustained or enhanced by the
indirect actions of a partner. For example, during the
relationship one partner
cares for children and maintains the family household to provide the other
partner the opportunity to develop
an area of farmland which is held on
trust.
22.32 Conversely, the following are examples of trust property that would
not be attributable to the relationship:
(a) The property was provided entirely by a third party.
For example, the parents of one partner settle land or company shares on a
trust under which their children are beneficiaries.
(b) The property was settled on trust before the relationship began and was
kept separate from family life. For example, a partner
settles money on trust
to provide for his or her children from a former relationship. The trust moneys
are kept separate during
the relationship and never used for the purposes of
the new family.
22.33 Two specific matters are likely to require clarification. First, there is the situation where a third party has settled property on trust which is later used by the partners as the family home or family chattels. Our preliminary view is that this trust property should not be classified as relationship property. The property cannot be attributed to the relationship in the sense that it is produced by the relationship, even though it is used for relationship purposes. If, however, during the relationship the partners have sustained or enhanced the value of the trust property through their actions
or through the application of relationship property, that enhanced value might be relationship property. If the enhanced value of
the trust property was not considered relationship property, it is possible a partner would claim a constructive trust over the property in any event. It is preferable that these claims be
brought into the PRA regime and harmonised with the principles underpinning the legislation.
22.34 Second, if the trust property has increased in value owing solely to
increases in inflation, there is a question as to how the increases
in value should be treated. The best approach may be to determine whether the underlying asset can be attributed to the relationship and, if so, then attribute any subsequent inflationary gains to the relationship. For example, if the partners purchase a house using relationship property funds and settle the property on trust, the house would probably be attributable to the relationship. If the house increases in value because of the growth in house prices generally, the increase in the trust property’s value could also be attributable to the relationship. If, to take a different scenario, a partner ’s parents provided a house on trust for the partners to live in, and over the course of the relationship the house increases in value, the increase in value attributable to growth in the housing market would not be attributable to the relationship because the house itself is not attributable to the relationship. In Part C we discuss the rules under section 9A that apply when a partner ’s separate property increases in value because of the application
of relationship property or the other partners’ direct or indirect
actions. We also suggest some options for reform. Our preliminary
view is that
increases in the value of trust property should be treated consistently with
these rules in whatever form they ultimately
take.
Second element: The court considers it just
22.35 The second element to option 2 is to provide the court with a residual discretion to treat the value of the trust property attributable to the relationship as relationship property. If the test in the first element is satisfied, the trust property will normally
fall into the relationship property pool and defeat the effect of any trust. However, as we have recognised above at paragraph
21.12 to 21.21, trusts may be established for legitimate reasons for the
benefit of third parties. The purpose of the court’s
residual
discretion is to prevent trust property from forming part of the relationship
property pool when it would be unjust to
do so.
22.36 We have identified certain factors above at paragraph 22.4 which are relevant to when a partner ’s rights under the PRA should take priority over the preservation of a trust. In particular, there are grounds to preserve the trust if the partners genuinely intended to alienate the property by settling it on trust for the benefit
of third parties. The trust may also deserve protection if it was
intended to meet the needs of minors or dependents.
22.37 On the other hand, if property has been settled on trust without the
informed consent of both partners, there are good reasons
to bring the property
into the relationship property pool, particularly given the inconsistency with
the PRA’s contracting
out provisions. Similarly, if the trust was intended
to provide benefits to the partners on the basis they remained together, it
may
be preferable to bring the property into the relationship property pool if the
partners’ separation defeats the purpose
of the trust.
22.38 In cases where one of the partners has disposed of property onto the
trust, it may be relevant to inquire into whether the
partner received
consideration. The value of the trust property may be properly reflected in the
consideration the partner received
which could be divided as relationship
property instead of the trust property itself.
22.39 Finally, it may be appropriate for the court to take into account any benefits the trust provided the partners during the relationship. The court could determine whether the benefits received exceeded the contributions the partners made to the trust property. For example, the parents of one partner create
a trust in order to provide a house for their child and his or her partner to live in rent-free. During the relationship, the partners carry out renovation work on the house and enhance its value, meaning that the enhanced value is attributable to the relationship. The court could take into account the fact that the
partners resided at the trust property rent-free. Such benefits may counterbalance any enhanced value the partners claim an interest in.245
22.40 Again, the beneficiaries of the trust should be entitled to be heard
by the court, even if they hold only discretionary
interests.
to the property. Furthermore, at [42] the Court explained that it did not see the contributions as offsetting the overall benefits received by the stepson.
(c) Amend the orders the court can make in respect
of trust property
22.41 The final change required under option 2 concerns the types of
orders the court could make in respect of the trust property.
The court would
probably need to be better equipped with a range of orders to ensure the trust
property is appropriately divided.
The court should be able to make the same
orders under the PRA in respect of trust property as it could in relation to
other forms
of property, such as vesting or sale orders.246
22.42 It may also be appropriate for a court to have the power to resettle part of the trust property in order to implement division orders. Although a resettlement might not look like a conventional division of relationship property, it may be an effective means of preserving the original intent of the trust, particularly if other beneficiaries have an interest in the trust property. Although the power to resettle a trust may be seen as providing the court with considerably greater powers under the PRA, we note that section
33(3)(m) already authorises the court to vary the terms of a trust. However,
this power is rarely used. It is desirable for the scope
of the court’s
powers and the circumstances in which they are to be used to be
clarified.
Advantages and disadvantages of amending the
PRA’s definition of relationship property
22.43 The key advantage of this option is its consistency with the overall policy and principles of the PRA. The proposed provision draws
on the underlying rationale for sharing relationship property and confirms that a partner ’s rights to the property should generally prevail against trusts. The focus on the relationship property component of the trust property and the court’s residual discretion would also exclude many types of trusts that might it be inappropriate to subject to equal sharing. Also, partners can be
assured that a trust will be preserved if there is clear evidence that it was established with the knowledge and informed consent of both partners. This will encourage partners to take proper advice
and be transparent when settling property on trust. There
would
246 Property (Relationships) Act 1976, s 33.
be greater consistency between the PRA’s provisions regarding
trusts and its provisions regarding contracting out agreements.
22.44 Other than the difficulties around the meaning of the test
“attributable to the relationship” discussed above,
the main
objection to this option relates to the considerable consequences for trusts.
In many cases trust property will be subject
to equal division between the
partners. This would represent a significant change in policy and some people
may claim it gives
insufficient priority to the preservation of trusts.
22.45 This option would also give the court a residual discretion when
determining whether to classify trust property as relationship
property and when
making orders. This degree of flexibility will introduce some uncertainty to
the law and may make it difficult
for partners to resolve property matters out
of court, at least until some case law has built up.
Option 3: Broaden section 44C
22.46 The third option is to amend section 44C to overcome its main
limitations. This would include the following changes:
(a) Section 44C(1) would be amended so that any disposition of property
that has the effect of defeating the claim or rights
of one of the partners
would be caught. The requirements that the disposition be of relationship
property and that it must occur
after the relationship began would be
removed.
(b) Section 44C(2) would be expanded so the court may order the trustees to pay to one partner a sum of money from the trust property or transfer to a partner any property from the trust.247 The instruction in section
44C(3)(a) that the court should only have recourse
to the trust capital as a matter of last resort would be retained.
(c) The matters in section 44C(4) which the court must take into account
when exercising its powers under section 44C(2) would
be expanded. The court
should
be required to have regard to whether the partners put
the property on trust with informed mutual consent and with the intention of irrevocably settling the property for the benefit of third party beneficiaries. The court should also inquire into whether the trust has
the purpose of providing for the needs of any minor or dependent
beneficiary.
22.47 These changes would give section 44C much wider application. It
would also be more consistent with anti-avoidance provisions
in other areas of
law, such as under section BG1 of the Income Tax Act
2007.248
Advantages and disadvantages of broadening section 44C
22.48 A major advantage of this option is that it would enhance the
court’s existing remedial powers while retaining the
case law that has
been decided under sections 44 and 44C in respect of dispositions of property
with prejudicial effects.
22.49 Section 44C(3) allows a court to weigh the overall fairness of
ordering compensation. This degree of flexibility is useful
in responding to the
variety of trusts and circumstances that come before the courts.
22.50 There are, however, several limitations to the approach in section
44C that would not be remedied by this option. First, section
44C focuses on dispositions of property that have the effect of defeating one partner ’s claim or rights under the PRA. However, a trust may have the effect of prejudicing a partner even though the other partner has made no disposition to that trust. For example,
a partner may arrange for the trustees of an existing trust to
purchase the property used by the family without either
partner
avoidance as one of its purposes or effects, whether or not any other purpose or effect is referable to ordinary business or family dealings, if the tax avoidance purpose or effect is not merely incidental (see the leading Supreme Court decision
on the interpretation of s BG1 of the Income Tax Act 2007 Ben Nevis Forestry Ventures v Commissioner of Inland Revenue
[2008] NZSC 115, [2009] 2 NZLR 289). A trust may constitute a tax avoidance arrangement: P and H v Commissioner of Inland Revenue [2011] NZSC 95, [2012] 1 NZLR 433. Importantly, the reference in the definition of “tax avoidance arrangement” to “its purpose or effect” means the purpose or effect of the arrangement is determined objectively, not
by the motive or subjective purpose of any party: Glenharrow Holdings Ltd v Commissioner of Inland Revenue [2008] NZSC
116[2008] NZSC 116; , [2009] 2 NZLR 359 at [36]–[39]. The proposed amendments to s 44C of the Property (Relationships) Act 1976 would enhance it into a more general anti-avoidance provision like s BG1 of the Income Tax Act 2007.
ever owning the property personally.249 To take another example,
parents may provide a house for their child to live in with his or her partner. During the course of the relationship, the partners may apply considerable effort and money to maintain or enhance the property’s value. If the relationship has lasted several years, the value of these contributions may be high. Nevertheless, if the partners separate, it is questionable whether their contributions to the enhanced or sustained value of the house constitute a disposition of property within the meaning of section 44C.250
Yet, if the house had not been held on trust, but instead was relationship
or separate property, the partner may have had a valuable
claim under the
PRA.251
22.51 To compound this problem, it may be possible for the partner to
claim a constructive trust over the house held on trust.
The partner may still
look to a remedy outside the PRA to claim property that is connected with the
relationship.
22.52 Second, the notion of paying compensation to the affected partner is problematic. Section 44C is concerned with dispositions that defeat the interests of the other partner.252 As noted above,253
the courts have said that the partner who placed the property on trust must keep some benefit in the property, such as by controlling the trust. If putting the property on trust defeats both partners’ interests then section 44C would not apply. In those circumstances, the court could not properly order compensation as the partner ’s loss does not mirror the other partner ’s gain. Arguably, the court should be able to make an order which addresses one partner ’s loss but is also fair to the other partner. For example, it may be better to recover the property disposed of
to the trust in appropriate circumstances.
249 If a partner arranges to purchase property but, prior to the transfer completing, the partner nominated the trustees
of trust to be named as purchasers, the court will probably hold that there has been a “disposition of property” for the purposes of ss 44 and 44C of the Property (Relationships) Act 1976. See R v U [2009] NZHC 2627; [2010] 1 NZLR 434 (HC); and O v S (2006)
251 If the house was relationship property, the value would be divided equally pursuant to s 11 of the Property
(Relationships) Act 1976. If the house was separate property, the non-owning partner may have had a claim under ss 9A,
15A or 17 in respect to the enhanced or sustained value of the separate property. In contrast, the Family Court in Q v Q (2005) 24 FRNZ 232 (FC) at [149] accepted that the husband’s financial and accounting services as well as labour on the trust property constituted dispositions of property for the purposes of s 44C. Few other cases have taken this approach. We also recognise that it may, however, be possible to expressly define “disposition of property to a trust” as including a partner ’s unpaid labour or services towards the trust property.
253 At paragraphs [20.46] and [21.38]–[21.40].
Option 4: A new provision modelled on
section 182 of the Family Proceedings Act
1980
22.53 This option is based on the Law Commission’s recommendations in the Review of the Law of Trusts: A Trusts Act for New Zealand.254 In that report, the Commission proposed that an amended section 182 be retained alongside an amended section
44C, and that it be enlarged to apply to de facto relationships as well as marriages and civil unions. The section would therefore apply to “relationship settlements” rather than “nuptial settlements”. The basis for retaining section 182 was that it had proven to be a useful provision that gives effect to the original expectations of the parties that settle trusts and deals with injustice that could otherwise be caused by changed
circumstances.255 Although the recommended amendment would expand the potential class of applicants, the fundamentals of the provision would remain unaltered. The courts would continue
to exercise jurisdiction under section 182, which since the Law Commissions
report has been further explained by the Clayton v Clayton [Claymark Trust]
decision.256
22.54 Several submitters on the Review of the Law of Trusts: A Trusts Act for New Zealand did not favour the retention of section 182. A common complaint was that section 182 was outdated and
inconsistent with the PRA. Peart has said that section 182 should be kept as a separate provision, not as part of the PRA.257 This is
to acknowledge that the trust property is not beneficially owned by the partners and therefore different principles should apply than the PRA that only governs property that the partners do beneficially own.258 Having undertaken research on the origins
of section 182 and the way it was viewed in 2001,259 we believe that the drafters of the 2001 amendments did not foresee the
prominence section 182 has achieved in later years. There is a
case
254 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at 239.
255 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [19.43].
256 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590.
257 Nicola Peart “The Property (Relationships) Act 1976 and Trusts: Proposals for Reform” (2016) 47 VUWLR 433 at 461.
258 Nicola Peart “The Property (Relationships) Act 1976 and Trusts: Proposals for Reform” (2016) 47 VUWLR 433 at 461.
259 See the discussion at [21.67] above.
for bringing the section 182 remedy within the PRA. As we have
explained at paragraph 22.74, it is preferable that all relationship
property matters be dealt with in the same proceedings, pursuant
to the same
principles found under the same statute. As we explain in Part A, it is an
implicit principle of the PRA that a single,
accessible and comprehensive
statute should regulate the division of property when partners
separate.
Advantages and disadvantages of a provision modelled on section 182 of the
FPA
22.55 Peart says that section 182 is preferable to other options to recover property from a trust when a relationship ends, because section 182 does a better job of respecting the trust.260 As section 182 applies to trusts that are intended to provide for
the relationship, there should be no surprise if the court makes orders to ensure that happens, albeit in a different form.261 Section
182 is therefore seen as attempting to preserve the intent of a trust while balancing that intention against property rights following the breakdown of a relationship.262 It may, however, be an overstatement to say that section 182 preserves the intent of a trust. The Supreme Court in Clayton v Clayton [Claymark Trust] explained that the purpose of relief under the section was to ensure that a partner ’s reasonable expectations of the trust were not defeated, not the actual intention behind the trust itself.263
22.56 A further advantage of this option is that section 182 gives the
court a great deal of flexibility to vary the terms of
a trust. This
260 Nicola Peart “The Property (Relationships) Act 1976 and Trusts: Proposals for Reform” (2016) 47 VUWLR 433 at 459.
Palmer also favours an expanded variation discretion: Jessica Palmer “What to do about Trusts?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
261 Nicola Peart “The Property (Relationships) Act 1976 and Trusts: Proposals for Reform” (2016) 47 VUWLR 433 at 459.
262 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [19.39]; and Nicola Peart
“The Property (Relationships) Act 1976 and Trusts: Proposals for Reform” (2016) 47 VUWLR 433 at 461.
is not to perpetuate the objects of the nuptial settlement
per se. Rather, its aim is to remedy the failure of a partner ’s
expectations because the marriage no longer continues. The focus is therefore
not on the underlying premise of the trust, but rather
on the partner ’s
underlying expectations of a continuing marriage.
Indeed, this reasoning led the Supreme Court to depart from its previous judgment in W v W [2009] NZSC 125, [2010] 2
NZLR 31. In W v W the Court said that the parties’
expectations were to be assessed at the time the settlement was made. In
Clayton the Court said that a partner ’s expectations regarding
the settlement are not to be assessed at any fixed point in time (perhaps
allowing for the situation where the underlying intentions of a trust at the
time it was made remain constant, but a partner ’s
expectations change
after the settlement but before the relationship break up): see Clayton v
Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [56].
Rather than say s 182 respects trusts, it is perhaps more correct to say that the court’s approach under s 182 respects the partners’ reasonable expectations of the benefits they would have received under a trust had the marriage continued.
flexibility can be very useful as it allows the court to tailor orders
to meet the particular circumstances of each case. In addition, the case law
decided under section 182 has now identified many matters
the court is to
consider when deciding whether to exercise its discretion. Among these
matters, the interests of children are to
be a primary consideration.264
The remedy therefore allows the court to consider the overall fairness of
a particular case for all concerned.
22.57 As already noted, a major disadvantage with this option is the disharmony between the principles underpinning the PRA regime and those on which the section 182 remedy is based. The court’s focus is not on a just division of property in accordance with
the principles of the PRA, but rather on a partner ’s reasonable
expectations of the benefits he or she would receive if the
relationship
continued. Rather than reconcile those differences, maintaining section 182
will reinforce the different approaches
to dealing with trust property at the
end of a relationship.
22.58 The ambit of section 182 still remains unclear and we have
discussed this in paragraphs 21.61 to 21.65
22.59 It is difficult to contract out of section 182. As discussed, the
courts require a high degree of formal connection between
the trust and a
contracting out agreement in order for the agreement to shield the trust from a
section 182 claim. The Supreme Court
has said that, in order to be effective,
the trust deed would need to refer to the relationship property agreement by
some means.265
C ONSU LTATION QUESTIONS
G9 Which of the proposed options do you prefer? Why?
G10 Are there any other feasible options for reform we have not
considered?
264 Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [56], [58], [64], and [67].
265 W v W [2009] NZSC 125, [2010] 2 NZLR 31 at [34]. The Court reasoned that, first, if a nuptial settlement is too easily regarded as part of the agreement, the remedial scope of s 182 would be narrowed. The Court noted that the criteria for setting aside a contracting-out agreement (“serious injustice”) is more onerous than those that apply to vary a
trust under s 182. Secondly, in order to be binding the parties to a contracting-out agreement must have first received independent legal advice. The Court cautioned that, if a deed of trust is incorporated into the agreement, the parties may not have had independent legal advice before becoming bound by the terms of the trust. The Supreme Court approved this reasoning in Clayton v Clayton [Claymark Trust] [2016] NZSC 30, [2016] 1 NZLR 590 at [98].
Part H –
Resolving property matters
in and out of court
Chapter 23 – How are property
matters resolved in practice?
Introduction
23.1 In this part of the Issues Paper we look at how property matters are resolved when relationships end, both in and out of court. We want to understand whether the PRA facilitates the resolution
of property matters in accordance with people’s reasonable
expectations, and as inexpensively, simply and speedily as is consistent
with
justice. We focus primarily on how separating partners resolve their property
matters, although some of the issues identified
in this part may also appear
when one partner dies and disputes arise among the surviving partner, the
personal representative
of the deceased and third parties.1
23.2 Separating partners can agree to divide their property in any manner they think fit. They are not required to apply the PRA’s rules of division, however, if they want their agreement to
be enforceable by a court they must meet certain procedural requirements
set out in the PRA.2
23.3 Partners resolve their property matters in a range of different ways,
including by negotiation, with or without legal advice,
or by mediation,
arbitration or some other dispute resolution process. We use the term
“out of court” to refer to this
range of options, unless indicated
otherwise. A smaller number of separating partners will have their property
dispute determined
by a court.
23.4 No information is routinely collected in New Zealand about how people resolve their property matters at the end of relationships. As a result, we lack the necessary information to fully analyse how the PRA is operating in practice. Your views on the practical issues people face when resolving property matters, and how those
issues might be addressed, are therefore important to our
review.
1 The special rules that apply to relationships ending on death are discussed in Part M.
23.5 In this chapter we explore what is needed to achieve a just and
efficient resolution of property matters under the PRA, and summarise
what we know about what currently happens in practice. The rest of Part H
is arranged as follows:
(a) In Chapter 24 we look at how property matters are resolved out of
court. We explore the range of information, support and dispute
resolution
services that are currently available, and ask whether there is a need for the
State to do more to encourage out of court
resolution in a way that achieves
just and efficient results.
(b) In Chapter 25 we identify broader issues with the Family Court’s
processes and powers, which can hinder the just and
efficient resolution of
property matters in court.
(c) In Chapter 26 we explore more complex and technical issues with the
jurisdiction of the courts to decide property matters that
arise at the end of
relationships, focusing in particular on the roles of the Family Court and High
Court.
23.6 Throughout this part of the Issues Paper we refer to the comprehensive
review of the Family Court carried out by the Ministry
of Justice in 2011,
which led to important changes to the family justice system such as the
introduction of the Family Dispute
Resolution service for parenting
disputes.3 We refer to this as the “Family Court
Review.”
Achieving just and efficient resolution of property matters under the
PRA
23.7 One of the principles of the PRA is that matters “should be
resolved as inexpensively, simply, and speedily as is consistent
with
justice.”4 In other words, not only should the division
of
3 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011).
arriving at that decision
should be efficient.
23.8 Inherent within this principle is that partners should be able
to resolve property matters out of court wherever possible. Out of court
resolution is generally quicker and less expensive than
court-based
resolution. It can also result in more enduring and satisfactory outcomes, in
part because the partners are actively
involved in the decision-making, and
because it enables more workable and tailored outcomes.6 Out of
court resolution is more likely to preserve the relationship between separating
partners, and also achieves better outcomes
for children, by reducing inter-
parental conflict.7
23.9 There is a range of different dispute resolution services available for
resolving property matters.8 We discuss these in Chapter 24. Dispute
resolution services are generally more flexible than the court process, and
can also be
modified to better respond to the needs of Māori, Pacific and
other cultures by being inclusive of the wider family.9 The more
informal nature of dispute resolution services can also better enable children
to express their views.10
23.10 We think that separating partners should be encouraged to
resolve their property matters with minimum formality whenever appropriate.
The extent to which the State should have a role in
promoting out of court
resolution is discussed in Chapter 24.
23.11 It will not, however, always be appropriate for separating partners to resolve their property matters without the powers and protections available in the court process. Situations will inevitably arise which could not have been contemplated when
the PRA was enacted, and/or which require the application of one
6 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 40.
9 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 40 and 42.
10 We discuss the participation of children in the resolution of property matters further in Part I.
or more exceptions to the general rule of equal sharing in order
to achieve a just division of property. The lack of guidance in the
PRA or existing case law in some situations may make it difficult
to achieve a just result out of court.11 Other situations may
involve complex legal questions that require clarification from the
courts.
23.12 A similar issue may arise where there is a significant power
imbalance between the partners because of information asymmetries,12
or because the partners have different levels of confidence, education,
emotional control or financial support.13 A power imbalance can also
arise where one partner has a history of being violent or intimidating
towards the other partner, including
financial or economic abuse.14
Significant power imbalances may result in unjust outcomes so it may be
in the interests of justice for such matters to be managed
and resolved in
court.
23.13 The State has an important role in supporting people who cannot resolve disputes themselves, and in providing legal protection where issues have serious impacts on children and vulnerable people.15 In the context of post-separation property disputes, when out of court resolution is not appropriate or has been unsuccessful, the State fulfils this role primarily by providing access to the Family Court. Either one or both partners16 can apply to the Family Court for orders determining their respective
shares in relationship property, dividing the relationship property between them and/or making declarations in relation to specific items of property.17 The Family Court’s decision is binding on the
parties, subject to a right of appeal to the High
Court.18
11 In this situation, arbitration may provide an appropriate alternative to a court determination.
13 Ministry of Justice Family Court Proceedings Reform Bill: Departmental Report (April 2013) at [180].
14 Ministry of Justice Family Court Proceedings Reform Bill: Departmental Report (April 2013) at [180]. In 2013 changes were made to the definition of domestic violence in the Domestic Violence Act 1995 following the Family Court Review. The definition was amended to expressly include: “financial or economic abuse (for example, denying or limiting access
to financial resources, or preventing or restricting employment opportunities or access to education)”. See Domestic Violence Act 1995, s 3(2)(c)(iva), inserted on 25 September 2013 by the Domestic Violence Amendment Act 2013. The reference to financial or economic abuse has been carried over into the definition of “family violence” (replacing domestic violence) in the Family and Whānau Violence Legislation Bill 2017 (247-2), cl 9.
15 As expressed as part of the Family Court Review. See Minister of Justice Family Court Review: proposals for reform (July
2012) at [27].
17 Property (Relationships) Act 1976, ss 25(1)(a), 25(1)(b) and 25(3).
What is needed to achieve a just and efficient
resolution of property matters?
23.14 We consider that there are four important elements in achieving a
just and efficient resolution of property matters:
(a) Understanding of legal entitlements: People need to understand their property entitlements and obligations under the PRA when resolving property matters. However this does not mean that people have to
reach an agreement that is consistent with their legal entitlements. People will, and should be able to, do what is right for them in the context of their own lives. In many cases acting “legally rationally” may be seen as
inappropriate or too difficult.19 But people need to know what their legal entitlements are so that they make informed decisions. One way the PRA recognises this
is by requiring partners to receive independent legal advice prior to
signing a contracting out agreement that will be legally binding
and
enforceable.20 The need to ensure people understand their legal
entitlements also emphasises the importance of clear and straightforward rules
of
classification and division in the PRA that people can apply to their
property without the need to go to court. If a person’s
legal position is
uncertain, they may form an unreasonable expectation of what they should be
entitled to, which can impede attempts
to resolve matters in or out of
court.
(b) Access to financial information: Both partners must have
sufficient information about their finances and those of their partner. This
includes information about
jointly and separately owned property, investments,
bank accounts, income streams and any other property interests, including
beneficial
interests under a trust. Failing to disclose all relevant financial
information is a serious impediment to achieving a just outcome
and can also
result in agreements being challenged.
19 Anne Barlow “Legal Rationality and Family Property – What has Love got to do with it?” in Jo Miles and Rebecca Probert
(eds) Sharing Lives, Dividing Assets: An Interdisciplinary Study (Hart Publishing, Oregon, 2009) 303 at 317–318.
(c) Appropriate support: People need to be supported in
the resolution process. The extent of support required will depend on the circumstances. People need to be supported by access to appropriate information about legal entitlements and about the different options for resolving property matters. In many cases support will be provided by lawyers. When a person cannot afford to engage a lawyer, legal aid may be available. Dispute resolution services can also support people to resolve
property matters. In the minority of cases where out of court resolution is inappropriate or unsuccessful, people need to be supported through the Family Court process. People who represent themselves in court may need
an additional level of support in navigating the court process.
(d) A timely resolution: People need to be able to achieve a timely resolution of post-separation property matters. But timeliness does not always mean the fastest resolution possible. Sometimes time is necessary, for example, to ensure both partners are well informed,
are ready to address the matters in dispute and have an opportunity to be heard. Some matters will raise complex issues. Unreasonable delay, however, can
be harmful for children.21 It can also have significant financial and emotional implications for the former partners.22 The Ministry of Justice recognised the importance of timely resolution of PRA matters in the Family Court Review:23
The high value of property involved, combined with the likelihood of other
financial obligations, further highlights the benefit of
earlier resolution for
the parties. More timely outcomes may reduce the psychological impact of
uncertainty by enabling the parties
to make financial decisions that allow them
to move on with their lives rather than having funds tied
up.
21 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 11.
22 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
23 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
Resolving PRA matters in accordance with tikanga
23.15 Māori have different values and different ways of resolving
disputes according to tikanga. Māori place greater
importance on the
whānau than on individuals or nuclear families. Tikanga relies on a
“collective sharing of decision
making, tied to the community”,
and differs from both the court process and the underlying assumption that
separation is
of concern only to the partners, their children and the
State.24
23.16 Non-Māori often do not recognise the part played in
relationship breakdown by tensions inherent in Māori social
organisation
(such as conflicting whānau loyalties and differences in tikanga between
iwi) or resulting from social change
(such as the difficulties of parents who
grew up in whānau raising children without whānau support).25
When relationships are threatened with breakdown, relatives have valuable
knowledge and skills to offer:26
Those holding responsible jobs in whānau, hapū and iwi know
the ancestors, historical group relationships and stresses involved within
the marriage, and are often experienced mediators. Those
in close contact with
the couple, as members of an effective whānau, can supply information and
insights inaccessible to strangers
and can offer practical help, especially in
terms of child care.
23.17 In a draft paper prepared for the Law Commission’s review of
Māori customary law, Durie noted that resolution
of disputes according to
tikanga depends not upon finding for one or the other, or upon making one
subordinate to the other,
but upon recognising the status and contribution of
each, and upon finding a structure that accommodates the various
interests.27 Ruru has observed that:28
24 Pat Hohepa and David Williams The Taking into Account of Te Ao Māori in Relation to Reform of the Law of Succession
(NZLC MP6, 1996) at 19; and Donna M Tai Tokerau Durie-Hall “Māori Marriage: Traditional marriages and the impact
of Pākehā customs and the law” in Sandra Coney (ed) Standing in the Sunshine: A history of New Zealand women since they won the vote (Viking, Auckland, 1993) 186 at 187.
25 Donna M Tai Tokerau Durie-Hall “Māori Marriage: Traditional marriages and the impact of Pākehā customs and the law”
in Sandra Coney (ed) Standing in the Sunshine: A history of New Zealand women since they won the vote (Viking, Auckland,
1993) 186 at 187.
26 Donna M Tai Tokerau Durie-Hall “Māori Marriage: Traditional marriages and the impact of Pākehā customs and the law”
in Sandra Coney (ed) Standing in the Sunshine: A history of New Zealand women since they won the vote (Viking, Auckland,
1993) 186 at 187.
Overall, the rules relating to marriage and property are haphazard
and often contrary to tikanga Maori in that they deny the whanau and hapu
the responsibility to mediate and determine rights and responsibilities
to
property. The rules are based on an ethic that endorses individual rights and
ability to own property exclusively.
23.18 Therefore the whānau, not the State, is seen as the first line
of defence in times of trouble.29 If the whānau is not
functioning effectively, the responsibility for supervision and intervention
lies next with the hapū
and then, if necessary, with the iwi.30
Only after both options have collapsed should the responsibility fall to
the State.31
23.19 These cultural practices mean that Māori may rarely use the
courts to enforce their rights under the PRA, preferring instead to
manage their own dispute resolution processes within their
tribal
communities.32 In the Family Court Review, the Ministry of Justice
observed that Māori comprised just six per cent of applicants and
respondents
in PRA cases.33 There may, however, be other reasons for
this trend. Chadwick has observed that:34
Matrimonial property is the only area of family law that I know of where whanaungatanga prevails regardless of the law. This
is because Maori, as a rule, do not have the same emotional attachment to
property that the law guarantees. Since 1976 the Family
Court, in its
matrimonial property jurisdiction, has by and large been the exclusive preserve
of the white middle class.
23.20 When Māori do go to court, they may find it is not responsive to
their values and beliefs.35 The processes, language and culture of
the adversarial court system can be mysterious and intimidating36
and its focus on individuals can be alienating, not only for
Māori
29 Donna M Tai Tokerau Durie-Hall “A view of the Māori family: Whānau, Hapū, Iwi” in Sandra Coney (ed) Standing in the
Sunshine: A history of New Zealand women since they won the vote (Viking, Auckland, 1993) 68 at 69.
30 Donna M Tai Tokerau Durie-Hall “A view of the Māori family: Whānau, Hapū, Iwi” in Sandra Coney (ed) Standing in the
Sunshine: A history of New Zealand women since they won the vote (Viking, Auckland, 1993) 68 at 69.
31 Donna M Tai Tokerau Durie-Hall “A view of the Māori family: Whānau, Hapū, Iwi” in Sandra Coney (ed) Standing in the
Sunshine: A history of New Zealand women since they won the vote (Viking, Auckland, 1993) 68 at 69.
32 Law Commission Delivering Justice for All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at 53 and 238.
34 John Chadwick “Whanaungatanga and the Family Court” (2002) 4 BFLJ 91.
35 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 16.
36 Law Commission Delivering Justice for All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at 53.
but also Pasifika and other cultures who often want to resolve
disputes by involving the wider family or whānau.37 However
in recent years the judiciary has made significant efforts to upskill in this
area. Tikanga and te reo are important elements
in the ongoing judicial
education provided by the Institute of Judicial Studies.38 The court
can also use its powers to hear evidence of tikanga. This was demonstrated in
the recent High Court case of B v P, where the High Court received
evidence from two kuia on principles of tikanga relating to the guardianship
of taonga.39
23.21 The Family Court Review recognised that dispute resolution services, discussed in Chapter 24, are more flexible and can be modified to better respond to the needs of Māori, for example by being inclusive of the wider family.40 In Chapter 26 we also discuss whether, when out of court resolution is unsuccessful,
Māori should be able to resolve their property matters involving
issues of tikanga in the Māori Land Court, which has
a better
understanding of tikanga, instead of the Family Court.
How do people resolve property matters in practice?
23.22 Information about when relationships end and how property matters are resolved is not routinely collected in New Zealand.41
This makes it difficult to fully analyse how partners resolve their property matters in practice. Below we look at court data, results from our preliminary consultation with family lawyers, and other information and research we have collected in an attempt to
analyse how property matters are resolved.
37 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 16.
40 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 40.
PRA matters resolved in court
23.23 Relatively few property matters are decided by a court. In recent
years the number of PRA applications filed in the Family
Court has been
declining, as has the number of divorces. In 2016, 785 applications for orders
under the PRA were filed in the Family
Court.42 That same year the
Family Court granted 8,169 orders dissolving a marriage or civil union.43
In contrast, in 2006 the Family Court received 1,217 PRA applications and
granted 10,065 dissolution orders.44
23.24 Most applicants for orders under the PRA are women, comprising from
60–66 per cent of applicants each since 2004.45
23.25 Only about 20 per cent of PRA applications that are filed actually
proceed to a hearing. The rest are settled or withdrawn
prior to hearing (see
Figure 1 below). Around half of those cases that settle involve orders being
made by the Family Court.46 A small number of applications are
transferred to the High Court.47
23.26 A 2011 review of a sample of PRA cases in the Family Court provides
some insights. The review was undertaken by the Ministry
of Justice as part of
the Family Court Review.48 The
1976, as an application can have more than one applicant.
2017) <www.stats.govt.nz>.
46 In 2016, 170 Property (Relationships) Act 1976 applications went to a hearing, 312 were settled and had orders made by the Family Court, and 298 cases were settled with no orders made: data provided by email from the Ministry of Justice to the Law Commission (5 May 2017).
the nature of more complex cases. The findings of that case file review were published in Ministry of Justice Reviewing the Family Court: Case File Sample (September 2011), and were also discussed in Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 22–23.
Ministry chose to review PRA cases because in 2009/10 they were
taking on average 478 days to dispose.49 Key findings of the case
review included:
(a) The most common type of property in dispute was residential property,
which was in dispute in 74 per cent of cases. Disputes
over chattels were
evident in 44 per cent of cases and trust property in 14 per cent of
cases.50
(b) The value of property in dispute was “substantial”.51 In
44 per cent of cases the property in issue was valued in excess of $500,000.
Less than 10 per cent of cases involved property valued
under $100,000.
(c) Delay in proceedings, as indicated by the frequency of adjournments, was evident.52 The estimated average number of adjournments per case was 12.53 Every
case reviewed was adjourned at least once and 82 per cent of cases sampled were adjourned more than six times.54 Adjournments most often occurred in order to obtain information, reports and await the outcome of settlement discussions.55 Delay “caused by either a
party or their lawyer” was also evident in 63 per cent of
cases.56
(d) The main issues in dispute (identified from the decision) were
categorised as follows:57
(i) 55 per cent of cases involved “matters re- quiring consideration
of legal issue/s”;
(ii) 23 per cent related to “tenancy/occupation”;
and
(iii) 22 per cent required “determination of val-
49 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 22.
50 The range of property in dispute also included investment property, shares, cash and superannuation proceeds: see
Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 22.
51 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 22.
52 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
53 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
54 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
55 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
56 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
57 In addition, eight per cent of cases were categorised as “settled and/or consent memorandum filed” and in eight per
cent of cases the main issue was not stated. Note that each file may have had multiple responses. See Ministry of Justice
Reviewing the Family Court: Case File Sample (September 2011) at 2.
ue/division/sale of property/assets” issues.
(e) Only 27 per cent of applications stated the proposed property division, while 70 per cent required the Family Court to determine the division.58 Where the proposed property division was stated in the application, 75
per cent of applicants sought up to 60 per cent of the property available
for division. Eight percent of applicants sought a share
of between
60–75 per cent, and 17 per cent sought a share of over 75 per
cent.59
23.27 This data suggests that the Family Court is being used as a last
resort and that most people are resolving their property
matters out of
court. When proceedings are filed, the vast majority of cases are resolved
without the need for a hearing (around
80 per cent). The Ministry of
Justice’s case review identified that most applications to the Family
Court required consideration
of legal issues. The court data does not, in our
view, evidence a systemic problem of “too many” PRA matters
unnecessarily
going to court.
23.28 What the data does show is that the number of PRA matters going to
court has declined significantly over the past 13 years.
During the period
2004–2016 the number of applicants to the Family Court under the PRA
decreased by 39 per cent.60 The decrease was steeper following
changes to the new Family Court fee structure introduced in 2012, and resulted
in a noticeable
reduction in the proportion of female
applicants.61
PRA matters resolved out of court
23.29 Most people will resolve PRA matters out of court by negotiating an
agreement with their partner. Some will engage lawyers,
some will
not.
58 Two per cent of cases are recorded as “not stated”. See Ministry of Justice Reviewing the Family Court: Case File Sample
(September 2011) at 2.
59 Ministry of Justice Reviewing the Family Court: Case File Sample (September 2011) at 2.
18 per cent drop in applicants to the Family Court under the PRA between 2012 and 2013 following the introduction of the new fee structure in mid-2012, and that the proportion of female applicants dropped from 65 per cent in 2012 to 60 per cent in 2016: provisional analysis by the Ministry of Business, Innovation and Employment’s Government Centre for Dispute Resolution (GCDR), which analysed Family Court data from the Ministry of Justice’s Case Management System, provided by email to the Law Commission (26 September 2017).
vast majority of people who see a lawyer about PRA matters
(around 80–90 per cent) will resolve the matter by agreement,
negotiated with the assistance of their lawyer. This is often
described as
lawyer-led negotiation. Around 10–15 per cent of those who see a lawyer
resolve their PRA matters by mediation,
and a small minority, around 5–10
per cent, have their matters decided by a court.62
23.31 We do not know how many people resolve property matters without the
assistance of lawyers, but it is likely that this accounts
for a significant
proportion of separating partners. Research in England and Wales identified
that 47 per cent of partners divorcing
or separating between 1996 and 2011 did
not seek legal advice.63
23.32 In Australia, a study of 9,000 parents who had separated in 2006–
2007 found that the main pathway for resolving property matters was “discussion with the other parent” (see Figure 2). While Australian data is helpful to look at, particularly given the general similarities in legal systems and the absence of New Zealand
data, it is important to recognise that the property division
regime in Australia is quite different to the PRA. In particular, the Family
Law Act 1975 (Cth) currently provides for a discretionary approach, rather than
a general rule of equal sharing. In the context of dispute
resolution, this
makes it difficult for parties to know what their obligations or entitlements
in a property division are, and
may make it harder for people to resolve
property matters without legal advice.64
23.33 There might be several reasons why people do not seek legal advice. They may reach an informal agreement and not wish
to incur the cost of legal fees. There may also be a concern that involving lawyers may change the dynamics of the separating
partners’ relationship. Some may prefer to seek support
62 These figures are an estimate only, based on what we were told during preliminary consultation with a range of family lawyers. However, research in England and Wales identifies similar trends. A study of partners divorcing or separating between 1996 and 2011 identified that of those clients offered lawyer-led negotiation and mediation, 89 per cent took
up lawyer-led negotiation while 38 per cent took up mediation: Anne Barlow and others Mapping Paths to Family Justice: Briefing Paper & Report on Key Findings (University of Exeter, June 2014) at 6.
63 Rosemary Hunter and others “Mapping Paths to Family Justice: matching parties, cases and processes” [2014] Fam Law
1404 at 1405.
elsewhere, such as from family or whānau, or through culturally
focused dispute resolution processes. Finally, separating partners may not
address property matters at all, perhaps because they
have no property to
divide, or because they are unaware that they may have rights or entitlements
under the PRA.
23.34 The Citizens Advice Bureau keeps records of the nature of inquiries
it receives from the public. The number of relationship
property inquiries has
steadily increased since it started keeping records in 2011/12. In 2015/16, it
received 1,801 relationship
property inquiries, accounting for 13 per cent of
all relationship inquiries.65
23.35 The information from Citizens Advice Bureau suggests that the number of people who are resolving property matters may be increasing, even if the number of court applications has been declining. While divorce rates have been declining in recent decades, this does not accurately represent rates of separation, in particular because it excludes de facto relationships.66 Rather,
the decline in court applications is more likely to mean that more people are looking to resolve their property matters outside the court system. A key consideration for this review is whether the appropriate information and support is available to those people,
to ensure that outcomes reached are just and
efficient.
65 In contrast, in 2010/11 the Citizens Advice Bureau received 1,396 relationship property inquires. This rose to 1,425
in 2012/13, 1,551 in 2013/14, and 1,574 in 2014/15: Citizens Advice Bureau “CAB Enquiries relating to “relationships property” and “separation/relationship breakdown”” provided by email from the Citizens Advice Bureau to the Law Commission (12 September 2016).
Chapter 24 –
Resolving property
matters out of court
24.1 Most separating partners will resolve their property matters
themselves, with or without the assistance of lawyers. In this
chapter we look
at the range of information, support and dispute resolution services currently
available for resolving property matters
out of court, and ask whether there is
a need for the State to do more to encourage out of court resolution in a way
that achieves
just and efficient outcomes.67
Do people have access to appropriate information?
24.2 People need to have access to an appropriate range of information
when resolving property matters at the end of a relationship.
This includes
information about:
(a) legal entitlements and obligations under the
PRA;68
(b) the range of options for resolving property matters out of court;
and
(c) the process for making applications to the Family Court, including
likely costs and timeframes.
24.3 In the wider context of family law disputes it has also been suggested that people should be able to access information about the benefits of out of court resolution and the disadvantages
of going to court, including the effects of prolonged conflict on
children.69
What information is publicly available?
24.4 There are several sources of publicly available
information:
67 We discuss what we mean by “just and efficient” outcomes in Chapter 23.
68 See the discussion above at paragraph 23.
69 For example see the discussion in Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September
2011) at 35.
(a) The Ministry of Justice provides information on its
website about issues arising on separation and divorce, including the division of property under the PRA.70
That information covers applying to the Family Court, including the cost of
making an application, the forms that need to be filed,
and what happens once
an application is filed. It also covers legal aid and includes links to
Community Law and Citizens’ Advice
Bureau websites, and to some of the
information provided on the Community Law website, discussed below.
(b) Community Law Centres provide free legal help with all kinds of legal problems throughout the country.71 The Community Law Manual Online provides information about relationships and break-ups, including what happens to property on separation.72 The Community Law Manual explains the operation of the PRA, the fees for applying to the Family Court and the requirements for a binding contracting out agreement. However,
while Community Law Centres can provide initial legal information about the
PRA, they generally don’t give individualised
advice on property matters
and many Community Law Centres cannot witness contracting out agreements.73
They can however refer people to lawyers with the appropriate
skills.
(c) Citizens Advice Bureau (CAB) provides free advice on a broad range of issues.74 CAB has offices throughout the country and users of their services can also ask questions on their website or over the phone. The CAB website provides information about the PRA and the rules of division. It also addresses a range of common issues, ranging from what happens when relationships are shorter than three years, what happens if one
partner has left with debts owing, and who gets custody
of any pets.
70 See Ministry of Justice “Separation and Divorce: Divide relationship property” (11 January 2017) <www.justice.govt.nz>.
72 The Community Law Manual Online is available at <www.communitylaw.org.nz>.
74 More information about Citizens Advice Bureau and the information it provides is available at <www.cab.org.nz>.
information pamphlets for the public, including guides
to the PRA and what happens when partners separate.75
These pamphlets are available on its website. NZLS also provides a
searchable list of family lawyers on its website.76
(e) The Commission for Financial Capability also provides a guide to
managing finances after separation on its money management website
“Sorted”.77 This includes some information about the PRA
and directs people to the Ministry of Justice and CAB websites.
24.5 If there is a need to improve the information that is currently
available, options include:
(a) Improving online resources. International research has identified that, for the general population, the main source of information about out of court dispute resolution is the media/internet.78 Recent research into parenting disputes in New Zealand observed that initiating parents’ natural instinct was to go to a legal/ court information source to find out how to settle their parenting dispute.79 In England and Wales, the Family Justice Review recommended that the process
for initiating divorce should begin with a government- run online hub that provides information and support to separating partners, including about the different process options available for resolving disputes.80 A similar approach is taken in Australia.81
(b) Promoting public awareness of the PRA and its rules of property
division through a public education campaign.
75 New Zealand Law Society Dividing Up Relationship Property: The Property (Relationships) Act (March 2013); and New
Zealand Law Society What happens when your relationship breaks up? (July 2014).
76 For more information about the New Zealand Law Society see its website at <www.lawsociety.org.nz>.
77 See <www.sorted.org.nz>.
81 See <www.familyrelationships.gov.au>.
(c) Provision of printed leaflets in public spaces, such as
in court buildings, libraries, CAB and Community Law
Centres.
(d) Providing more information on the PRA and options for resolving
disputes through the government-run Parenting Through Separation
programme.82
(e) Information about the PRA could be provided to people when they make
contact with different government departments at different
points in time, for
example when applying for a marriage licence, registering a birth, buying or
selling a house, or when migrating
to New Zealand.
24.6 A further question is who should provide such information. In the
Family Court Review there were mixed views as to whether
it was the role of the
Family Court to provide information and help for resolving disputes out of
court. Some felt that information
is best distributed in partnership with a
range of government agencies such as the Ministry of Social Development, and
community
agencies such as Community Law Centres and iwi
groups.83
C ONSU LTATION QUESTIONS
H1 Is the current range of publicly available information about the PRA and
options for resolving property matters sufficient? If
not, where are the
current gaps?
H2 If more information should be publicly available, who should be
responsible for providing information, and in what form should
this information
be available (written/online/
telephone)?
undertake the course because they are unable to participate effectively, or because the application is being made without notice: s 47B(2). Evidence in support of that statement must be included in the application and a registrar may refuse to accept an application if the evidence provided does not adequately support the statement: ss 47B(3)–47B(4). A Family Court judge may also direct attendance at a Parenting Through Separation course when an application for a parenting order is made: s 46O.
83 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 35.
Is access to legal advice appropriate?
24.7 While the Ministry of Justice, Community Law Centres, CAB and NZLS are
all valuable first contact points for separating partners,
none are designed to
provide tailored advice and ongoing support in the resolution of property
matters. Many separating partners
will need to consult a lawyer for advice
tailored to their particular circumstances.84
24.8 The PRA recognises the importance of legal advice in ensuring a just outcome in property matters.85 It provides that a contracting out agreement will only be legally binding and enforceable in
court if the partners both received independent legal advice about its
effect and implications, prior to signing.86
Is legal advice accessible?
24.9 Not everyone will be able to afford a lawyer to provide tailored
advice. In some cases, only one partner may be able to do so.
Inability to
access legal advice is a concern as it may result in partners making
agreements without knowing what their legal
entitlements are. If only one
partner is able to afford a lawyer, this may create an imbalance of power
between the partners.
24.10 Legal aid is available for those who cannot afford a lawyer, but it
is limited in respect of PRA matters.87 Fees are fixed by activity
type,88 and include, for example, $850 for pre-proceeding
activities (including taking instructions, applying for legal aid, disclosure,
valuations and negotiations between parties), $650 for drafting PRA applications
and affidavits and, if agreement is reached
86 Property (Relationships) Act 1976, s 21F.
87 The Legal Services Regulations 2011 set out the maximum levels of income and disposable capital of applicant in order to be eligible for legal aid. For example, a single applicant with no dependent children cannot earn more than $23,326, while a single applicant with two dependent children cannot earn more than $53,119 (for applications made between 3
July 2017 and 1 July 2018). The maximum level of disposable capital is $3,500 for a single applicant, with $1,500 being added for each dependent child. See Legal Services Regulations 2011, regs 5–6.
88 Subject to an ability to apply for additional funding in limited circumstances. See Ministry of Justice Family Fixed Fee
Schedules (July 2016) at 33.
before proceedings are filed, $320 for drafting and certifying a
contracting out agreement.89 Legal aid is considered a loan, and
recipients may have to repay some or all of their grant, depending on how much
they earn, and
whether they receive any money or property when their property
matter is resolved.90
24.11 Some lawyers we have spoken with have raised the concern that the fees lawyers receive for legally aided PRA matters are not economically viable.91 We understand that many lawyers do not offer to act on PRA matters under legal aid for this reason. In a survey conducted by the Family Law Section of NZLS in 2014,
89.6 per cent of legal aid providers said that the fee for PRA orders was
inadequate, and 93.5 per cent said that the fee for drafting
contracting out
agreements was inadequate.92 NZLS observed:93
In relationship property cases, the law and people’s financial
structures were increasingly complicated and almost all cases
would be fixed fee
plus or require amendments to the original grant.
Providers indicated that [PRA matters] on legal aid was
not economically viable. The work is high risk work from an insurance
perspective and requires significant specialist skills. An appropriate
level of
remuneration is required to reflect this. Providers reported that [...]
applications for amendments to grants to increase
the fee were often required
even in order to cover basic negotiations.
24.12 Concerns with the adequacy of legal aid funding are representative of a wider access to justice issue in family law matters, particularly in regional areas of New Zealand.94 Between
2011 and 2016 there was a 25 per cent decrease in the number of
lawyers providing family legal aid in New
Zealand.95
89 Ministry of Justice Family Fixed Fee Schedules (July 2016) at 33.
90 Legal Services Act 2011, ss 18 and 21.
92 New Zealand Law Society Family Law Section Family Legal Aid Fixed Fees (2014) at 21.
93 New Zealand Law Society Family Law Section Family Legal Aid Fixed Fees (2014) at 21.
94 New Zealand Law Society “NZ Law Society welcomes temporary solution to family legal aid lawyer shortage” (30 March
2017) <www.lawsociety.org.nz>; and Radio New Zealand “Family Court lawyer shortage ‘critical’” (19 September 2016)
95 New Zealand Law Society “Falls in family and criminal legal aid providers” (25 August 2016) <www.lawsociety.org.nz>.
The Ministry of Justice has reportedly put the drop in providers down to regulation changes that required lawyers to reapply for approval and providers doing little or no legal aid work choosing not to reapply. See Tom Hunt “Legal aid bills skyrocket, but in some cases no lawyer can be found for kids in danger” (4 May 2017) Stuff <www.stuff.co.nz>.
difficult. In England and Wales, significant reductions in legal
aid for family matters resulted in a substantial increase in
cases where the parties were self-represented in proceedings.96
It will also likely mean more people will seek to negotiate an agreement
entirely outside the family justice system. This has two
consequences in
property matters under the PRA. First, people may enter an informal agreement
and act on that agreement without
knowing what their rights are, and second,
because informal agreements are void under the PRA, they may be overturned by a
court
later on.97
24.14 One likely consequence of reduced legal aid, as experienced in
England and Wales (see above), is an increase in the number
of people who
represent themselves in court. As the High Court observed in Brown v
Sinclair, cases in the Family Court have an emotional component not present
in other civil cases, and the inability of the parties to engage
lawyers can
make matters worse, as:98
Counsel’s detachment is the antidote for unpredictable or irrational
behaviour from parties who are guided by emotional responses
to an intense
personal experience. In the absence of such assistance, it is difficult for
Family Court Judges to perform their demanding
functions, in resolving the
domestic problems that they encounter.
24.15 The Court noted that self-represented litigants struggle to comply with the detailed rules of Court, and that there will often be problems with the preparation and content of documents and evidence that he or she is required to file in accordance with
those rules.99 Self-represented litigants need additional support to navigate the court process, which can add to the workload of the Family Court. It can also create additional expense to the other partner and cause further delay.
24.16 While we recognise the significance of lawyers’ concerns about
the inadequacy of legal aid funding for PRA claims, our
terms of
96 See Law Commission of England and Wales Enforcement of Family Financial Orders (Consultation Paper No 219, 2015)
at 4.
98 Brown v Sinclair [2016] NZHC 3196 at [3].
99 Brown v Sinclair [2016] NZHC 3196 at [4].
In this chapter we explore other ways to promote access to
justice, and in Part D of this Issues Paper we considered how the provisions
for interim distributions from relationship property
can be improved, including
in order to free up funds to enable a partner to instruct a lawyer.
Access to dispute resolution services
24.17 In some cases, party-led or lawyer-led negotiation will not resolve property matters and additional help is required. There is a range of dispute resolution processes available to resolve property matters under the PRA.100 The widespread use of
dispute resolution services and the number of dispute resolution practitioners from various disciplines means there is incredible variation in the practice of dispute resolution.101 Some services
are more suited than others to deal with post-separation property
disputes.
24.18 In this section we briefly recount the history of dispute resolution
in New Zealand’s family justice system and explore
four different
dispute resolution services that are currently available on a voluntary basis
for property matters:
(a) mediation;
(b) collaborative law; (c) arbitration; and
(d) online dispute resolution.
The history of dispute resolution in the family justice system
24.19 The New Zealand Family Court was established as a division of
the District Court on 1 October 1981. An important feature of the
Family Court was its therapeutic function, and the Family
Courts
101 Lola Akin Ojelabi and Mary Anne Noone “ADR Processes: Connections Between Purpose, Values, Ethics and Justice” in Lola Akin Ojelabi and Mary Anne Noone (eds) Ethics in Alternative Dispute Resolution (The Federation Press, New South Wales, 2017) 5 at 6.
judge-led mediation.
24.20 Confidential counselling under section 9 of the Family Proceedings Act 1980 was the primary mechanism for people to get assistance with their relationship issues out of court.102
Counselling was free and was obtained by making a request to the Family Court, but parties did not need to file proceedings, or even intend to file, to be eligible. This recognised that personal and emotional issues rather than legal concerns underpin many family disputes, and provided parties with an opportunity to
understand each other ’s perspective better and to be more open to
resolution.103
24.21 Parties to certain proceedings in the Family Court (but not PRA proceedings)104 could also participate in a mediation conference chaired by a Family Court Judge. The Judge chairing the mediation could, with the consent of the parties, make any orders that could have been made by a Family Court, including orders relating to
an application by either party for the possession or disposition
of property under the PRA.105 A District Court Judge could issue a
summons to a person who had previously failed to comply with a request to attend
mediation, requiring
their attendance.106
24.22 A review of the Family Court was undertaken in 1992 by a committee
appointed by the Principal Family Court Judge. That review
recommended the
establishment of a separate Family Conciliation Service that would utilise
mediation as the primary method of dispute
resolution.107 The Family
Court would be used only when a decision on a family law issue was required.
However those recommendations were not
adopted.108
24.23 A further review of the Family Court, undertaken by the Law
Commission in 2003, recommended better resourcing of
the family justice system to reduce delays, a new, expanded
102 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 40.
103 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 40.
105 Family Proceedings Act 1980, s 15 (repealed).
106 Family Proceedings Act 1980, s 17 (repealed).
107 Megan Gollop, Nicola Taylor and Mark Henaghan Evaluation of the 2014 Family Law Reforms: Phase One: Report to the
New Zealand Law Foundation (University of Otago, February 2015) at 1.
108 Megan Gollop, Nicola Taylor and Mark Henaghan Evaluation of the 2014 Family Law Reforms: Phase One: Report to the
New Zealand Law Foundation (University of Otago, February 2015) at 1.
about the Court within the community and making Court services
more culturally responsive.109 While legislation was introduced
in response to these recommendations providing for mediation, the provisions
never came into force.110 Under the proposed provisions a partner
could ask the Family Court to arrange mediation. There did not need to be
proceedings for
mediation to be available, and the mediation could address any
issues between the parties. It was intended that the State would
bear the cost
of mediation.111
24.24 The Government did, however, trial an “Early Intervention
Process”, in which the Family Court appointed lawyers
to act as mediators
in proceedings under the Care of Children Act 2004. However, the analysis of
the project indicated that when
lawyer- led mediation was used it was no more
efficient than the pre- existing approach for deciding applications.112
It was suggested that lawyers appointed by the Family Court to act as
mediators may not be as skilled as private mediators, and that
their training
and background as lawyers made it more likely that they would take a positional
rather than neutral approach to
mediation, and would be less able to deal with
the emotions of parties that may be obstructing resolution of the
dispute.113
The Family Court Review
24.25 In 2011 the Ministry of Justice undertook a comprehensive review of
the Family Court. That review found that the Family
Court:114
(a) was too often used for private matters that could be resolved
without recourse to a judge;
(b) was adversarial, which could exacerbate conflict between parents and
the risk of children being adversely affected by parental
conflict;
109 New Zealand Law Commission Dispute Resolution in the Family Court (NZLC R82, 2003).
111 Family Proceedings Amendment Act 2008, s 12 (proposed new s 12J of the Family Proceedings Act) (repealed).
112 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 52.
113 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 53.
114 Minister of Justice Family Court Review: proposals for reform (July 2012) at [17]
that cause delay; and
(d) had experienced sizeable growth in costs despite the total number of
all types of application remaining relatively stable.
24.26 The Family Court Review resulted in the most significant changes to New Zealand’s family justice system since the establishment
of the Family Court in 1981.115 The changes took effect on 31
March 2014 and were largely focused on parenting matters under the Care of
Children Act, as this represented the largest single category
of applications to
the Court (39 per cent of the Court’s workload) and where costs had
increased the most.116 Counselling and mediation were replaced with
out of court processes including Family Dispute Resolution (FDR) and a
parenting information
programme, Parenting Through
Separation.117
What is FDR?
24.27 Family Dispute Resolution, or FDR, is a mediation service that normally must be completed before a person can apply
to the Family Court for a parenting order or for directions in a guardianship matter.118 FDR is fully funded for those who qualify for legal aid, and parties who do not qualify for full funding
can access a government-subsidised service which is capped at
$390 plus GST per party.119 A similar requirement to attempt FDR
for parenting disputes prior to going to court also exists in
Australia.120
24.28 An initial review of FDR in 2015 found that while parents and
professionals generally supported the concept of out of
court resolution of
parenting disputes, 40 per cent of parents felt pressured to reach an agreement
at mediation due to its long
duration and/or the mediator ’s desire to get
a signed agreement in
115 Minister of Justice Family Court Review: proposals for reform (July 2012) at [23].
116 Minister of Justice Family Court Review: proposals for reform (July 2012) at [26].
117 Family Court Proceedings Reform Bill 2012 (90-1) (explanatory note) at 3.
119 Ministry of Justice Family Dispute Resolution: Operating Guidelines (December 2016) at 12.
120 As introduced by the Family Law Amendment (Shared Parental Responsibility) Act 2006 (Cth).
place.121 Agreements reached when parents felt pressured tended
to be broken shortly after mediation was completed.122
24.29 Changes were subsequently made to the funding model so
that FDR mediation is now a “process” rather than an “event”.123
Fully funded FDR participants are given a 12 hour allocation of resources
over a 12 month period, and those hours can be utilised
in any combination
agreed by the FDR provider, mediator and the parties.124 Parties who
are not eligible for full funding can only receive five hours of mediation
within a 12 month period at the capped price
of $390 plus GST, and must pay for
any mediation preparation themselves.125 The Ministry is currently
reviewing the effect of the 2014 reforms, and a three year evaluation project
is also being undertaken
by the University of Otago Faculty of Law and
Children’s Issues Centre.126
24.30 FDR is not designed for PRA matters, however, parents can use FDR to
talk about property matters “but only if it helps
you agree about how
you’ll care for your children”.127 We do not know how
often it is utilised for property matters, but we have been told by family
lawyers that this does occur.
24.31 As a result of the changes to the family justice system there is no longer any conciliation service (counselling, mediation or otherwise) available for PRA disputes out of court, except in
the limited circumstances where parents can raise PRA matters in FDR.128 We discuss FDR as an option for resolving property
matters below.
121 Ministry of Justice Evaluation of Family Dispute Resolution Service and Mandatory Self-representation: Qualitative
Research Findings (October 2015) at 5 and 22.
122 Ministry of Justice Evaluation of Family Dispute Resolution Service and Mandatory Self-representation: Qualitative
Research Findings (October 2015) at 5.
123 Bryan King “FDR mediation – an event or a process” The Family Advocate 18(4) (Wellington, Spring 2017) at 27.
124 Ministry of Justice Family Dispute Resolution: Operating Guidelines (December 2016) at 17.
126 University of Otago Children’s Issues Centre “Research activities” <www.otago.ac.nz>; and Justice and Electoral
Committee 2016/17 Estimates for Vote Justice and Vote Courts (1 July 2016) at 5.
127 Ministry of Justice “Separation and Divorce: Divide relationship property” (11 January 2017) <www.justice.govt.nz>.
The
different dispute resolution services available
Mediation
24.32 Our preliminary consultation with family lawyers suggests that
around 10–15 per cent of clients with post-separation
property disputes
go to private mediation.
24.33 Mediation involves an independent and impartial person (a mediator) who helps the parties to resolve their disputes. It is a confidential and voluntary process. The mediator is not a
decision-maker, although they may be legally trained.129 Their
role is to facilitate a supportive and supported negotiation environment,
empowering the parties and building their capacity
to negotiate mutually
appropriate outcomes.130
24.34 Mediation has many benefits, including its informality, flexibility
and less confrontational nature; its ability to promote
party self-
determination; and its focus on the parties’ mutual needs and interests,
along with the best interests of the
children.131
24.35 As discussed in Chapter 23, Māori are underrepresented as applicants and respondents in property matters in the Family Court, and it is recognised that the adversarial court system
is not responsive to Māori culture and can be alienating.132
Dispute resolution services, in contrast, are more flexible than court
processes. Dispute resolution can therefore be more accommodating
of the needs
of Māori and can focus on resolving matters in accordance with tikanga.
Some mediators already offer services
that are based on traditional Māori
values and respect te reo, tikanga and kawa, and the role of the
whānau.133
130 Rachael Field and Jonathan Crowe “Playing the Language Game of Family Mediation: Implications for Mediator Ethics”
in Lola Akin Ojelabi and Mary Anne Noone (eds) Ethics in Alternative Dispute Resolution (The Federation Press, New South
Wales, 2017) 84 at 85.
131 Rachael Field and Jonathan Crowe “Playing the Language Game of Family Mediation: Implications for Mediator Ethics”
in Lola Akin Ojelabi and Mary Anne Noone (eds) Ethics in Alternative Dispute Resolution (The Federation Press, New South
Wales, 2017) 84.
132 See discussion in Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 16.
24.36 There are, however, challenges. The mediation process can ask
a lot of parties – they are asked to make a genuine effort and
demonstrate at least to some extent a level of rational, reasonable
negotiation.
This can be challenging in the post-separation period, which is often a
stressful and emotional period.134
24.37 There can also be ethical challenges for mediators in balancing traditional mediation values, such as the impartiality of the mediator and the flexibility of the mediation, with the need
to promote an outcome that is procedurally and substantively “just”. There is longstanding debate over whether mediators should have any role at all in ensuring fair outcomes for the parties.135 Mediators have an ethical obligation to act impartially, and can feel constrained in their ability to provide meaningful information to parties on their legal entitlements.136 This issue can be heightened when the parties are not legally represented
in the mediation, and when the dispute involves complex legal questions. It
can result in unrepresented parties being left to make
decisions in an
“informational vacuum”, which often leads to decisions that are
not in the parties’ long-term
interests.137
24.38 Another challenge for mediators arises in respect of the key values of self-determination and the promotion of settlement. On the
one hand, a mediator is ethically committed to advance party choice. On the other hand, there is mediator knowledge of the
law (and what presents a “just” division of property in terms
of
– that the informal process provides a less challenging negotiation environment, and that the emphasis on party
self-determination and collaborative negotiation evens out the negotiation playing field – that may not ring true for parties who are inexperienced with the mediation system. These assumptions can potentially create hidden barriers for parties who lack knowledge of the mediation process and the surrounding legal framework. As a result, it is argued that mediators need to play an active role in preparing and supporting the parties to operate effectively within the mediation.
135 Some argue that mediators should be free to intervene to protect one party against a clearly unjust outcome, or to decline to “sanction” an agreement which the mediator has reason to believe would cause injustice to any party, including third parties. Others, however, take the view that it is not the role of the mediator to guarantee a fair agreement. See Bobette Wolski “An Ethical Evaluation Process for Mediators: A Preliminary Exploration of Factors Which Impact Ethical Decision-Making” in Lola Akin Ojelabi and Mary Anne Noone (eds) Ethics in Alternative Dispute Resolution (The Federation Press, New South Wales, 2017) 64 at 78–79. One international study found that most mediators believed they should not be concerned with the fairness of a mediated outcome, although the mediator has a role in ensuring procedural fairness. See Mary Anne Noone and Lola Akin Ojelabi “Ethical Challenges for Mediators around the Globe: An Australian Perspective” (2014) 45 Washington University Journal of Law and Policy 145.
136 See for example Ellen Waldman “Inequality in America and Spillover Effects om Mediation Practice: Disputing for the
1 Per Cent and the 99 Per Cent” in Lola Akin Ojelabi and Mary Anne Noone (eds) Ethics in Alternative Dispute Resolution
(The Federation Press, New South Wales, 2017) 24 at 29.
the PRA). When mediation has a formal role in the justice system
(like FDR does for parenting disputes) there may also be mediator
responsibilities to ease the court workload and advance the administration
of
faster, cheaper and more efficient justice.138
24.39 These factors suggest that mediation will be an appropriate dispute
resolution process for some, but not all, property disputes
under the
PRA.
Collaborative Law
24.40 Collaborative law emerged in the United States in 1995 and is a relative newcomer to dispute resolution in New Zealand, although it is well established elsewhere including in Australia, England
and Wales, Scotland and Canada.139 It developed as a response
to lawyers’ dissatisfaction with the win-lose culture of litigation
particularly in family disputes, and represents a paradigm
shift from
“positional bargaining” to interest-based mutual problem solving and
good faith bargaining.140 Collaborative law is used primarily,
although not exclusively, in the resolution of family law disputes.
24.41 Collaborative law is a negotiation-based approach practiced by lawyers as an alternative to conventional mediation and arbitration. Collaborative law, like mediation, provides a process for people who want to resolve their family disputes themselves. It is considered an “early consensual process” rather than a pre- litigation “intervention” by an expert with authority over the parties (unlike arbitration, discussed below).141 Unlike mediation, there is no neutral third party facilitator. Instead, each party
is represented by a lawyer trained in collaborative practice. Collaborative lawyers advise and represent their clients in the role
of advocate and remain bound by their ethical obligations to
their
than a mediator.142
24.42 At the core of the collaborative law model is a commitment by both parties to participate in good faith negotiation through face to face meetings, private settlement and transparent information sharing.143 At the outset the parties and their lawyers enter
into a “participation agreement” that disqualifies the lawyers from representing their client if either or both parties choose to litigate. The agreement creates procedural certainty and commits the parties to confidential, without prejudice and good faith negotiations, which creates a safe environment for interest-based negotiation.144 The agreement outlines the behaviours expected
of clients and professionals, and parties agree to share all relevant
information.145
24.43 Collaborative practice enables the parties to address overlapping issues such as parenting and property matters in the one process. It can involve professionals in other fields, including communication experts to facilitate effective dialogue, child
and family experts, mental health professionals and financial professionals
to help with future needs planning.146
24.44 Lawyers require special training to practise collaborative law. To
practise “collaboratively” it is suggested
that lawyers must
“unlearn traditional adversarial practices”, adopt a non-
confrontational approach and incorporate
knowledge of people’s
psychological functioning and particularly how the grief at the ending of a
relationship affects a
person’s decision making
after
64 Ohio State Law Journal 1315. Both discussed in Gaye Greenwood “The Challenge of Collaborative Law: Is Access to ADR through the Family Court an Oxymoron?” (paper presented to AMINZ/IAMA “Challenges and Change” Conference, Christchurch, August 2010) at 11.
oversees training in New Zealand and provides ongoing practice
group support for collaborative professionals, including the publication of
practice guidelines for collaborative lawyers.
24.45 International research into the effectiveness of collaborative law
suggests high levels of client satisfaction and rates
of settlement.148
Research in England and Wales identified that people who went through a
collaborative law process thought it was more supportive
than mediation and
quicker and less prone to inflame conflict than lawyer-led
negotiation.149
24.46 A key challenge to greater adoption of collaborative law, however,
is cost. The choice to negotiate collaboratively is available
for all New
Zealanders who can afford it. Research in England and Wales identified that
those talking about collaborative law
tended to be better educated, more
affluent, and generally have more sense of choice and agency about their
options after separation.150
Family arbitration
24.47 Arbitration is a formal, adversarial dispute resolution service that
is more similar to a court process than a facilitative
process like mediation
or collaborative law. An independent arbitrator is appointed by the parties to
make a decision that is
binding and enforceable as if it were a court
decision.151 The arbitration process is governed by the Arbitration
Act 1996, and rights of appeal from the arbitrator ’s decision are
very
limited.
24.48 It appears that arbitration is rarely used in New Zealand for relationship property disputes, and the PRA does not seem to anticipate resolution of disputes by arbitration. However, as the PRA expressly provides for resolution of disputes by agreement, and because contracting out agreements, unlike parenting
and maintenance agreements, do not usually require
ongoing
147 The Collaborative Law Association of New Zealand “Submission to the Justice and Electoral Committee on the Family
Court Proceedings Reform Bill 2012” at 3.
148 J Lande “An empirical analysis of Collaborative Practice” (2011) 49 Family Court Review 257; and Anne Barlow and others
Mapping Paths to Family Justice: Briefing Paper & Report on Key Findings (University of Exeter, June 2014).
151 Arbitration Act 1996, sch 1, cl 35. .
arbitration.152
24.49 Arbitration is said to have many advantages over going to court.
These include speed, procedural flexibility, confidentiality, choice and continuity of decision-maker, ease of access to the tribunal, finality (given the limited rights of appeal) and,
where appropriate, the opportunity to combine arbitration with mediation.153 The arbitrator ’s information-gathering powers are considered particularly helpful for PRA disputes. Arbitrators can actively assist in identifying the issues by calling the parties and their accountants to a conference, swearing everyone present
as witnesses, and leading a round table discussion on disputed facts.154
Once issues have been defined, they can seek missing information through
directions for targeted discovery, inspection of computer
systems,
interrogatories, oral questioning or reports by arbitrator-appointed experts
such as independent accountants, valuers or
experts in information
technology.155
24.50 Arbitration can however be costly. Partners pay the arbitrator ’s costs, as well as their own lawyer ’s costs in preparing for and attending the arbitration. The arbitrator ’s costs can include an appointment fee, a fee for managing the process up to hearing, forum fees and expenses.156 Arbitrations are therefore normally more expensive than court proceedings. Arbitration as an alternative to court proceedings will not always be appropriate, particularly if there are related claims under different areas of law, such as claims involving children, unascertained beneficiaries, inalienable family support rights after death or questions of
family status. 157
Online dispute resolution
24.51 As technology develops at a rapid pace, there is a growing
expectation that legal issues, like almost everything else, should
be able to
be sorted out online. Online dispute resolution can
152 Robert Fisher “Relationship property arbitration” (2014) 8 NZFLJ 15.
153 Robert Fisher “Relationship property arbitration” (2014) 8 NZFLJ 15 at 22–24.
154 Robert Fisher “Relationship property arbitration” (2014) 8 NZFLJ 15 at 23.
155 Robert Fisher “Relationship property arbitration” (2014) 8 NZFLJ 15 at 20.
156 See for example Arbitrators’ and Mediators’ Institute of New Zealand “Schedule of Fees, Costs and Expenses” (Adopted by
AMINZ Council, 27 May 2009).
157 Robert Fisher “Relationship property arbitration” (2014) 8 NZFLJ 15 at 20–21.
option for some.158 However, online dispute resolution will not
always be appropriate, particularly where complicated legal issues are involved, or where the parties are not committed to taking
an open and cooperative approach. In New Zealand, at least one online
company provides template contracting out agreements,159 and another
offers online dispute resolution services for PRA disputes.160
Similar services are also available in Australia.161
Is access to dispute resolution services for property matters
appropriate?
24.52 Currently there is no State provision of dispute resolution services or a requirement on former partners to attempt to resolve property matters themselves before filing proceedings in the Family Court. This is despite a general trend in family justice
systems, both in New Zealand and in other jurisdictions including Australia,
towards out of court family dispute resolution. This
trend is driven by several
factors, including the recognised benefits of early intervention and out of
court resolution, and the
desirability of reducing costs to the
State.162
24.53 In Australia, obtaining affordable professional advice and dispute resolution services for property matters has been recognised as a particular problem for low value property disputes.163 Results from a study of 9,000 parents who separated in 2006–2007 identified that those in the low (less than $40,000) and low-medium ($40,000–$139,000) asset pool ranges were significantly less
likely to use dispute resolution services, seek legal advice or go to court than those in the higher asset pool ranges, and were more
likely to say that no specific pathway was used to resolve
property
159 Legal Beagle <www.legalbeagle.co.nz>.
161 Divorce Partners <www.divorcepartners.com.au>.
162 Megan Gollop, Nicola Taylor and Mark Henaghan Evaluation of the 2014 Family Law Reforms: Phase One (University of
Otago, February 2015) at 21.
163 Australian Government Productivity Commission Access to Justice Arrangements: Productivity Commission Inquiry Report
(No 72 Vol 2, September 2014) at 870–878.
that:165
For some, avoiding the use of formal services for low value property disputes may be a proportionate and appropriate response. However, for others – particularly those who nominate no specific pathway – lack of access to affordable legal and financial advice and dispute resolution services may be a significant factor. This leads to questions about the
appropriateness of agreements or outcomes arrived at in these
cases.
24.54 No comparable research has been undertaken in New Zealand.
However our initial conversations with family lawyers and community groups
suggest the lack of access to low cost dispute resolution
services for property
matters may be a problem in New Zealand. We are therefore interested in
receiving submissions on this question.
C ONSU LTATION QUESTION
H3 Do you think there is a problem with access to affordable dispute
resolution services for property matters in New Zealand?
Options for promoting the use of dispute resolution for property
matters
24.55 There are several different ways that use of dispute resolution
services for resolution of property matters could be promoted.
We consider
several options below.
Should FDR be available for property matters?
24.56 Currently FDR is only funded for parenting disputes under the Care of Children Act 2004. Property matters may also be addressed at FDR, but only when they are related to an existing parenting dispute. The position is similar in Australia, and in
2014 the Australian Productivity Commission recommended
that
165 Australian Government Productivity Commission Access to Justice Arrangements: Productivity Commission Inquiry Report
(No 72 Vol 2, September 2014) at 872.
financial matters.166
24.57 Property disputes under the PRA are different in nature to parenting
disputes under the Care of Children Act. Quite often
PRA disputes will involve
complex legal and factual issues. A just outcome is dependent on full and frank
disclosure, and will often
require the parties to have received and carefully
considered legal advice.
24.58 We are aware of concerns with the suitability of FDR to address property disputes. FDR mediators do not need to be legally trained, and lawyers for the parties do not usually attend
FDR. Without proper preparation, legal advice and disclosure, discussing
property matters in FDR risks partners making an agreement
in the absence of
all the facts or without knowledge of their legal entitlements. It might also
damage relations between the partners
if they make an “in principle”
agreement during mediation only for one partner to be later advised against
that agreement
by the lawyer they approach to finalise a contracting out
agreement.167
24.59 While there is some attraction to extending the FDR service to
property matters, we are concerned that the FDR process as
it currently
operates may not be appropriate.168 Proper safeguards would need to
be built into the process to ensure unjust outcomes do not arise.
Should some other dispute resolution service be designated for
PRA matters?
24.60 An alternative to extending FDR is the development of a dispute resolution service specific for PRA matters. This might enable the development of a service led by dispute resolution practitioners with specialist skills and knowledge of property matters. It
might also provide for the involvement of participants’
lawyers,
166 Australian Government Productivity Commission Access to Justice Arrangements: Productivity Commission Inquiry Report
(No 72 Vol 2, September 2014) at 875–877.
875–877.
However at this stage we are not convinced that there is a real
need to establish a separate dispute resolution service for PRA
disputes. This is for several reasons:
(a) First, we lack evidence of any problems with how people are resolving their PRA disputes out of court, and the volume of cases going to court that could be redirected
to dispute resolution do not suggest there is a case to be made for cost
savings. PRA cases comprise a very small proportion of Family
Court business,
and the number of PRA applications is declining.169
(b) Second, because parenting issues and property matters often overlap, it would be inefficient to require parties
to attend two different dispute resolution services when the issues could be
properly resolved at one.
(c) Third, it is not easy to identify what dispute resolution service is
most appropriate for PRA matters. There is no “one
size fits all”
model. Each dispute resolution service has different strengths and
weaknesses.170 We think that the nature of the dispute and the
characteristics of the parties will determine whether out of court resolution
is
appropriate in any given context and, if so, what dispute resolution service
should be used.
24.61 If we were to recommend a dispute resolution service for property matters, careful consideration would need to be given to its
design, including:
(a) the extent to which legislation should set out the purpose, objectives
and/or values to be followed by the dispute resolution
service;
(b) the screening process, if any, that should be used to decide whether the dispute resolution service is appropriate given the nature of the dispute, its urgency and the characteristics of the parties;
(c) the role of the person leading the process (the dispute resolution
practitioner), and in particular their role, if
170 As identified in UK research. See Anne Barlow and others Mapping Paths to Family Justice: Briefing Paper & Report on
Key Findings (University of Exeter, June 2014) at 16.
legal entitlements under the PRA;
(d) the support that should be available to the parties, including issues
of legal representation at the dispute resolution event
and preparation (legal
and/or non- legal) for the event;
(e) the necessary qualifications of the dispute resolution practitioner,
and the details of an approval or accreditation process
if necessary;
(f ) ensuring parties can resolve disputes in a manner consistent with
their culture and personal values;
(g) when the dispute resolution event should occur (eg before or after
proceedings are filed in the Family Court);
(h) how the dispute resolution service should be funded;
and
(i) whether the dispute resolution service should be mandatory before an
application can be filed in the Family Court (we discuss
this issue
below).
C ONSU LTATION QUESTION
H4 Do you think that FDR (Option 1) or another designated dispute resolution service
(Option 2) should be available for resolving PRA matters?
Should parties be required to attempt out of court resolution of
PRA matters before going to court?
24.62 Currently there is no obligation on former partners to try and
resolve property matters themselves or use a dispute resolution
service before
filing proceedings in the Family Court. This is in contrast to care of children
matters, which must normally go to
FDR first.171
24.63 Introducing mandatory dispute resolution might result in fewer
people going to court. But because the proportion of separating
partners who
are currently going to court is very small, such a requirement is unlikely to
make a significant difference to how
most people resolve their property
matters. Requiring parties
171 Care of Children Act 2004, s 46E.
mediation also raises ethical issues, as it conflicts with core
dispute resolution principles such as voluntary participation by the parties, their empowerment in and ownership of their dispute and their self-determination in its resolution.172 Mandatory participation in dispute resolution may have other unintended consequences for the family justice system. For example, the introduction of mandatory FDR under the Care of Children
Act coincided with a sharp increase in urgent (without notice)
applications to the Family Court.173 It has been suggested that
this increase is due to people not wanting to complete FDR before going to
the Family Court, and/or wanting to be represented by a
lawyer.174
24.64 Rather than require parties to attend dispute resolution, the parties could instead be required to make a genuine effort and/ or use their best endeavours to resolve matters out of court. A good example is the “pre-action procedures” that apply in post-
separation property disputes in Australia. These procedures must be complied
with before a party can go to court, unless there are
good reasons for not
doing so.175 Pre-action procedures include making a genuine effort
to resolve the dispute by:176
(a) participating in dispute resolution, such as negotiation, conciliation,
arbitration and counselling;
(b) exchanging a notice of intention to claim and exploring options for
settlement by correspondence; and
(c) complying, as far as practicable, with the duty of disclosure.
24.65 There may be serious penalties imposed by the court for
non-compliance with pre-action procedures, including costs
175 Family Law Rules 2004 (Cth), sch 1.
176 Family Law Rules 2004 (Cth), sch 1, cl 1(1).
lawyers acting for clients with post-separation property disputes,
including to:178
(a) advise clients on ways of resolving the dispute without starting legal
action;
(b) advise clients about their duty to make full and frank disclosure,
and possible consequences of breaching that duty;
(c) endeavour to reach a solution by settlement, if that is
in the best interests of the client and any child, and tell their client
that it is in their best interests to accept a settlement
if, in the lawyer
’s opinion, the settlement is reasonable;
(d) advise clients of estimated costs of legal action, and the factors
that may affect the court in considering costs orders;
(e) provide clients with information prepared by the court about legal
aid services and dispute resolution services available,
and about the legal and
social effects and possible consequences for children of proposed litigation;
and
(f ) actively discourage clients from making extravagant claims or
seeking orders that are not reasonably achievable.
24.66 Currently, lawyers acting for parties and proposed parties in the Family Court in New Zealand have a statutory duty to, so far as possible, promote conciliation.179 It is not clear what is meant by “conciliation”, but this appears to encompass facilitative methods of dispute resolution, where parties try to reach agreement, with
or without third party intervention or assistance.180 The Care
of
177 Family Law Rules 2004 (Cth), sch 1, pt 1, cl 1(3).
178 Family Law Rules 2004 (Cth), sch 1, pt 1, cl 6.
179 Family Court Act 1980, s 9A.
at 10 that conciliation encourages each party to understand the other ’s point of view and to cooperate in finding a resolution that accommodates both parties. This is in contrast to the court process, and arbitration, both of which involve an independent third party adjudicating the dispute and making a determination binding on the parties.
advice about arrangements for the guardianship or care of a child,
to ensure the person is aware of:181
(a) the mechanisms for assisting resolution of family disputes;
(b) the steps for commencing and pursuing proceedings through the court;
and
(c) the types of directions and orders the court may make.
24.67 There is no equivalent duty on lawyers in respect of property matters
under the PRA.
24.68 We are interested in your views on whether former partners should be required to attempt to resolve property matters before they go to court. We are also interested in what this requirement might involve. Should it specify the particular steps that should
be taken, for example, lawyer-led negotiation or using a particular dispute
resolution service? We also want to know whether you
think there should be a
duty on lawyers advising clients on post- separation property matters to
provide them with information
about the different options for resolving disputes
out of court, similar to what is currently required under the Care of Children
Act, or what is required in the Australian pre-action procedures.
C ONSU LTATION QUESTIONS
H5 Should people with a property dispute under the PRA be required to
attempt to resolve the dispute before going to court? If
so, what steps should
they be required to undertake?
H6 Should there be a duty on lawyers to provide their clients with
information about the range of options for resolving property
matters under the
PRA out of court and the benefits of out of court resolution?
Is there a need for clear disclosure obligations?
24.69 As we explain in Chapter 25, the PRA imposes no express duty of
disclosure on partners. The Family Court Rules 2002 provide
for the parties to
make disclosure when PRA proceedings are filed in
There are no rules requiring disclosure at the earlier stages of out
of court dispute resolution.183
24.70 Following the Family Court Review, the Cabinet agreed to changes to improve the information available to parties before they bring PRA proceedings in the Family Court.184 While some changes were made to the Family Court Rules in response, they were limited to improving the quality of information disclosed for the purpose
of proceedings, rather than out of court resolution. Because the Family Court Rules are limited to regulating the practice and procedure of the Family Court, separate rules may be needed
to regulate dispute resolution practices that take place out of
court.185
24.71 In Australia, the pre-action procedures for post-separation property
disputes sets out the parties’ disclosure obligations
and a process for
exchanging correspondence that applies before either party goes to
court.186 The protocol explains that parties have a duty to make
full and frank disclosure of all information relevant to the issues in
dispute
in a timely matter.187 It provides that, when attempting to resolve
their dispute, parties should, as soon as practicable
exchange:188
(a) a schedule of assets, income and liabilities;
(b) a list of relevant documents in the party’s possession or
control; and
(c) a copy of any document required by the other party, identified by
reference to the list of relevant documents.
24.72 Parties are encouraged to refer to the rules for disclosure of
financial information that apply to court proceedings as
a guide, and the
pre-action procedure sets out a specific list of documents
183 See paragraphs 25.6–25.12 for a discussion of the current disclosure requirements under the Family Court Rules 2002.
184 Minister of Justice Family Court Review: proposals for reform (July 2012) at [99].
186 Family Law Rules 2004 (Cth), sch 1, pt 1, cl 4.
187 Family Law Rules 2004 (Cth), sch 1, pt 1, cl 4(1).
188 Family Law Rules 2004 (Cth), sch 1, pt 1, cl 4(2).
documents and exchange with the other party.189
24.73 Our preliminary view is that out of court resolution of property matters should be supported by clear rules about what information separating partners need to share with each other. A prescribed process, like the pre-action procedure in
Australia, appears to be a good model for New Zealand. The type of
information that should be disclosed could mirror the initial
disclosure
requirements that apply when parties go to court. These are discussed in
detail in Chapter 25.
C ONSU LTATION QUESTION
H7 Do you think that there should be clear rules of disclosure for parties
to follow when resolving property disputes out of court?
Should Collaborative Law be promoted for property
disputes?
24.74 Collaborative law, as a relatively new dispute resolution service,
could be more formally recognised and provided for in
the family justice
system.
24.75 In some jurisdictions, court processes have been streamlined or legislation passed to support collaborative practice.190 In the United States in 2009 the Uniform Law Commission191 drafted
a “Collaborative Law Act” to regulate and standardise the use of
collaborative law as a form of dispute resolution across
states. Versions of the
Act have been enacted in seven states, and recently introduced in
two.192
24.76 In the United Kingdom, collaborative law is promoted by the
State as a way to reach agreement on child arrangements.193
In Australia, collaborative law is supported at an executive administrative
level, with endorsement from the former Federal
189 Family Law Rules 2004 (Cth), sch 1, pt 1, cls 4(3)–4(5).
190 The Collaborative Law Association of New Zealand “Submission to the Justice and Electoral Committee on the Family
Court Proceedings Reform Bill 2012” at 11.
191 Also known as the National Conference of Commissioners on Uniform State Laws. The Commission was established in
1892 and provides states with non-partisan legislation to bring uniformity to state law.
193 See <https://helpwithchildarrangements.service.justice.gov.uk>.
and the Chief Judge of the Family Court of Australia.194
24.77 Following the review of Family Court, the Collaborative Advocacy New Zealand (CANZ)195 submitted that collaborative law should be adopted and supported in the family justice system.196 It submitted that parties should be able to undertake collaborative
law as an alternative to FDR, and that legal aid should be available for collaborative law in PRA matters.197 It argued that the current legal aid framework is focused on proceedings rather than out
of court resolution, which has the consequence of promoting litigation in
order to access legal aid for alternative dispute
resolution.198
24.78 The Ministry of Justice, advising the Parliamentary select committee
on the Family Court reforms, commented that the reforms
did not exclude the
possibility of collaborative lawyers becoming FDR providers. It also observed
that if the parties had just
completed a collaborative law process an FDR
provider could excuse the parties from undertaking FDR before applying to the
Court,
on the basis that FDR is inappropriate for the parties to the
dispute.199
24.79 However, CANZ have told us their concerns about how collaborative law would work within an FDR-type model.200
Imposing the current time and cost limitations in FDR on a collaborative law process would not provide optimal outcomes for families. The structure of the FDR model, in which the provision of legal advice to a client sits outside the FDR process and the lawyer does not normally attend FDR, is also incompatible with collaborative law practices, which focus on legal advice and advocacy throughout the dispute resolution process. However
CANZ maintains that with careful design of the process,
194 The Collaborative Law Association of New Zealand “Submission to the Justice and Electoral Committee on the Family
Court Proceedings Reform Bill 2012” at 14.
195 Formerly known as the Collaborative Law Association of New Zealand.
196 The Collaborative Law Association of New Zealand “Submission to the Justice and Electoral Committee on the Family
Court Proceedings Reform Bill 2012” at 18–19.
197 The Collaborative Law Association of New Zealand “Submission to the Justice and Electoral Committee on the Family
Court Proceedings Reform Bill 2012” at 20–22.
198 The Collaborative Law Association of New Zealand “Submission to the Justice and Electoral Committee on the Family
Court Proceedings Reform Bill 2012” at 22.
199 Ministry of Justice Family Court Proceedings Reform Bill: Departmental Report (April 2013) at 76.
200 Information provided by email from The Collaborative Law Association of New Zealand to the Law Commission (10
October 2016).
resolution model.
24.80 We are interested to hear whether there is a need to specifically
provide for collaborative law in the context of property
disputes, including by
way of legal aid eligibility.
C ONSU LTATION QUESTION
H8 Is legal reform needed to better enable parties to use collaborative
law to resolve property disputes?
Does the law need to be clarified to provide for
arbitration?
24.81 The Arbitration Act provides a general structure for arbitration
and confirms that an arbitrator ’s decision is enforceable as a court decision. But the PRA does not make any express provision for arbitration. Instead, the provisions relating to contracting out in Part 6 of the PRA can be used by the parties to agree to resolve
any disputes by arbitration.201 In contrast, in some jurisdictions
arbitration is authorised and regulated for property disputes arising on
separation,202 while in others professional arbitration organisations
and family law organisations have adopted special rules for family
arbitration.203
24.82 We are interested in submissions on whether there is a need for the PRA to make special provision for the resolution of property matters by arbitration. This could be by way of reference to arbitrations under the Arbitration Act, or by establishing a specific arbitral regime within the PRA. An example is the regime for construction contracts established under the Construction Contracts Act 2002.
24.83 One possible matter for consideration is whether the grounds of
appeal for arbitral awards should be broader in the PRA
appeal are those set out in the Arbitration Act 1996. For discussion see Robert Fisher “Relationship property arbitration” (2014) 8 NZFLJ 15.
203 In England and Wales the Institute of Family Law Arbitrators (IFLA) was established to administer a set of rules (the IFLA Scheme) for family law disputes including property disputes. A similar scheme was also set up in Scotland. See Robert Fisher “Relationship property arbitration” (2014) 8 NZFLJ 15.
context. The grounds for setting aside an arbitral award under
the Arbitration Act are very limited.204 There is no general
right to appeal the merits of the decision, or to challenge the decision on
the basis that it would cause
serious injustice. This is in contrast with the
general right of appeal from decisions of the Family Court.205 It
is also more difficult to challenge an arbitral award than it is to challenge
the terms of an ordinary contracting out agreement,
which may be set aside if
it would cause serious injustice.206
C ONSU LTATION QUESTION
H9 Is legal reform needed to promote the use of family law arbitration as
an alternative to court in property
disputes?
204 See Arbitration Act 1996, sch 1, arts 34–36; sch 2, art 5.
205 Property (Relationships) Act 1976, s 39.
Chapter 25 –
Going to court
25.1 When separating partners cannot resolve their property matters themselves, they can apply to the Family Court for orders dividing their property. The Family Court hears all applications under
the PRA, although it can transfer cases to the High Court when
appropriate.207 We discuss the jurisdiction of the Family Court and
the High Court in Chapter 26.
25.2 In this chapter we look at how property matters are dealt with in the
Family Court, and identify some practical issues that
can hinder the just and
efficient resolution of disputes.208
PRA proceedings in the Family Court
25.3 The Family Court process is governed by the Family Court Rules
(Rules). The purpose of the Rules is to:209
... make it possible for proceedings in Family Courts to be dealt
with—
(a) as fairly, inexpensively, simply, and speedily as is consistent with
justice; and
(b) in such a way as to avoid unnecessary formality; and
(c) in harmony with the purpose and spirit of the family law
Acts under which the proceedings arise.
25.4 Proceedings commence when one party files an application in the Court
for orders under the PRA.210 The Rules set out the requirements for
making an application and the documentation that needs to be filed alongside
an application,
including a
207 Property (Relationships) Act 1976, ss 22 and 38A.
209 Family Court Rules 2002, r 3(1).
210 Family Court Rules 2002, r 19. The applicant must complete the general application form G 5 which is set out in the
Family Court Rules 2002, sch 1 and is available on the Ministry of Justice’s website. See <www.justice.govt.nz>.
supporting affidavit211 and affidavit of assets and liabilities.212
Applicants will usually need to pay a $700 filing fee.213
25.5 Applications under the PRA are normally made “on notice” to the other party, which means that the applicant’s former partner (the respondent) receives a copy of the application and affidavits filed and has an opportunity to respond to them before the matter
is heard by the Court.214 The respondent must file and serve on
the applicant an affidavit “sufficient to inform the court of the facts
relied on by
the respondent” as well as their own affidavit of assets
and liabilities within 20 working days of receiving the
application.215
What information must parties disclose?
25.6 There is no express duty of disclosure on partners in the PRA.216
However in M v B the Court of Appeal confirmed that the law required “total disclosure and cooperation” between parties in PRA proceedings.217 In Clayton v Clayton the Court of Appeal endorsed an approach that recognises that parties “are under an obligation to make full and frank disclosure of all relevant
information”, in order to ensure that the court is in a position to
make appropriate orders under the PRA.218 This duty of disclosure is
enforced through the Rules.
25.7 The Rules provide for initial disclosure by way of the affidavit of
assets and liabilities, which must be filed by each
party in the prescribed
form set out in the Rules.219 This requires the parties to set out
full details of all of their assets (including all legal
annexed to it a copy of any document relied on by the applicant in support of the application: Family Court Rules 2002, sub-r 392(2).
212 Family Court Rules 2002, r 398. The affidavit of assets and liabilities is form P(R) 1, set out in the Family Court Rules
2002, sch 8 and is available on the Ministry of Justice’s website. See <www.justice.govt.nz>.
214 Unless rr 24(1) or 24(2) of the Family Court Rules 2002 apply.
215 Unless directed otherwise by a judge or registrar: Family Court Rules 2002, sub-rr 392(3) and 398(2).
217 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [49].
218 Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293 at [186].
219 Family Court Rules 2002, r 398 and sch 8, form P(R) 1.
income, capital payments, and dealings in assets since the parties
separated. The prescribed form provides for supporting documents such as valuations, proof of deposits and financial statements to
be attached to the affidavit.
25.8 If the applicant fails to file an affidavit of assets and
liabilities with their application, the proceedings can be dismissed
or stayed
until the affidavit is filed and served.220
25.9 When there has been inadequate disclosure of assets and liabilities,
there are several orders the Court can make to require
additional disclosure of
relevant financial information from a party. It can
order:221
(a) the discovery of documents (discussed below);222
(b) the administration of interrogatories, which are written questions to a
party about matters in issue;223
(c) the examination of the non-disclosing party, which requires that party
to attend Court and be examined on any matter that
should have been disclosed
in the affidavit of assets and liabilities;224 or
(d) an inquiry under section 38 of PRA.
25.10 It is for the Court to decide the best means by which any information
deficit can be remedied, but it must adopt a sense
of proportionality.225
The more serious the default, the more intrusive the remedy is likely
to be.226
What is the process for discovery?
25.11 Discovery is the process through which each party identifies the
documents which are relevant to the proceeding and discloses
220 Family Court Rules 2002, r 399.s
222 Family Court Rules 2002, rr 140–152.
223 Family Court Rules 2002, rr 47 and 137.
224 Family Court Rules 2002, r 400.
225 B v W [2016] NZHC 2481, [2017] NZFLR 258 at [46] and [53].
226 B v W [2016] NZHC 2481, [2017] NZFLR 258 at [53].
those documents to the other party.227 A party must apply to the
Court for an order for discovery, and that application must be accompanied by an affidavit specifying the extent of the discovery required and the reasons for the discovery.228 The Court then orders the other party to produce an affidavit listing the relevant documents they have in their possession, and any other relevant documents they know to exist.229 Once that affidavit is filed, the party who made the application for discovery can request the production of any of the documents listed.230 In 2015 the High Court in Dixon v Kingsley established some “essential principles”
for discovery in PRA proceedings:231
(a) A robust approach should be taken to discovery consistent with the
purposes and principles of the Act: the need for just division,
but also
inexpensive and efficient access to justice.
(b) Such discovery must not be unduly onerous.
(c) Such discovery must be reasonably necessary at the time
sought.
(d) The scope of discovery should therefore be tailored to
the need of the Court to dispose, justly and efficiently, of relationship
property issues under the Act.
(e) More substantial discovery may well be ordered by the Court where it
has reason to believe that a party has concealed information
or otherwise sought
to mislead either the other party or the Court as to the scope of relationship
property. But even here, the scope
of discovery should be no more than is
required for the Court to fairly and justly determine relationship property
rights. It is
just that in such a situation, more is likely to be required to
meet that requirement.
228 Family Court Rules 2002, rr 141(1) and 141(2).
229 Family Court Rules 2002, rr 141(2A) and 142.
230 Family Court Rules 2002, r 146.
231 Dixon v Kingsley [2015] NZHC 2044; [2015] NZFLR 1012 (HC) at [20]. See also C v C FC Rotorua FAM-2007-063-652, 20 June 2011 at [31]; and
J v P [2013] NZHC 557 at [22].
What are the consequences of non-disclosure?
25.12 There are several possible consequences for failing to comply with
disclosure obligations:
(a) The court can impose procedural consequences, including a stay or
dismissal of proceedings (in part or in full),232 restrictions on
further participation in the proceedings until disclosure obligations are
met,233 and ultimately contempt of court.234
(b) When hearing the issues in dispute, the court can draw inferences that
are adverse to the non-disclosing party’s position:235
[T]here is a principle of long standing that a party peculiarly placed to
provide evidence as to value must expect assumptions to
be made against the
party’s interests if he or she remains silent.
(c) Non-disclosure can be taken into account in an award of costs under
section 40 of the PRA.236 Courts have readily awarded costs where a
party’s conduct has escalated costs to the other party, and have said
there is a
strong public policy interest in establishing for future litigants
that serious conduct, such as lying, obstructing and delaying,
will be heavily
penalised in costs.237
at the hearing and defend the application only on terms that the court directs. See also r 401 (failure to attend for examination or to comply with directions).
2016, s 212 and by necessary implication to enable the court to discharge its statutory jurisdiction effectively. For further discussion on contempt of court see Law Commission Reforming the Law of Contempt of Court: A Modern Statute – Ko te Whakahou i te Ture mō Te Whawhati Tikanga ki te Kōti: He Ture Ao Hou (NZLC R140, 2017).
237 S v S HC Whangarei AP 37/92, 22 June 1993. See discussion in RL Fisher (ed) Fisher on Matrimonial and Relationship
Property (online looseleaf ed, LexisNexis) at [19.42] on the grounds to award costs, including examples where courts have
How are PRA cases managed through the court?
25.13 While parties must comply with the Rules, there are no prescribed standard steps that all PRA cases must follow. The Family Court Caseflow Management Practice Note (Practice Note) outlines best practice for managing cases through the court system.238 Judges are, however, ultimately responsible for the way in which they
run their cases and there can be considerable variation in the style and
practice of judges in the courtroom.239
25.14 The Practice Note provides for cases to be managed through the “Registrar ’s List” to ensure that applications have been served and that steps are taken to further the proceedings.240 According to the Practice Note, when an application is filed, the Registrar will assign a Registrar ’s List date for six weeks’ time.241 Parties and their lawyers do not usually need to attend the Registrar ’s List, but they must tell the Registrar in advance what steps have been achieved and what further directions (if any) are sought.242
The Registrar ’s List deals with standard interlocutory matters and ensures that all evidence (including affidavits) is being assembled within the necessary timeframes.243 At the Registrar ’s List the Registrar will set the case down for a judicial conference, to be held within 42 days.244 Alternatively the case might be adjourned. This might be to give the parties more time to assemble their evidence, or to try to resolve the matter by agreement.245
However, a judicial conference will normally be allocated after two adjournments, or when the Registrar otherwise considers that the
delay warrants judicial
intervention.246
taken into account an unwillingness to provide full and frank disclosure and an increase in court costs due to providing inadequate or false information concerning assets and liabilities.
238 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011).
239 The Principal Family Court Judge, who issues practice notes, would be unlikely to intervene in the way in which a judge chooses to run his or her courtroom barring “clear misconduct or hopeless incompetence”. See: Law Commission Family Court Dispute Resolution: A discussion paper (NZLC PP47, 2002) at [64] and [68].
240 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [1.5].
241 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [13.5].
242 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [1.7].
243 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [1.8].
244 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [13.5].
245 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [1.6].
246 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [13.9].
25.15 Judicial conferences are presided over by a judge. Parties are
expected to attend with their lawyers,247 and should have filed and served their affidavits of assets and liabilities beforehand.248 At the judicial conference the Court can make orders or give directions
on matters including:249
(a) the clarification and/or agreement on the extent of their assets and
liabilities;
(b) settling the issues to be determined at the hearing;
(c) setting tasks to clarify the issues and procure further information
when necessary;
(d) requiring the parties to attend a settlement conference;
and
(e) setting the case down for hearing.
25.16 At a settlement conference the parties try to settle the issues in
dispute between them.250 It is presided over by a judge, and the
parties and their lawyers can be required to attend.251 Settlement
conferences are confidential, and any information, statement or admission
disclosed at a settlement conference cannot
be referred to at any subsequent
court hearing.252 If the judge presiding over the settlement
conference is satisfied that the parties cannot resolve the issues, he or she
may treat
the conference as a judicial conference and may make any of the
orders or directions referred to above, including setting down
the case for a
hearing.253
How does the Court make its decision?
25.17 In most civil proceedings in New Zealand, the court operates an
adversarial process in which the party initiating the proceedings
has the
burden of proving their claim on the balance of probabilities. In PRA
proceedings, however, the court’s role is
247 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [13.7].
248 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [13.6].
249 Family Court Rules 2002, r 175D; and Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24
March 2011) at [13.8].
250 Family Court Rules 2002, sub-r 178(1).
251 Family Court Rules 2002, sub-r 178(2).
252 Family Court Rules 2002, sub-r 178(4).
253 Family Court Rules 2002, r 179A. The judge who presided over the settlement conference must not preside over the hearing unless the parties consent or the only matter for resolution at the hearing is a question of law: Family Court Rules 2002, r 180.
different. It is required to make orders dividing property in a way
that achieves justice between the parties, and therefore takes a
semi-inquisitorial approach.254 This was confirmed by the Court of
Appeal in M v B:255
The [PRA] is about property rights and entitlements. The [PRA], and the
regulations which have been promulgated pursuant to it, make
it clear that,
although there is not a fully inquisitorial system, a Court needs only to be
satisfied about a state of events which
has existed, or which exists. Notions of
onus of proof fit uncomfortably within this legislative regime.
25.18 In other words, the court needs to be satisfied that a state of
affairs existed, but the applicant does not have the burden
of proving that to
the court.256 This is an important point, because often the
applicant in PRA proceedings will not be the legal owner of the property in
dispute,
and so the evidence relevant to the applicant’s claims is more
likely to be in the possession of the responding partner.257
25.19 That said, the court can only proceed on the basis of the evidence
that is before it. The party making a claim therefore
needs to ensure that
there is sufficient evidence before the court for it to be satisfied of a
particular state of affairs, or
that the different elements of a test have
been met.258
Who pays the costs of going to court?
25.20 The Family Court has the power to make orders as to costs for
any proceeding, step in a proceeding or any matter incidental to a proceeding
as it thinks fit.259
254 As reflected in the statutory purpose of the Property (Relationships) Act 1976, s 1M. See discussion in RL Fisher (ed)
Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [19.23].
257 M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA) at [38].
the Court to determine that there has, in fact, been an increase in value, and to assess how much the increase in value has been: N v N [2004] NZCA 288; [2005] 3 NZLR 46 (CA) at [80]. See also X v X [2009] NZCA 399; [2009] NZFLR 985 (CA) at [96] discussing the evidential requirements for a claim under s 15. See RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [19.27] for a list of circumstances where positive evidence should be adduced.
259 Property (Relationships) Act 1976, s 40. Costs are awarded at the court’s discretion and it may apply the provisions of the
District Court Rules 2014: Family Court Rules 2002, r 207.
25.21 Traditionally the Court took the view that PRA proceedings
were a “mutual approach to the Court for assistance in dividing property”, and therefore each party should bear their own costs.260
Following the passing of the Matrimonial Property Rules 1988
(the predecessor to the Family Court Rules), it became widespread practice to consider and award costs for improper compliance
with procedural directions and rules.261
25.22 More recently, the growing trend is to treat costs awards in the
Family Court in a similar fashion to how costs are dealt with in other civil proceedings.262 That is, while costs decisions are discretionary, the Court should apply the civil costs regime
in the District Court Rules 2014 to PRA proceedings, and any departure
“must be a considered and particularised exercise of
the
discretion”.263 The guiding principle for determining costs in
a civil costs regime is that the party who fails should pay costs to the party
who
succeeds (that is, costs should follow the event).264
25.23 The civil costs regime may not, however, be appropriate for PRA proceedings. As we explained above, PRA proceedings are different in nature to other civil proceedings, and this may justify a
different approach, for example, if the threat of costs operates as a barrier
to accessing justice. Some argue that more flexibility
than the approach to
costs in civil proceedings is appropriate in PRA
proceedings.265
C ONSU LTATION QUESTION
H10 Should costs be available in PRA proceedings on the same basis as in
other civil proceedings?
261 Hardisty v Hardisty (1990) 7 FRNZ 5 (FC) per Judge Boshier.
262 Van Selm v Van Selm [2015] NZHC 641 at [34]–[44], adopting the approach in B v C HC Auckland CIV-2011-404-1005, 4
October 2011; T v L [2012] NZHC 1388; Thompson v Public Trust [2014] NZHC 2434; and Martin v Marsh [2015] NZHC 416. The change in approach came about following the introduction of r 207 of the Family Court Rules 2002, which provides that in exercising discretion to determine costs, “the court may apply any or all of the following [District Court Rules]”: Family Court Rules 2002, sub-r 207(2).
263 Van Selm v Van Selm [2015] NZHC 641 at [44]. See also Gibbs v Gibbs [2015] NZHC 3043 at [53].
265 See Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at 260.
Is the Court process operating effectively?
PRA proceedings take a long time to resolve
25.24 Best practice is that standard PRA cases should be disposed of within 26 weeks of filing in the Family Court, and complex PRA cases within 39 weeks of filing.266 But in reality the vast majority of PRA cases take much longer to resolve. Of the PRA cases disposed in 2015, 93 per cent had taken longer than 39 weeks, and half had taken over two years.267 In 2016, the average time the Family Court took to resolve an application under the PRA
(either through the Court granting or dismissing an application, or through the application being discontinued, withdrawn or struck- out) from the time it was filed was approximately 74 weeks.268
While PRA applications make up a small proportion of the Family
Court’s workload, they take the longest time to
resolve.269
25.25 The length of time it takes to resolve property disputes can have
significant financial and emotional implications for the
parties.270
For many people, the costs and delays associated with going to court
“remain at least as daunting as the bewildering complexity
of the law
itself.”271 Until the proceedings are resolved the parties
live in a state of uncertainty that can prevent them from making financial
decisions
which could allow them to move on with their lives.272
When one party has access to the disputed property pending determination
of the case, delays can have a disproportionate impact on
the other party and
potentially any children in their primary care.
266 Principal Judge Peter Boshier Family Court Caseflow Management Practice Note (24 March 2011) at [13.1]–[13.2].
269 Minister of Justice Family Court Review: proposals for reform (July 2012) at [97].
270 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
271 Simon Jefferson “Upgrading the Tractor to a Maserati” (paper presented to New Zealand Law Society PRA Intensive
Seminar, Wellington, September 2016) 151 at 152.
25.26 Just because a case takes a long time to resolve does not, however,
necessarily mean there has been unreasonable delay. PRA cases often involve
complex legal and personal problems and disputes require
time to be managed and
resolved.273 Sometimes, “fast” justice is not possible
and simply speeding up processes will not produce fair or lasting
outcomes.274 The International Framework for Court Excellence
describes timeliness as a balance between the time required to properly
obtain,
present and weigh the evidence, law and arguments, and unreasonable
delay due to inefficient processes and insufficient
resources.275
25.27 In this review we are concerned with unreasonable delay caused by
inefficient processes or insufficient resources specific
to PRA proceedings. We
do not address broader issues with Family Court operations as this is outside
the scope of this review.276
Do PRA proceedings experience unreasonable delay?
25.28 A close examination of a sample of 88 PRA cases by the Ministry of
Justice revealed that:277
Delay in [PRA] proceedings, as indicated by the frequency of adjournments, was evident. While some adjournments are necessary, the estimated average number of adjournments per case was 12, which appears high. Every case was adjourned
at least once, with 82 percent being adjourned more than six times. At the extreme end, 13 of the 88 cases sampled had in excess of 20 adjournments with two cases having in excess of
30 adjournments. Adjournments most often occurred in order to obtain information, reports and await the outcome of settlement discussions. Delay caused by either a party or their lawyer was
also evident in 55 of the 88 cases.
273 Australian Centre for Justice Innovation Innovation Paper: Improving Timeliness in the Justice System (Monash
University, 2015) at 1.
274 Australian Centre for Justice Innovation Innovation Paper: Improving Timeliness in the Justice System (Monash
University, 2015) at 2.
25.29 This, considered alongside the raw disposal data for PRA
proceedings discussed above, as well as examples of “relatively
uncomplicated” claims becoming “mired in a procedural
morass”,278 suggests that PRA cases may be more susceptible
to unreasonable delay than other types of cases before the Family
Court.
PRA cases have unique characteristics which are likely to contribute to
delays
25.30 PRA cases are different from most other Family Court cases because
they “are not so much about personal relationships
as they are about
property”.279 They will often involve complex legal and
factual issues, such as valuation issues, disputes over the classification of
property
and issues to do with trust property. Therefore information disclosure
is extremely important in PRA cases.
25.31 But PRA proceedings also come after partners have separated, and
often at a time of high interpersonal conflict. As the High
Court observed in
Brown v Sinclair:280
Primarily, disputes requiring resolution of the Family Court, whether
involving children or property, have an emotional component
that is not present
in other civil cases. Two people are hurting from the breakup of a relationship,
and all too often one is intent
on causing financial or psychological harm to
the other.
25.32 Information disclosure between the parties can be more challenging
than in other types of property disputes. This problem
can be compounded if one
partner managed the partners’ finances during the relationship, and as a
result has greater knowledge
of their financial affairs than the other
partner. On separation, this
Two people have been married for less than three years. They separate. One files an application in the Family Court to determine their respective shares in relationship property. The other files an application for a protection order. Within
six months the person against whom the relationship property application was brought is debarred from participating in that proceeding. Cross applications for protection orders are made. Almost six years later, the parties remain embroiled in litigation in the Family Court and in this Court.
279 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 25.
280 Brown v Sinclair [2016] NZHC 3196 at [3].
imbalance of knowledge can put the one partner at a distinct
disadvantage.281
25.33 These characteristics mean that PRA proceedings are
“notorious for efforts by a wealthier or better informed spouse
to
confine access to information by the poorer or more poorly informed
spouse.”282
25.34 In a similar vein, tactics aimed at delaying the court process and forcing the other party to incur added expense are also evident in some PRA proceedings.283 In the Family Court Review the Ministry of Justice observed that the court process placed the onus on the applicant to take action when the other party (the respondent)
has failed to comply with the Rules, or will not engage in pre- hearing
settlement negotiations. This means that often the applicant
is in a
vulnerable position, as they may not be in control of the property in dispute
yet are forced to undertake expensive and lengthy
litigation.284
Reform may be needed to address delays in the
Family Court
25.35 The unique characteristics of PRA cases point to the need for an
efficient case management process, clear disclosure obligations
and effective
penalties for non-compliance with disclosure and with other procedural
requirements.
25.36 We are interested in views on whether the current process for
PRA cases in the Family Court is causing unreasonable delay, and
if so, what you think are the particular sources of delay. Our initial research and conversations with lawyers working in the Family Court have identified several possible sources of delay in the current court process, including:
(a) The reliance on affidavit evidence to identify the issues in dispute is
inefficient.285
282 D v K [2015] NZHC 2044; [2015] NZFLR 1012 (HC) at [15].
283 See discussion in Jan McCartney “Tactics Used in Litigation to Undermine or Frustrate the Property (Relationships) Act
1976 – and Proposed Changes to Improve Achievement of Resolution” (paper presented to A Colloquium on 40 Years of the PRA: Reflection and Reform, Auckland, December 2016).
284 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 23.
(b) The disclosure obligations are regularly ignored or only
partially met.286 While a party has several options for seeking
further disclosure, each of these options require that party to take further
steps
and incur additional cost and delay.287 For these reasons
lawyers may be reluctant to utilise these options except as a last
resort.288
(c) The lack of a structured case management process with prescribed
timeframes means that it is too easy for one party to slow
the process down,
for example, by filing incomplete information, making multiple interlocutory
applications or seeking multiple
adjournments.
(d) Current practice is not to allocate a hearing date
early in the process, which means that parties are not incentivised to
enter into settlement negotiations early on or to arrange
their case in an
efficient manner.
QUESTION F OR C ONSU LTATION
H11 In your experience, do you think there is unreasonable delay in the
current court process for PRA proceedings? If so, have we
identified all of the
particular sources of delay?
Options to improve the court process
Option 1: Introduce pleadings for PRA cases
25.37 Pleadings (such as a statement of claim289 and statement
of defence) are regularly used in other courts to define the
matters
286 Lynda Kearns “Laying Your Cards on the Table: Disclosure Roulette” (paper presented to A Colloquium on 40 Years of the
PRA: Reflection and Reform, Auckland, December 2016) at 7.
avoid a discovery order can lead to delays that can go on for months and even years. See: Jan McCartney “Tactics Used in Litigation to Undermine or Frustrate the Property (Relationships) Act 1976 – and Proposed Changes to Improve Achievement of Resolution” (paper presented to A Colloquium on 40 Years of the PRA: Reflection and Reform, Auckland, December 2016) at 6.
288 Simon Jefferson “Upgrading the Tractor to a Maserati” (paper presented to New Zealand Law Society PRA Intensive
Seminar, Wellington, September 2016) 151 at 156.
(a) must show the general nature of the plaintiff ’s claim to the relief sought; and
to file a statement of claim when making an application under
the PRA in the Family Court. Instead, an applicant must fill in a general
application form (not specific to the PRA) which requires
the applicant to
state the nature of the orders sought. However, many applications are made in
non-specific terms, simply for
“such orders under the [PRA] as the Court
deems just”.290
25.38 In theory, the supporting affidavit filed with an application under
the PRA should include details of the proposed arrangements
for the division
of property and the matters in issue between the parties.291 There
are, however, several potential problems with relying on affidavit evidence to
identify the matters in issue:
(a) affidavits filed are often incomplete or inadequate in identifying the
matters in issue;
(b) “almost anything can be raised in an affidavit and be regarded
as a live issue”, which can cause problems when
seeking to define the
issues or where affidavits stray into inappropriate
areas;292
(c) the absence of pleadings means a respondent is not obliged (and may not be able) to disclose any defences they rely on, and there is no clear process for applying to strike out an untenable claim or defence before the
hearing, or for proceeding by way of default judgment or formal proof;293 and
(d) the absence of pleadings can make it difficult to identify whether
cases have been fully disposed of.294
(b) must give sufficient particulars of time, place, amounts, names of
persons, nature and dates of instruments, and other circumstances
to inform the
court and the party or parties against whom relief is sought of the plaintiff
’s cause of action; and
(c) must state specifically the basis of any claim for interest and the
rate at which interest is claimed; and
(d) in a proceeding against the Crown that is instituted against the Attorney-General, must give particulars of the government department or officer or employee of the Crown concerned.
291 Family Court Rules 2002, r 392.
292 Bergner v Nelis HC Auckland CIV-2004-404-149 19, December 2005 at [52] discussed in Simon Jefferson “Upgrading the
Tractor to a Maserati” (paper presented to New Zealand Law Society PRA Intensive Seminar, Wellington, September
2016) 151 at 154. See also Roulston v Roulston HC Auckland CIV-2004-404-7120, 9 August 2005 at [72(c)]; and Walker v
Walker [2006] NZFLR 768 (HC) at [11]–[13].
for further evidence, sometimes as a litigation tactic to add cost
and delay to the court process.295 One family lawyer observes
that often it is not until expert reports are received (sometimes just prior
to a hearing) that it
becomes apparent that a particular claim or defence is
being argued, which risks issues not being properly investigated or responded
to
at the hearing.296
25.40 However, requiring formal pleadings in the context of the PRA may not be the best response to these issues. In T v R the Family Court explained that there is “clearly a distinct difference in approach in the civil jurisdiction of the District Court to that adopted in the Family Court,” and as a result the statement
of claim and statement of defence procedure “does not sit appropriately in the PRA jurisdiction of the Family Court.”297
Also, it might be very difficult for the parties to identify all of the issues, potential claims and defences without the benefit
of disclosure. One party should not miss out on an entitlement simply
because it was not pleaded at the outset. Opportunities to
refine the issues
after disclosure would be necessary, which again raises the risk of litigation
tactics (through multiple applications
for further particulars and/or amended
pleadings). We would be reluctant to make any recommendations that could deter
parties from
applying to the court when they lack adequate information about
their former partner ’s financial affairs.
25.41 Another option is to require parties to identify issues in advance
of the first judicial conference. Currently, parties
can be required to file
memoranda of issues, and these can be considered at judicial conferences, but
this does not happen automatically.298
the applicant to file a new application for orders under s 15 provided that the time limitations under the Property (Relationships) Act 1976 had not been breached: at [40]. The High Court at [32] observed that this issue would not have arisen “if there had been a more rigorous approach to pleading Ms R’s case”. See Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR25.01].
296 See discussion in Jan McCartney “Tactics Used in Litigation to Undermine or Frustrate the Property (Relationships) Act
1976 – and Proposed Changes to Improve Achievement of Resolution” (paper presented to A Colloquium on 40 Years of the PRA: Reflection and Reform, Auckland, December 2016) at 8–9.
is required to determine. The Court noted that it is not appropriate for the practice of the Family Court to be changed by a judgment. This was a question of practice, and if a change is sought it should be by way of change to the Family Court Rules, so there can be wide consultation about such a proposal, and the full merits assessed.
or, if that is not possible, file separate memoranda ahead of the
judicial conference, with an opportunity to respond to the other
party’s memoranda in the case of disagreement.299 The Judge
could then confirm the issues in dispute by issuing a minute after the
conference. This might be a better option as it
means parties do not have to
commit to issues until after disclosure has been made. We discuss options for
imposing stricter
consequences for non- disclosure below. The potential for
delay could be minimised if the case management process includes a clear
timeframe for holding the judicial conference, which we discuss below.
C ONSU LTATION QUESTIONS
H12 Do you think that there is a problem with identifying issues in dispute in PRA
proceedings?
H13 If so, do you support a change to the Family Court procedure to either require parties
to PRA proceedings to file pleadings (a statement of claim and statement of
defence), or to identify the matters in issue in a memorandum
of issues filed
before the first judicial conference, or some other change in
procedure?
Option 2: Introduce a more structured case management process
25.42 While parties must comply with the Rules, there is no prescribed
process that PRA cases must follow within specified
timeframes. In an
earlier report on the New Zealand court system, the Law Commission
observed:300
In our court system, the parties have traditionally controlled the pace of
litigation, and the court’s role has been passive,
waiting for one or the
other party to seek intervention.
25.43 As the Ministry of Justice observed in the Family Court Review, while less prescriptive processes may have the benefit of flexibility, they are also uncertain, less efficient and a cause
of delay.301 It concluded that “the lack of clear processes
has
Property (Relationships) Act 1976 was relied on, and any other authority relied on, so that each partner knew the particulars of what was being sought by the other.
299 See for example the process set out in the High Court Rules 2016, r 7.3.
300 Law Commission Delivering Justice For All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at 199.
301 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 52.
contributed to delay.”302
25.44 Some argue that a more structured case management procedure, similar
to that used in the High Court, may lead to more efficient
resolution of PRA
proceedings.303 As it stands, High Court case management is seen by
some as a compelling reason for seeking a transfer of PRA proceedings from the
Family Court.304
25.45 We think that case management is an essential part of an effective and efficient court system.305 Given that PRA proceedings often involve complex issues and acrimonious relationships between
the parties, we think there is value in exploring a more structured case
management process than is currently available.
25.46 In an earlier report the Law Commission identified that a case
management system should have the straightforward aims
of ensuring
that:306
(a) cases are dealt with consistently, but there should be flexibility for
cases that do not fit the usual mould;
(b) the issues are identified as early as possible;
(c) opportunities for settlement are fully explored; and
(d) a hearing date is allocated as early as possible.
25.47 One possible model is the case management procedure used in the District Court.307 That procedure involves:
(a) the allocation of the first case management conference on the first
available date not less than 25 working days
302 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 54. See also Minister of Justice Family Court Review: proposals for reform (July 2012) at [17] and [76]. As a result of the Family Court Review a new standard case management process was introduced, but that was limited to applications under the Care of Children Act
2004, as these were the largest single category of applications before the Family Court, and where costs were increasing the most: Minister of Justice Family Court Review: proposals for reform (July 2012) at [26].
304 Simon Jefferson “Upgrading the Tractor to a Maserati” (paper presented to New Zealand Law Society PRA Intensive
Seminar, Wellington, September 2016) 151 at 157.
305 In doing so we affirm the views in the Law Commission’s earlier publication Delivering Justice For All: A Vision for New
Zealand Courts and Tribunals (NZLC R85, 2004) at 199.
306 Law Commission Delivering Justice For All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at 199.
after the statement of defence is filed (or not less than
50 working days after the filing of the proceeding);308
(b) an expectation that, prior to the first case management conference, parties will have provided initial
disclosure, carefully considered the pleadings and the principal documents
disclosed within, discussed and endeavoured to agree on
appropriate
discovery;309
(c) a requirement that the parties file and serve joint memorandum or
separate memoranda addressing a range of issues to be discussed
at the
conference;310
(d) a set agenda for the first case management conference, including the making of a discovery order, the hearing and, if practicable, the disposal of any interlocutory applications, the fixing of a close of pleadings
date, a hearing date and a date for any further case management, issues or
pre-trial conferences;311 and
(e) subsequent case management, issues or pre-trial conferences, as
directed by the judge.
25.48 A similar process might be appropriate for property matters in
the Family Court. However, we are mindful that, given the unique characteristics of PRA proceedings identified above, it would be wrong to treat PRA proceedings as being on all fours with civil proceedings in the District Court. Incorporating the same rules and timeframes from the District Court Rules into the PRA might not be practical. Alternatively, more robust procedures could
be included as best practice, for example in the Family Court
Caseflow Management Practice Note.
C ONSU LTATION QUESTIONS
H14 Do you think the current case management process for PRA proceedings is
problematic?
H15 If so, should a process similar to the District Court case management
process be adopted? If not, what?
308 District Court Rules 2014, sub-r 7.2(2).
309 District Court Rules 2014, sch 3.
310 District Court Rules 2014, sub-r 7.2(2).
311 District Court Rules 2014, sub-r 7.2(3).
Should there be specific provision for single issue
hearings?
25.49 A related issue is whether the case management process should provide for single issue hearings, where appropriate. Both the District and High Court rules provide for a question or issue
in any proceeding to be decided separately, in advance of the substantive
hearing.312 A single issue hearing is usually ordered when it would
expedite proceedings, by limiting or defining the scope of the substantive
hearing or by eliminating the need for a trial
altogether.313
25.50 In PRA proceedings, the High Court has recognised the value in single
issue hearings where an applicant must successfully
argue that a contracting
out agreement should be set aside, before the Court considers an application to
divide relationship property:314
I consider that the statutory scheme will ordinarily require that, before a relationship property claim can be brought in the face of a s 21A or s 21P agreement, the party seeking to bring that claim must first meet the hurdle of having the agreement set aside. I consider that this will conform with the principle in s 1N(d) of
the Act. The inexpensive, simple and speedy resolution of issues is likely to be assisted by determining first whether the agreement should be set aside, rather than by requiring parties to engage
in a relationship property dispute which they have settled. The setting
aside of the agreement can properly be dealt with as a preliminary
question by
the Family Court. That should, except possibly in cases which may raise some
particular consideration, mean that the
two aspects must be dealt with
separately, and sequentially. I do not consider that considerations of case
management will routinely
justify the substantive relationship property claim
being heard before the right to bring it has been determined.
25.51 The Family Court Rules do not expressly provide for single issue hearings. When the Rules are silent, the Judge must deal with
any matters “under provisions of these rules dealing with similar matters” if possible, or “in a way decided by the Judge, in the light
of the purpose of these rules”.315 The purpose of the Rules
is set out
313 Innes v Ewing (1986) 4 PRNZ 10 (HC).
315 Family Court Rules 2002, r 15.
at paragraph 25.36.121 above. It is similar to section 1N(d) of the
PRA, which the High Court has observed can be met by having a single issue
hearing. Therefore we think the Family Court can already
order single issue
hearings, however, there may be merit in including specific provision for
single issue hearings in PRA proceedings,
similar to those in the District
Court and High Court Rules, along with guidance for the Family Court in the
exercise of its discretion.316
C ONSU LTATION QUESTION
H16 Should single issue hearings be available for PRA proceedings in the
Family Court?
Option 3: Confirm the duty of disclosure in the
PRA or Family Court Rules
25.52 The Court of Appeal has confirmed that parties have a duty of full and frank disclosure in PRA proceedings.317 One option for reform is to simply codify that duty. A new provision in the PRA or the Family Court Rules could provide that parties have a duty to the court and to each other to give full and frank disclosure of all information relevant to the proceedings in a timely manner.
A similar provision exists in Australia.318 Such a provision may
encourage greater voluntary disclosure without the need to make an application
to the Court for discovery orders.
25.53 One family lawyer argues that, instead of a duty to disclose
relevant information, the PRA should recognise that each party
has an
“absolute entitlement” to documents associated with any property
that is the subject of a claim, and that those
documents must be provided
on request.319 There should be no onus on the applicant to prove the
information is relevant, as the relevance test “serves only to invite
the
respondent to oppose the provision of
documents.”320
317 Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293 at [186].
318 Family Court Rules 2004 (Cth), r 13.01.
Option 4: Amend the Rules to improve the quality
of initial disclosure321
25.54 Improved initial disclosure could simplify the court process, reduce the need to take further steps to obtain full disclosure and reduce the number of court events (judicial conferences).
It could also assist parties to settle their disputes early on in the
court process. There are different ways initial disclosure
could be
improved:
(a) One option is to require general discovery of all relevant documents (guided by the essential principles of discovery set out at paragraph 25.11 above) in every
case at the outset of the proceedings and without the need for a court order. Guidance could be provided
on the extent of the obligation, including the type of information and documents that will usually
be relevant.322 However such a broad requirement may add
significant cost and delay to the process. General discovery may not always be
appropriate,
and applications seeking directions from the court clarifying the
extent of discovery may be inevitable.
(b) A second option is for a more tailored requirement for initial disclosure similar to the provisions in the High Court Rules 2016. Those rules require a party to serve, at the same time they serve their pleading, a bundle consisting of all the documents referred to in the pleading, and any additional principal documents in the party’s control and that they used when preparing the pleading and on which they intend to rely at
the hearing.323 The initial disclosure requirement is considered to have helped progress cases in the High Court by assisting in the identification of issues and the settling of pleadings, although some lawyers think
initial disclosure is inefficient and has increased
their
323 High Court Rules 2016, r 8.4(1).
workload.324 Because disclosure is tailored to the issues
identified by parties in pleadings, this option might go hand in hand
with the option of requiring pleadings, discussed above.
(c) The third option is to provide for a two-stage process of disclosure,
like that in Australia and England and Wales. Parties
could be required to file
a comprehensive financial statement when filing an application or responding
to an application.325 Further financial documents, including recent
taxation returns, superannuation documents and valuations of property, must
then be
exchanged by way of disclosure before the first court date and before
any settlement conference.326
(d) The final option is the simplest, clarifying in the Rules that a party must attach all supporting documents to their affidavit of assets and liabilities when it is filed and served on the other party. The Rules could specify what documents must be included (if they exist), and these could include valuations, tax returns, trust deeds, financial accounts for any entities in which the party
is a shareholder, all superannuation and insurance policies and statements of
account, and bank account statements.
25.55 In addition, the parties could be required to confirm to the Court that they have complied with their duty of disclosure. The current affidavit of assets and liabilities form already includes a statement to the effect that a party making a false statement could result in an order of the Court being set aside and an criminal proceedings being brought, however there is concern that this is generally overlooked.327 It might be more effective to require the party
to file a separate certificate confirming they have made
full
2011–2012 reforms – report to the profession” (February 2015) Courts of New Zealand <www.courtsofnz.govt.nz>.
325 Family Law Rules 2004 (Cth), r 13.05.
327 Lynda Kearns “Laying Your Cards on the Table: Disclosure Roulette” (paper presented to A Colloquium on 40 Years of the
PRA: Reflection and Reform, Auckland, December 2016) at 9.
conference.328
Option 5: Impose stricter consequences for party non-disclosure
25.56 There are several ways in which the Court’s powers to penalise
a non-disclosing party could be enhanced. In particular:
(a) First, the PRA or Rules could include better guidance about when the
Court should order costs to be paid for non-compliance
with disclosure
requirements.
(b) Second, financial penalties for non-compliance with disclosure requirements could be introduced. This would effectively treat non-disclosure as a form of contempt of court. Non-compliance could be classified
as a criminal offence, attracting an infringement penalty or fine. Alternatively, non-compliance could attract a civil pecuniary penalty. A scale of financial penalties could apply depending on the stage of proceedings
and the seriousness of the non-disclosure.329 There are a number
of examples of offences used to enforce compliance with court orders.330
However we are not aware of any criminal or civil pecuniary penalties in
New Zealand that apply to breaches of rules or court orders
regarding
disclosure.331
(c) Third, a more extreme option is to enable the court
to penalise non-compliance directly from the pool of relationship property.
This could be achieved by either empowering the court
to make an order
compensating one partner for the non-disclosure of the other partner, thereby
avoiding the need for an order as
to costs,
328 Lynda Kearns “Laying Your Cards on the Table: Disclosure Roulette” (paper presented to A Colloquium on 40 Years of the
PRA: Reflection and Reform, Auckland, December 2016) at 9.
2012). Subsequent changes to the Rules did not impose penalties for breaches of disclosure obligations.
non-disclosing party’s share of relationship property
is reduced by an amount or proportion that the
court considers is reasonable in the circumstances. A
version of such a presumption has been adopted by
the Supreme Court of British Columbia for cases where there is evidence that
one party may be hiding assets.332
25.57 It is unclear to us whether these stricter consequences for non-disclosure would be any more effective in incentivising full disclosure than the current range of tools that the Court’s disposal. Imposing financial penalties for non-disclosure, particularly from relationship property, would be a significant and novel step in New Zealand. We are interested in hearing
views about this and other potential ways to encourage a party to comply with
disclosure requirements.
Option 6: Introduce sanctions for lawyers in connection with client
non-disclosure
25.58 Currently the Family Court does not appear to have jurisdiction
to make a costs order against a lawyer representing a party in PRA
proceedings, although it has done so on occasion.333 Following the
Family Court Review, Cabinet gave approval to enable the Family Court to
impose a financial penalty on lawyers for
a serious breach of Court
procedures.334 However, no changes resulted. In contrast, in
criminal proceedings the District Court can make a costs order against a
defendant’s
lawyer or prosecutor for a procedural
failure,
the Court in Cunha v Cunha held at [13] that if non-disclosure is established at any stage, there is an onus on the non- disclosing party to satisfy the court that full disclosure has been made. If the court is satisfied of this, costs might be the appropriate penalty. Where a non-disclosing party has not satisfied the court that full disclosure of assets has been made, the court may infer the value of the undisclosed assets is at least equal to the value of the disclosed assets. The court
may then vest all disclosed assets in the other party on the basis of equal division between the parties: Laxton v Coglon
2008 BCSC 42, [2008] BCJ No 45. An adverse inference attributing income to a non-disclosing party has since been incorporated in legislation: Family Law Act SBC 2011, c 25, s 213. The court in Nearing v Sauer 2015 BCSC 58, [2015] BCJ No 67 said at [134] that while the remedy in s 213 may be interpreted as allowing the court to impute property as well as income to a person, the court could continue to follow Cunha and the subsequent authorities as the legislation was not intended to replace the common law.
a lawyer: Harley v McDonald [2001] UKPC 18, [2002] 1 NZLR 1; and High Court Rules 2016, r 14.1. It also has inherent jurisdiction to discipline and strike lawyers off the roll: Senior Courts Act 2016, s 12.
334 Minister of Justice Family Court Review: proposals for reform (July 2012).
reasonable excuse for that failure.335
25.59 Lawyers have professional responsibilities to the court and
their client in relation to disclosure. A lawyer must advise their client of the scope of their disclosure obligations and ensure to the best of their ability that their client understands and fulfils those obligations.336 A lawyer ’s primary duty is to the court and the lawyer must not continue to act for their client if, to their knowledge, there has been a breach of discovery obligations
by a client and the client refuses to remedy that breach.337
Lawyers must also act in a timely manner and not in a way that undermines the processes of the court, so should not engage in unethical discovery practices for the purpose of delay.338 Lawyers who breach these requirements can face disciplinary action. Sanctions include censure, fines, requiring the refund of legal
fees, payment of compensation, suspension or being struck off the roll.339 Lawyers can also be found in contempt of court for failing
to comply with an order or direction of the court.340
25.60 There are examples in other jurisdictions of courts having the
power to order costs against lawyers for non-disclosure.
In Victoria,
Australia, the Civil Procedure Act 2010 enables the court to order costs,
including indemnity costs, against a lawyer who is responsible for aiding and
abetting:341
(a) a failure to comply with discovery obligations;
(b) a failure to comply with any order or direction of the court in relation to discovery; or
(c) conduct intended to delay, frustrate or avoid discovery of discoverable
documents.
336 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, sch 1 cl 13.9.
337 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, sch 1, cl 13 and sch 1, cl 13.9.
338 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008,sch 1, cl 3 and sch 1, cl 13.2.
339 Lawyers and Conveyancers Act 2006, ss 156, 211 and242.
25.61 We are not aware of concerns about widespread lawyer non-
compliance with professional standards relating to disclosure. Enabling the Family Court to award costs or imposing a financial penalty on lawyers would be a significant step. While costs can be awarded in other courts in criminal cases, arguably there is a greater need to protect against procedural failures and delays in criminal proceedings as these could impact on a person’s right
to liberty and to be tried without undue delay.342 There is a risk that imposing sanctions on lawyers in the context of a single type of civil proceeding is disproportionate, risks confusion and may lead to inconsistency. In the absence of clear evidence of a
widespread problem, our preliminary view is that existing avenues are sufficient and appropriate to address any non-compliance with disclosure requirements or court orders in PRA proceedings, but
we are interested in receiving views about this.
C ONSU LTATION QUESTIONS
H17 Do you think that the current disclosure obligations on parties in PRA
proceedings are problematic? If so, have we identified
all of the
issues?
H18 Which of these options for reform do you support, and why?
H19 Are there any other options for reform that you think we should
consider?
Option 7: Encourage better use of section 38 inquiries
25.62 One of the procedural tools available to ensure all relevant information is before the Court in PRA proceedings is the power to appoint a person to inquire into and report on facts in issue between the parties under section 38 of the PRA.343
25.63 Some lawyers consider that section 38 is underutilised.344
This may be for several reasons, including:
342 New Zealand Bill of Rights Act 1990, s 22 and 25(b).
(a) A referee under section 38 lacks the formal procedural
powers of a Court. They cannot require a person to attend an interview and answer questions, or require the production of documents. This is not usually an impediment in matters of valuation and analysis
of financial records but may make the procedure unsuitable for resolving
matters of conflicting credibility or personal conduct,
as either partner may
refuse to cooperate.345
(b) Section 38 inquiries have usually been limited to clearly defined
discrete topics, and primarily for valuation issues.346 Commentary
observes that:347
Tempting though the prospect may be, it may come close to abdicating the
Court’s function to delegate to a referee without procedural
powers a
wide- ranging investigation into the parties’ affairs in
general.
(c) Section 38 inquiries cannot be ordered simply and primarily to assist
a party in the preparation of their case.348 They will usually be
easier to justify at an interlocutory stage than at the substantive hearing,
when counsel will normally have
assured the court that the case is in all
respects ready for hearing.349
(d) A court may be reluctant to order a section 38 inquiry because it will inevitably lead to additional delay and expense.350 The cost of a section 38 inquiry is borne
by the Crown, although the court may order a party to refund some or all of the cost if it thinks it proper.351
25.64 The test for deciding whether to order a section 38 inquiry was
recently considered by the High Court in B v W.352 The
Court
345 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [19.36].
346 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [19.35]; and Nicola Peart
(ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR38.02]
347 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [19.36].
348 C v C [1989] NZHC 2605; (1989) 5 FRNZ 694 (HC).
349 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [19.36].
351 Property (Relationships) Act 1976, s 38(4).
352 B v W [2016] NZHC 2481, [2017] NZFLR 258.
explained that section 38 inquiries should not be characterised as
a remedy of last resort. While in many cases a section 38 inquiry will not be imposed until after less intrusive remedies have been completed (such as the administration of interrogatories and discovery), there may be circumstances in which the Court is
so lacking in confidence about the ability of a person to provide adequate disclosure that it concludes an independent inquiry
is more likely to yield the information sought.353 Ultimately
the Family Court must determine the best means by which any information
deficit can be remedied.354
25.65 We are interested in submissions on whether, in light of the High Court’s clarification in B v W, concerns about the utilisation of section 38 inquiries remain. If so, one option for reform might
be to enable the Court to direct the parties pay the costs of an inquiry
(rather than imposing that cost on the Crown and seeking
repayment when
proper to do so).
C ONSU LTATION QUESTION
H20 Do you think that changes need to be made to the power to order section
38 inquiries? If so,
what?
353 B v W [2016] NZHC 2481, [2017] NZFLR 258 at [52]–[53].
354 B v W [2016] NZHC 2481, [2017] NZFLR 258 at [53].
Chapter 26 – Jurisdiction of the
courts
Introduction
26.1 The PRA provides that “every application under this Act must be heard and determined in the Family Court.”355 There is no monetary limit on the cases the Family Court can hear, unlike the District Court.356 The Family Court can, however, transfer
proceedings to the High Court if it decides that the High Court is the more
appropriate venue to deal with those proceedings.357 The High Court
also hears appeals of Family Court decisions to make or refuse to make an
order, dismiss the proceedings or otherwise
finally determine the
proceedings.358
26.2 In this chapter we discuss the roles of the Family Court and the High
Court under the PRA. We identify some issues with their
respective jurisdictions
and propose options for reform.
The Family Court as a specialist court
26.3 The Family Court is a division of the District Court.359 It was established by the Family Court Act 1980360 as a specialist forum for resolving conflicts affecting family life.361 The Family Court Act includes provisions that promote the specialist nature of the Court:
(a) Family Court Judges are specialists: A person cannot be appointed to be
a Family Court Judge unless he or she
355 Property (Relationships) Act 1976 (PRA), s 22(1). Section 22(2) states that this is subject to other provisions of the PRA
that confer jurisdiction on any other court.
356 The general civil jurisdiction of the District Court is limited to claims not exceeding $350,000: District Court Act 2016, s
74.
357 Property (Relationships) Act 1976, ss 22(2) and 38A.
358 Property (Relationships) Act 1976, s 39.
359 Family Court Act 1980, s 4.
is, by reason of “training, experience, and personality, a
suitable person to deal with matters of family
law.”362
(b) The Family Court is accessible: Family Court Judges are stationed in
towns across New Zealand, as determined by the Principal
Family Court
Judge.363 In 2017, there were 70 Family Court Judges sitting across
New Zealand.
(c) Proceedings are private: Unless legislation provides otherwise,
hearings are not open to the public (although accredited news
media reporters
and any person whom the Family Court Judge permits to be present can
attend),364 and there are restrictions on the publication of
information that could identify parties and other affected persons in certain
circumstances.365
(d) Proceedings are informal: Family Court proceedings must be conducted
in such a way as to avoid unnecessarily formality.366 The Family
Court has flexibility in what evidence it may hear.367
(e) Conciliation is promoted: Lawyers acting for any party
or proposed party in a Family Court proceeding must, so far as possible,
promote conciliation.368
(f ) Counsellors may be appointed: The Family Court may appoint counsellors
to assist it to perform its functions.369
26.4 In addition to its jurisdiction under the PRA, the Family Court
has jurisdiction to determine proceedings under the Marriage Act
1955, the Adoption Act 1955, the Care of Children Act 2004, the Domestic
Actions Act 1975, the Family Proceedings Act 1980, the Child
Support Act 1991,
the Oranga Tamariki Act 1989, the Law
362 Family Court Act 1980, s 5(2)(b).
363 Family Court Act 1980, s 9.
364 Family Court Act 1980, s 11A.
365 Family Court Act 1980, s 11B.
366 Family Court Act 1980, s 10(1).
368 Family Court Act 1980, s 9A.
369 Family Court Act 1980, s 8.
Act 1955, the Civil Union Act 2004 and the Wills Act
2007.370
History of the Family Court’s jurisdiction under the
PRA
26.5 Prior to 2001, the Family Court and the High Court had concurrent jurisdiction to hear proceedings under what was then called the Matrimonial Property Act 1976 (1976 Act).371 This meant that a person could file an application under the PRA in either court. In 1988 a Working Group was established by the Government to review the 1976 Act, and by that time the “great majority” of cases were being heard in the Family Court.372 The Working Group recommended that concurrent jurisdiction be abolished, and that all cases be heard in the Family Court.373
The Government adopted that recommendation and in 1998 introduced
legislation that gave the Family Court exclusive jurisdiction
under the 1976
Act.374 The Parliamentary select committee considering the
amendments gave the following reasons for abolishing concurrent
jurisdiction:375
(a) Concurrent jurisdiction with the District Court376 was
retained in the 1976 Act largely for reasons of caution. However since 1976, a
specialist Family Court had been created, and it
was appropriate to recognise
this.
(b) Concurrent jurisdiction was sometimes used for tactical advantage,
often to disadvantage the poorer spouse.
(c) The change reflected the more general move to expand the jurisdiction
of the District Courts (of which the Family Courts are
a
division).
370 Family Court Act 1980, s 11(1).
371 Matrimonial Property Act 1976, s 22.
372 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
39.
373 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
39.
374 Matrimonial Property Amendment Bill 1998 (109-1), cl 23, enacted as the Property (Relationships) Amendment Act
2001, s 23.
376 Matrimonial Property Act 1976, s 22 (repealed). The District Court was known as the Magistrates Court prior to 1980.
Family Court because its procedures are less formal than
those of the High Court.
26.6 The 2001 amendments further limited the High Court’s role in PRA proceedings by abolishing its power to order the transfer of proceedings from the Family Court, and by restricting the grounds on which proceedings could be transferred.377 Under the new provisions, only a Family Court judge could transfer proceedings
to the High Court, and only when satisfied that the High Court was the
more appropriate venue for dealing with the proceedings,
“because of
their complexity or the complexity of a question in issue in
them.”378
26.7 The High Court in Corbitt v Rowley observed these changes “were clearly intended to reinforce the specialised jurisdiction of the Family Court.”379 They were not, however, universally
supported. Chief Justice Dame Sian Elias was concerned that the amendments
risked undermining the right of litigants to bring cases
in the High Court
without systematic review.380 The Chief Justice
observed:381
There are many cases in which matrimonial property and
family protection claims are inextricably intertwined with other legal
disputes, particularly issues affecting trusts. It would be
unfortunate if such
cases had to be divided rigidly between the High Court and the District
Court.
26.8 Since 2001, the Family Court’s exclusive jurisdiction under the PRA has been revisited on several occasions. In 2011, the Family Court Review identified that relationship property disputes
“are not so much about personal relationships as they are about property.”382 It considered whether such cases may be best dealt with in the District or High Courts, given some of the issues
involved.383 While the Family Court’s jurisdiction under
the
378 Property (Relationships) Amendment Act 2001, s 23, adding the new s 22(3) to the Property (Relationships) Act 1976.
379 Corbitt v Rowley [2009] NZHC 414; 27 FRNZ 852 (HC) at [25].
380 Chief Justice Sian Elias “Submission to the Justice and Electoral Committee on the Matrimonial Property Amendment Bill
1998 and Supplementary Order Paper No 25 2000” at 1.
381 Chief Justice Sian Elias “Submission to the Justice and Electoral Committee on the Matrimonial Property Amendment Bill
1998 and Supplementary Order Paper No 25 2000” at 1.
382 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at 25.
383 Including issues about the Family Court’s limited powers to deal with matters concerning trusts. See Ministry of Justice
Reviewing the Family Court: A public consultation paper (20 September 2011) at 26.
transferring proceedings to the High Court were broadened to
help in “easing the transfer of relationship property disputes from the
Family Court to the High Court”.384
26.9 In 2013 the Law Commission considered the Family Court’s jurisdiction under the PRA in the context of its review of the law of trusts.385 The Commission observed that there was an issue – which we explore in detail below – with the extent of the Family
Court’s power to resolve PRA proceedings involving trust property. The
Commission recommended that the Family Court be given
powers to make orders in
respect of trusts when it is dealing with PRA
proceedings.386
The limited role of the High Court in PRA
proceedings
26.10 The High Court has a limited role under the PRA to hear and
determine:
(a) proceedings transferred to the High Court by order of the Family
Court;387 and
(b) appeals against decisions of the Family Court made under the
PRA.388
26.11 Although the PRA states that “every application under this Act must be heard and determined in the Family Court”,389 in Jew
v Jew, the High Court said that the Family Court’s exclusive jurisdiction only applies to applications seeking orders for the division of relationship property under section 25(1) of the
PRA.390 This means that the Family Court does not have
exclusive
384 Family Court Proceedings Reform Bill 2012 (90-1) (explanatory note) at 3.
385 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013).
386 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at 194–196.
387 Property (Relationships) Act 1976, s 38A.
388 Property (Relationships) Act 1976 (PRA), s 39. Appeals to the High Court are by way of rehearing. The approach the
High Court takes on appeal is set out in B v F [2009] NZHC 1165; [2010] NZFLR 67 (HC) at [8], applying the principles of the Supreme Court decision of Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141. The approach in B v F has been adopted in several subsequent cases, including Jack v Jack [2014] NZHC 1495 at [24] and Grieg v Hutchison [2015] NZHC 1309, [2015] NZFLR 587 at [11].
389 Property (Relationships) Act 1976, s 22(1).
including under section 25(3) to make declarations relating to the
status, ownership, vesting or possession of any specific property.
26.12 In some circumstances therefore the High Court can make declarations affecting rights under the PRA, either in exercising
its inherent jurisdiction391 or its jurisdiction under the Declaratory
Judgments Act 1908. In Jew v Jew, the High Court determined that it
had jurisdiction to make a declaration that a family trust does not hold any
property which constitutes
relationship property.392 In Hayes v
Parlane the High Court determined it had jurisdiction to make a declaration
there was no qualifying de facto relationship for the purposes
of the
PRA.393
26.13 The High Court recently confirmed that the effect of Jew v Jew
is that the High Court has concurrent jurisdiction with the Family Court in
at least two situations (provided it is not dividing
relationship
property):394
(a) where the property is vested in a third party (as in Jew v
Jew); and
(b) where the property is claimed by a third party not in the
relationship.395
26.14 We discuss the application of the PRA to third parties
below.
The PRA is a (partial) code
26.15 Section 4(1) of the PRA provides:
considered it could make orders against one partner ’s separate property and in appropriate circumstances utilise the provisions of s 44 of the Property (Relationships) Act 1976: Jew v Jew [2003] 1 NZLR 708 (HC) at [44].
392 Jew v Jew [2003] 1 NZLR 708 (HC) at [38]. However, if a question as to relationship property arises in any proceeding
it must be determined in accordance with, and by application of, the principles set out in the Property (Relationships) Act 1976 (PRA), pursuant to s 4(4) of the PRA: Jew v Jew [2003] 1 NZLR 708 (HC) at [41]; B v F [2012] NZHC 722, [2012] NZFLR 661 at [37]; Sloan v Cox [2004] NZFLR 777 (HC) at [40].
393 Hayes v Parlane [2014] NZHC 2416 at [67]. In that case the application was made under the Declaratory Judgments Act
1908.
394 Minister of Education v M [2017] NZHC 47 at [19]–[24], affirming Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at
[59]–[61]. See also Hayes v Parlane [2014] NZHC 2416 at [59] and K v S [2014] NZHC 2765 at [33].
common law and equity
to the extent that they apply—
(a) to transactions between spouses or partners in respect of property;
and
(b) in cases for which this Act provides, to
transactions—
(i) between both spouses or partners and third persons;
and
(ii) between either spouse or partner and third persons.
26.16 Section 4(4) then provides:
Where, in proceedings that are not proceedings under this Act, any
question relating to relationship property arises between spouses
or partners,
or between either or both of them and any other person, the question must be
decided as if it had been raised in proceedings
under this Act.
26.17 Section 4A provides that every enactment must be read subject to
the PRA, unless it, or the PRA, expressly provides
otherwise.
26.18 The effect of these provisions is that the PRA is a code that “will trump all other regimes (legislative, or common law) where these may otherwise control relationship property, whatever court the issue is being heard in”.396 This is illustrated in Shirtliff v Albert, where the High Court determined it did not have jurisdiction to consider the plaintiff ’s application under the Property Law Act
2007 for orders to sell the jointly owned former family home, as the
exclusive jurisdiction of the PRA prevailed.397
26.19 The PRA is not, however, an exhaustive code. This is because the
PRA only applies to transactions between partners regarding
property, and, where
the PRA provides, transactions between either or both partners and third
parties.398 The PRA will not apply in all circumstances where the
property rights of partners are in issue.399 As observed in Fisher
on Matrimonial and Relationship Property:400
396 Minister of Education v M [2017] NZHC 47 at [9]. See also Official Assignee v Williams [1999] NZCA 364; [1999] 3 NZLR 427 (CA) at [20].
397 Shirtliff v Albert [2011] NZHC 1876; [2011] NZFLR 971 (HC) at [13] and [16].
399 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [1.24].
400 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [1.23].
law for determining property disputes between spouses and de
facto partners, rather than an exhaustive code as to relationship property
rights in all circumstances.
26.20 There is still scope for the common law and equity to apply in
limited circumstances. In M v M, the Court of Appeal confirmed that
section 4(1) did not preclude a remedy in equity for breach of fiduciary duty
by one partner
against the other:401
In terms of s 4(1) the [PRA] has effect in place of the rules and provisions of the common law and of equity to the extent, and only to the extent, that they apply to transactions between husband and wife in respect of property. Its concern is with the identification and classification of interests in property, their value and division. Accounting for a profit arising from breach of fiduciary duty is a different inquiry from the just division of
matrimonial property... The section is not directed to a breach of an
equitable obligation of that kind resting on all fiduciaries.
26.21 The courts have also upheld claims between partners outside the PRA for negligent misstatement and deceit,402 specific performance,403 and claims in conversion and trespass.404 Nor
does section 4 prevent debt recovery proceedings against a
former
401 M v M [1996] NZCA 472; (1996) 15 FRNZ 15 (CA) at 20. See also D v D (1995) 13 FRNZ 623 (FC) at 639; and Q v Q (2005) 24 FRNZ 232 (FC)
at [157]–[164].
to transfer a formerly jointly owned property to the parties as tenants in common. The defendant applied to strike out the application on the basis that the Property (Relationships) Act 1976 (PRA) was a code that governed property issues between de facto partners. However, it was arguable that there was no qualifying de facto relationship under the PRA, and for that reason alone the Court held at [32] that the strike out application failed.
engaged. Similarly, in A v B [2015] NZHC 487 the plaintiff alleged conversion, trespass and negligence, in relation to the defendant’s retention and use of certain chattels and other property following their separation, alongside a claim under the Domestic Actions Act 1975. The defendant filed PRA proceedings in the Family Court. The High Court declined the defendant’s application to strike out proceedings, noting at [30] that the claims in tort were not issues which could be readily determined by the Family Court in the context of the PRA.
partner405 or against a trust established for the benefit of one or
both partners.406
26.22 Similarly, a relationship property dispute will not stop claims
for relief under the Companies Act 1993 regarding companies in which both partners hold shares, including interim relief in an injunction,407 and prejudiced shareholder claims under section
174 of the Companies Act.408 While shares in a company can be
relationship property, assets of a company are not.409
Is this problematic?
26.23 Sometimes a partner may, in addition to a PRA claim, have a claim under another area of the law at the end of a relationship. While this may create some procedural problems (especially if the Family Court does not have jurisdiction under that other area of law), we do not think that the PRA should legislate for
all possible eventualities. In other parts of this Issues Paper we explore options to extend the application of the PRA in specific circumstances. In particular in Part G we consider whether
the PRA should apply to trust property. However outside these specific circumstances, we think it is appropriate that former partners should continue to be able to exercise rights under the ordinary rules of common law and equity, or claims under another
statute, when the PRA does not
apply.
407 In S v B [2013] NZHC 497 the parties were in a de facto relationship and had recently separated. They were directors
and equal shareholders in a company. The defendant threatened to close down the business, and the plaintiff applied to the High Court for an interim injunction to prevent the defendant from doing so. The Court considered the underlying relationship property dispute but at [8] determined that was not sufficient to persuade the Court that the injunction should not be made.
not brought under the PRA, but that the court hearing the proceeding must determine any issue relating to relationship property as if it had been raised in proceedings brought under the Act.
409 [LC] v B [2012] NZHC 898 at [23].
Issues with the Family Court’s jurisdiction
26.24 While section 22(1) of the PRA states that “every application
under this Act must be heard and determined in a Family
Court”, there
are limits regarding:
(a) the PRA’s application to property disputes at the end of a
relationship; and
(b) the Family Court’s jurisdiction to hear and determine such
disputes.
26.25 These limits mean that sometimes the Family Court may not have the jurisdiction to resolve all property disputes that arise at the end of a relationship. In these cases, further proceedings in different courts may be necessary. This gives rise to a further
issue: the limited role of the High Court in PRA proceedings. This is a
particular concern in relation to proceedings involving trusts.
We discuss
these issues below.
Issue 1: Can the Family Court decide whether a valid trust exists?
26.26 The PRA only applies to property that is owned by one or both
partners unless it expressly provides otherwise.410 This means that
property held on trust in which neither partner holds a beneficial interest is
normally excluded from the PRA.411 In Part G we discuss the limited
exceptions to this rule and the different actions and remedies that exist
outside the PRA in respect
of trust property.
26.27 A separate issue is whether the Family Court can, when hearing an
application under the PRA, determine whether a valid trust
exists. This issue
can arise in at least two scenarios:
(a) Where one partner claims that the person who settled the property on
the trust (the settlor) and the trustee intended to create
different rights
and obligations to those set out in the trust deed. In that case there is
a
410 Jew v Jew [2003] 1 NZLR 708 (HC) at [38]; and L v P HC Auckland CIV-2010-404-6103, 17 August 2011 at [63].
“sham” and the trust is therefore invalid. If a trust is
declared invalid it means that no trust exists, and the property reverts
back to the settlor. If the settlor was a partner, then
that property may be
subject to the rules of division under the PRA.
(b) Where one partner claims that trust property is subject to an institutional constructive trust412 for the benefit of one of the partners. If a constructive trust exists, the
partner ’s beneficial interest in that trust may be subject to the
PRA’s rules of division.
26.28 In Yeoman v Public Trust Ltd the High Court explored the
extent of the Family Court’s powers under the PRA.413 It
explained:
(a) Division of relationship property under the PRA includes
inventory-taking, ascertaining relationship debts, applying division
provisions
under Part 4 of the PRA and making orders under Part 7.414
(b) At the inventory stage, the Family Court considers whether the item is “property” within the definition in section 2 of the PRA, whether one or both partners has a beneficial interest in that item,415 and whether the interest is relationship property or separate property.416
When the Family Court identifies property beneficially owned by one or both
of the partners it applies the general rules of property
law, including statute
law, the common law and equity.417
(c) The Family Court’s function at the inventory stage is declaratory
only. It simply recognises and identifies the property
interests held
beneficially by the partners. It does not make orders conferring new
rights.418
413 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC).
414 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [33].
416 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [33].
417 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [35].
both partners, and a third party contends that he or
she has an interest in that asset, the Family Court can determine the extent
of the third party’s interest at the inventory
stage.419
(e) However, when the Family Court determines which property interests are
relationship property, its decision binds only the
partners. It does not make
determinations that bind third parties.420
(f ) If one party contends there are assets which belong in the relationship property pool but those assets are in the apparent ownership of a third party, separate
proceedings outside the PRA may be required in order to establish relevant
beneficial ownership.421
26.29 The High Court in Yeoman then explained how the Family Court’s inventory function under the PRA operates regarding trust property.422 It said the Family Court can, at the inventory stage, declare the extent of rights held by the partners regarding trust property, and whether those rights constitute relationship property under the PRA. The Court makes that determination “as between the partners”.423 In the common case where a partner is one of the trustees, and the trustees contend that the partners have no beneficial interest in the trust property, the Court observed:424
As the situation arises so often, it would be unfortunate if separate
proceedings had to be taken in another court to determine the
extent of any
beneficial ownership. In many cases it should be
an institutional constructive trust, which arises by operation of the principles of equity and whose existence the Court simply recognises in a declaratory way, and a remedial constructive trust, which is imposed by an order of the Court and would not exist without such an order.
419 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [43]. See for example M v N FC Opotiki FAM 2002-047-42, 18
September 2008. In that case, the respondent claimed at [7] that his legal interest in a residential property was held as a trustee of a constructive or express trust for his mother, and therefore the Family Court did not have jurisdiction under the Property (Relationships) Act 1976 (PRA) to make declarations as to the ownership of that property. The Court rejected that argument, noting at [19] that it is a fundamental function of the Court to determine whether or not the disputed property comes within the definition of relationship property under the PRA. See also L v P HC Auckland CIV-
2010-404-6103, 17 August 2011, where the High Court suggested that the Family Court may be able to determine third party property interests where there has been a intermingling of third party property with property subject to the PRA.
In that case the High Court confirmed at [65] that the Family Court was able to determine the interest that a child of the parties held in the family home in circumstances where the appellant had received an inheritance for the benefit of the child, but had invested it in the family home.
420 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [39].
421 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [40].
422 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [44]–[45].
423 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [60].
424 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [45].
relationship partners as parties to the proceeding and that decide
the extent of beneficial ownership of trust assets. Such findings could
not bind the trustees, but they may still be adequate to ascertain
the extent of
assets to be brought into account for a division of relationship
property.
26.30 A similar observation was made by the High Court in Fisher v
Fisher:425
It is not unusual for the Family Court to have to determine whether either or both of the parties have, during a relationship, acquired a beneficial or equitable interest in property nominally owned by a third party, including trustees. The PRA requires the Family Court to make such determinations and to then bring
any property into account between the parties when determining
entitlements under the PRA. There is no limit to the Family Court’s
jurisdiction in this regard.
The limits on jurisdiction for the Family Court only become a potential
problem if either of the parties is seeking to obtain judgment
against a third
party, including trustees, based on a claim in equity such as constructive
trust.
26.31 Accordingly, the Family Court’s inventory-taking function
under the PRA involves the identification of partners’ beneficial
property interests. But case law is inconsistent on whether,
when performing
this function, the Family Court can determine the validity of a trust when that
is disputed between the parties.
26.32 In F v W the High Court considered that the Family Court did not have jurisdiction to declare a trust a sham in PRA proceedings.426
It said that if Parliament had intended to give the Family Court a statutory jurisdiction to declare a trust to be a sham it would have said so.427 In the absence of any clear statutory direction, only
the High Court could do so, exercising its inherent jurisdiction.428
A different conclusion was reached in B v X.429 After
noting the decision in F v W, the High Court held there was no problem
of jurisdiction for the Family Court to consider whether a trust is a sham. To
do so
is to apply the common law of fraud, and the Family Court, as a statutory
court, has the jurisdiction to find
425 Fisher v Fisher [2015] NZHC 2693 at [102]–[103].
426 F v W (2009) 2 NZTR 19-024 (HC) at [29]–[31].
427 F v W (2009) 2 NZTR 19-024 (HC) at [33].
428 F v W (2009) 2 NZTR 19-024 (HC) at [31] and [34].
429 B v X [2011] NZHC 2117; [2011] 2 NZLR 405 (HC).
the parties.430
26.33 The case law is also inconsistent as to whether the Family Court has jurisdiction to decide if property is held on constructive trust. The High Court in F v W, while stating that the Family Court could not declare a trust a sham, did consider that it
could determine whether a constructive trust existed over trust property.431 In contrast is Clark v Clark.432 In that case, the partners had lived together on a farm which was held on trust. Following their separation Mrs Clark filed PRA proceedings in the Family Court and also sought a declaration in the High Court that the farm was held for Mr Clark on either an express or institutional constructive trust. The High Court noted that it “is necessary
for her to obtain such an order if she is to obtain any property
relationship order in relation to the [farm].”433 The PRA
application was transferred by the Family Court to the High Court who dealt with
the issues together, finding that the farm
was held on an institutional
constructive trust in favour of Mr Clark and that it was therefore his separate
property, and within
the scope of the PRA.
26.34 These issues were also addressed in the more recent case of Fisher
v Fisher, where the High Court had to consider if the Family Court could
deal with various challenges to the validity of a trust.434 It said
that:435
Mr Knight suggested that the evidence before the Court provides a basis for allegations of equitable claims “by way of alter
ego, sham and tracing”. These are not causes of action. Rather, they are matters which the Court may have to consider in determining what property is owned by the parties personally, what dispositions may have occurred in relation to that property and how the ultimate value of that property should be brought into account between the parties on application of the PRA.
The Family Court is well used to dealing with such issues. In
that context, it is not unusual for the Family Court to have
to
430 B v X [2011] NZHC 2117; [2011] 2 NZLR 405 (HC) at [72]–[75].
432 Clark v Clark [2012] NZHC 3159, [2013] NZFLR 534.
433 Clark v Clark [2012] NZHC 3159 at [15].
434 Fisher v Fisher [2015] NZHC 2693.
435 Fisher v Fisher [2015] NZHC 2693 at [45].
constructive trust.
26.35 At the time of writing, the Court of Appeal has not had to rule on
the Family Court’s jurisdiction to determine whether
property in dispute
is held on an express trust or a constructive trust.
Issue 2: Does the Family Court have a general civil jurisdiction?
26.36 The PRA operates as a partial code, so sometimes a partner may have a claim in common law or equity against a former partner, or against a third party (for example, where trust property is held by a third party trustee). As we have identified above, it is not clear whether the Family Court has jurisdiction under the PRA to decide issues that arise when property is in the apparent ownership of a third party (such as trust property), and enforce its decision on third parties. Sometimes related claims might also arise outside the PRA, such as claims between partners of misrepresentation or deceit during post-separation property negotiations.436 It is therefore necessary to explore the extent of
the Family Court’s general civil jurisdiction to hear and determine
such claims alongside PRA proceedings.
26.37 The extent of the Family Court’s civil jurisdiction, including
its jurisdiction in equity, is unclear and is subject
to debate and
inconsistent decisions.437
The Family Court’s statutory jurisdiction
26.38 The Family Court is established by statute and it only has
jurisdiction over those matters conferred on it by statute. It
does not have
inherent jurisdiction, unlike the High Court. Within its statutory
jurisdiction, however, the Family Court has “the
right to do what is
necessary to enable [it] to exercise functions, powers and duties conferred on
[it] by statute” (its
“inherent
powers”).438
436 See paragraphs 26.203-26.204 above.
has jurisdiction to hear and determine PRA proceedings and other
specific statutes, and “any other enactment for the time being in
force”.
26.40 The Family Court is a division of the District Court,439 and section
16 of the Family Court Act provides:440
... the District Court Act 2016 applies, with any necessary modifications,
to the Family Court and Family Court Judges in the same
manner and to the same
extent as it applies to the District Court and District Court
Judges.
The District Court Act 2016
26.41 The District Court Act 2016 came into force on 1 March 2017, replacing the District Courts Act 1947 (1947 Act). While the provisions set out below were largely carried over from the 1947
Act, subtle differences in the text may have a significant impact on their
interpretation, as we discuss below. As at the time
of writing, there have
been no relevant judicial decisions regarding these new provisions.
26.42 The District Court has general civil jurisdiction under section 74
of the District Court Act:441
74 General civil jurisdiction
(1) The court has jurisdiction to hear and determine a
proceeding—
(a) in which the amount claimed or the value of the property in dispute
does not exceed $350,000:
(b) that, under any enactment other than this Act, may be heard and
determined in the court.
(2) The amount claimed in a proceeding under subsection
(1) may be for the balance, not exceeding $350,000,
of an amount owing after a set-off of any claim by the defendant that is
admitted by the claimant.
439 Family Court Act 1980, s 4.
440 Family Court Act 1980, s 16(1). In the event of conflict, under s 16(2) the provisions of the Family Court Act prevail.
Sections (16)(3) and 16(4) list certain provisions of the District Court Act 2016 that do not apply. These provisions
relate to the Chief District Court Judge (s 24), Court sessions and adjournments (s 72), and appeals to the High Court (ss
125–130).
441 This replaced s 29 of the District Courts Act 1947.
for the exercise of the civil jurisdiction of the court other than an
interlocutory application”.442
26.44 The District Court Act confers a broad equitable jurisdiction on the
District Court under section 76:443
76 Jurisdiction in equity
(1) Subject to other provisions in this Act, the court has the same
equitable jurisdiction as the High Court.
(2) However, the court does not have jurisdiction under subsection (1) to
hear and determine a proceeding in which the amount claimed
or the value of the
property that is the subject of the proceeding exceeds $350,000.
(3) Subsection (1) does not apply if an enactment (other than section 12
of the Senior Courts Act 2016) expressly provides that the
proceeding is a
proceeding or class of proceeding that another court has jurisdiction to hear
and determine.
(4) Despite subsection (3), the court may make orders under section 49 of
the Administration Act 1969.
26.45 The District Court Act also provides, at section 84:444
84 Remedies
Subject to section 109, in a proceeding a Judge may, in the
same way as a Judge of the High Court in the same or a similar
proceeding,—
(a) grant remedies, redress, or relief:
(b) dispose of the proceeding:
442 This definition remained unchanged from the District Courts Act 1947 definition, in s 2.
443 This replaced s 34 of the District Courts Act 1947, which
provided that the District Courts have:
[...] the same equitable jurisdiction as the High Court to hear and determine any proceeding (other than a proceeding in which the amount claimed or the value of the property claimed or in issue is more than $200,000): [...]
Every court, as regards any cause of action for the time being within its
jurisdiction, shall (subject to the provisions of section
59) in any proceedings
before it—
(a) grant such relief, redress, or remedy, or combination of remedies,
either absolute or conditional; and
(b) give such and the like effect to every ground of defence or
counterclaim equitable or legal,—
as ought to be granted or given in the like case by the High Court and in
as full and as ample a manner.
Section 84 is subject to s 109 of the District Court Act, relating to the operation of equity and good conscience in proceedings in which the amount claimed or the value of property in issue does not exceed $5,000.
(c) give effect to every ground of defence or counterclaim,
whether legal or equitable.
26.46 The parties to a proceeding can also consent to the extension of the
District Court’s jurisdiction:445
81 Extension of jurisdiction by consent
(1) This section applies to a proceeding (including a proceeding in
admiralty) that, apart from this section, the court would not
have jurisdiction
to hear and determine because the amount of the claim or the value of the
property or relief claimed or in issue
exceeds the monetary limit of the
court’s jurisdiction.
(2) If the parties to the proceeding or to a counterclaim in the
proceeding consent,—
(a) the monetary limit of the court’s jurisdiction is extended, for
the purposes of the proceeding, to the limit of the amount
of the claim or the
value of the property or relief claimed; and
(b) the court may hear and determine the proceeding on that
basis.
The Family Court’s civil jurisdiction - the competing
authority
26.47 There is competing authority as to whether section 16 of the Family Court Act, which provides that the District Court Act applies to the Family Court and Family Court Judges, confers the District Court’s civil and equitable jurisdiction on the Family Court. As we explain below, two separate lines of High Court authority have developed on this issue. One line of authority is that the Family Court has the same equitable jurisdiction as the District Court, and that the Family Court can exercise its District Court jurisdiction contemporaneously. Another line of authority, however, firmly states that the Family Court does not have the civil and equitable jurisdiction of the District Court, although
it has jurisdiction to grant equitable relief. We explore these decisions
below. We do so chronologically, to understand the developments
that have taken
place over time.
26.48 In Granville v Grace, the District Court determined that the
Family Court did not have the jurisdiction in equity conferred on the District
Court by
section 34 of the 1947 Act (now section 76 of
445 Section 81 of the District Court Act 2016 replaced s 37 of the District Courts Act 1947.
the District Court Act), to identify and enforce a constructive trust
in relationship property proceedings:446
The jurisdiction of the Family Court is circumscribed by the Family Courts Act 1980 and the Matrimonial Property Act 1963 (now repealed) and the Matrimonial Property Act 1976 [now the PRA]. It does not have wider jurisdiction. It is not possible,
as I understand it, for the Court to exercise jurisdiction in equity,
independent of those codes...
The proceedings have been brought in the Family Court, not in the civil
jurisdiction of the District Court, and it is that choice
which is the obstacle
to relief. Section 11(1) of the Family Courts Act does not clothe the Family
Court with any form of jurisdiction
under the District Courts Act. The District
Courts Act does not confer such jurisdiction so s 11(2) does not assist either.
The civil
jurisdiction of the District Court must be invoked expressly, and the
proceedings brought under the District Courts Rules 1992 before
a remedy can be
given in equity.
26.49 The Court did not consider the effect of section 16 of the Family
Court Act.
26.50 In Burt v Skelley, the High Court had to consider the slightly different question of whether the Family Court could grant equitable relief in proceedings under the Family Protection Act 1955.447 Therefore Granville v Grace, which considered the question of equitable jurisdiction, did not assist.448 The Court in Burt v Skelley held that the Family Court had jurisdiction to
grant equitable relief, in that case to make an order based on the equitable
remedy of tracing:449
The relevant provision is s 16 of [the Family Court Act] applying the generality of the District Courts Act 1947, with necessary modifications, to Family Courts. That importation into the Family Court structure brings with it s 41 of the District Courts Act 1947 [now s 81 of the District Court Act 2016] conferring
general ancillary jurisdiction. The effect is that the Family Court, as regards the Family Protection Act cause of action within its jurisdiction has power (indeed obligation), to grant “such relief, redress, or remedy...” as would be granted in like case by the High
Court. This is not conferring additional basic jurisdiction,
such
447 Burt v Skelley (1998) 17 FRNZ 152 (HC).
448 Burt v Skelley (1998) 17 FRNZ 152 (HC) at 158.
449 Burt v Skelley (1998) 17 FRNZ 152 (HC) at 157–158.
as the spectre of criminal jurisdiction, but merely conferring an
ancillary jurisdiction as to relief necessary for the Family Court to act
effectively. That is the nature of an equitable tracing
order. It is ancillary
relief of a procedural character, necessary at times to enable the effective
resolution of a cause of action
separately established.
26.51 In Singh v Kaur, the High Court considered the wider issue of the Family Court’s jurisdiction to deal with civil matters, including claims in equity.450 Specifically, it considered the Family Court’s jurisdiction to consolidate a District Court claim for exemplary damages with a Family Court proceeding under the PRA. The
High Court undertook an extensive consideration of the statutory provisions
and the case law. Regarding section 11 of the Family Court
Act, the Court
observed:451
Section 11 lists proceedings which must be heard and determined by Family Court Judges (who are also District Court Judges pursuant to s 5); that is the effect of subs (2). But importantly,
s 11 does not exclude Family Court Judges from exercising any of the
powers of District Court Judges; it simply requires that proceedings
under
specified enactments are to be heard and determined only by District Court
Judges who are also Family Court Judges.
26.52 The High Court considered the decision in Granville v Grace, but preferred the approach of the High Court in Pedersen v Vaughan.452
There the High Court had determined that a power vested in the District
Court could also be exercised by the Family Court contemporaneously.453
The High Court in Singh v Kaur held:454
In my view there is nothing in the Family Courts Act 1980 which limits the jurisdiction of the Family Court and Family Court Judges so as to exclude the jurisdiction they exercise as District Court Judges. Rather, as Master Williams [in Pedersen v Vaughan] concluded, the jurisdiction conferred on the
Family Court by s 11 of the Act is “super-added” to the general
jurisdiction of the District Court. By s 16 the provisions of
the
450 Singh v Kaur [2000] 1 NZLR 755 (HC).
451 Singh v Kaur [2000] 1 NZLR 755 (HC) at [30] (emphasis added).
452 Pedersen v Vaughan [1990] NZHC 60; [1990] NZFLR 203 (HC).
453 Pedersen v Vaughan [1990] NZHC 60; [1990] NZFLR 203 (HC) at
208:
When one considers those provisions as a whole, the implication which they strongly give is that a Family Court Judge, who must also be a District Court Judge, can sit in both capacities, simultaneously, and contemporaneously exercise the jurisdiction of the Family Courts and the District Courts. That is to say, the implication is that Parliament intended the special jurisdiction of the Family Court should be superadded to the general jurisdiction of the District Court.
454 Singh v Kaur (1999) [2000] 1 NZLR 755 (HC) at [31].
there is conflict with the Family Courts Act... Thus, Part III of the
District Courts Act 1947 which confers jurisdiction on the District Court
(and importantly with relevance to this case and most of
the decided cases
referred to above, the equity jurisdiction of the District Court conferred by s
34 of the District Courts Act),
applies to Family Courts and Family Court
Judges.
26.53 On this approach, the Family Court retained the civil jurisdiction of
the District Court and in appropriate circumstances
could exercise that
jurisdiction contemporaneously with its specialist jurisdiction under the Family
Court Act.455 The decision in Singh v Kaur has been applied
in several subsequent cases.456
26.54 In F v W, discussed above, the High Court reached a different conclusion. It did not refer to the decision in Singh v Kaur. It noted that the Family Court had often considered that it had jurisdiction in equity (to declare a trust a sham in PRA proceedings),457 but
it considered that such jurisdiction came from the High Court’s
inherent jurisdiction, and that:458
The ability to grant remedies in equity is not the equivalent of having inherent jurisdiction in the Family Court to declare a trust a sham. This Court is not bound by Family Court decisions which have effectively held otherwise. I respectfully do not agree
with those conclusions as to jurisdiction. The District and Family Courts jurisdiction arises from statute. Inherent jurisdiction is vested only in the High Court. I do not accept that s 34 of the District Courts Act applies.
26.55 On this view, the Family Court could not set aside a trust on the
basis of, and make a declaration that, it is a sham. That
required
455 Singh v Kaur [2000] 1 NZLR 755 (HC) at [38]–[39].
and D v P [2013] NZFC 1254 at [97]. In D v P, the Family Court held at [100] that, while the Family Court could exercise the District Court’s civil jurisdiction contemporaneously, an application seeking to have a constructive trust imposed under the District Court’s civil jurisdiction needed to have been filed in the District Court before it could be consolidated with Family Court proceedings. However, this seems contrary to the earlier High Court decision in Pedersen v Vaughan [1990] NZHC 60; [1990] NZFLR 203 (HC), which confirmed the Family Court could exercise a power vested in the District Court even in circumstances where proceedings had been filed in the Family Court.
457 F v W (2009) 2 NZTR 19-024 (HC) at [29].
of a tracing order was ancillary to that primary jurisdiction. Therefore it was not a question of whether s 34 “applied”, it was simply not relevant in that case. See Andrea Manuel “Why the Family Court has jurisdiction in equity” New Zealand Lawyer (New Zealand, 17 June 2011) at 10–11.
as noted above, the Court considered that the Family Court had
jurisdiction to determine whether a constructive trust should be imposed on
trust property.460 The Court did not explain the Family Court’s
source of jurisdiction for considering constructive trust claims.
26.56 While the High Court’s conclusion in F v W regarding
jurisdiction to declare a trust a sham has not been followed
subsequently,461 its conclusion in relation to the Family
Court’s equitable jurisdiction was followed by the High Court in Yeoman
v Public Trust Ltd, which determined:462
[Section 34 of the District Courts Act 1947] cannot be used to confer
jurisdiction on the Family Court for a cause of action founded
in equity. Under
s 2 of the District Courts Act:
proceeding means any application to the Court for the exercise of the
civil jurisdiction of the Court other than an interlocutory
application:
Section 34 accordingly applies only to civil proceedings. Section
11(1) of the Family Courts Act does not expressly confer a civil jurisdiction on the Family Court. “Any other enactment for the time being in force” in s 11(1)(h) is not a reference to s 34. Section 34 confers an equitable jurisdiction on the District Court, but further words are required to confer on the Family Court
the civil jurisdiction of the District Court. Those further words are
absent. No doubt Parliament intended s 11(1)(h) to operate eiusdem
generis
– to apply only to family law statutes conferring jurisdiction on the
Family Court.
26.57 The High Court in Yeoman placed an emphasis on the word
“proceeding” in section 34 of the 1947 Act, and its definition in
section 2, in determining
that section 34 applied only to “civil
proceedings”. The word “proceeding” did not appear in section
41.
The replacement of the 1947 Act with the District Court Act 2016 challenges
this interpretation. In particular, section 76, conferring
equitable
jurisdiction on the District Court, no longer refers to
“proceeding”, but the section conferring ancillary
jurisdiction
to
459 F v W (2009) 2 NZTR 19-024 (HC) at [34]
460 F v W (2009) 2 NZTR 19-024 (HC) at [40]–[42].
462 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [27]–[28].
grant equitable relief does (these sections are set out above). If the
interpretation of the 1947 Act rested on the word “proceeding”, as suggested in Yeoman, then applying that interpretation to the
2016 Act could cause the unworkable situation where the Family Court has
equitable jurisdiction, but not the power to grant equitable
relief.
26.58 In another decision of the High Court one week after Yeoman was decided, a different conclusion was reached. In L v P the High Court confirmed that the Family Court “has the equitable jurisdiction of the District Court, which equitable jurisdiction is
the same as the equitable jurisdiction of the High Court”.463 In that case the Family Court Judge had jurisdiction in PRA proceedings
to make orders creating an interest in the family home in favour of a trustee for the child of the partners.464 The decision in F v W was cited in relation to a separate point in that decision,465 but not as authority on the question of the Family Court’s jurisdiction.
The High Court in Fisher v Fisher took a similar approach. There,
discussed below, the Court proceeded on the basis that the limits on the Family
Court’s jurisdiction
in equity were the same as those on the District
Court.466
26.59 The competing High Court authorities have been considered
by the Family Court, in C v C467 and F v O.468 In C v C the Family Court preferred the approach in B v X, and doubted the Family Court lacked jurisdiction in equity to consider constructive trust claims.469 However, in F v O the Family Court determined that:470
[The decision in F v W] is not confined to the Court’s jurisdiction
to find that a trust is a sham: the essential finding is
that the Family Court
has no jurisdiction of any kind as to the validity of
trusts.
463 L v P HC Auckland CIV-2010-404-6103, 17 August 2011 at [81].
467 C v C FC Rotorua FAM-2007-063-652, 29 April 2011.
468 F v O [2012] NZFLR 541 (FC).
469 C v C FC Rotorua FAM-2007-063-652, 29 April 2011 at [17]–[19] and [26].
470 F v O [2012] NZFLR 541 (FC) at [84].
26.60 Uncertainty as to the jurisdiction of the Family Court in equity
has also been recognised in several High Court decisions. In H v H, the High Court recognised that Judges of the Family Court “are Judges of the District Court and have, with necessary modifications, the same jurisdiction”,471 but it did not have to confirm the extent of the Family Court’s jurisdiction to determine
the equitable claims, as the value of the disputes in issue exceeded the
District Court’s statutory limit.472 In F v O the High
Court declined to address whether the Family Court has jurisdiction to
determine the validity of trusts, instead determining
that appeal on different
grounds.473
Discussion
26.61 Two separate lines of High Court authority have developed on the Family Court’s jurisdiction in equity.474 On one line of authority, the Family Court has the same equitable jurisdiction as the
District Court, and the Family Court can exercise its District Court jurisdiction contemporaneously: Pedersen v Vaughan, Singh v Kaur, Perry v West, L v P, Fisher v Fisher. That would enable the Family Court to deal with any equitable claims in PRA proceedings. Another line of authority, however, firmly states that the Family Court does not have the civil and equitable jurisdiction of the District Court, although it has jurisdiction to grant equitable
relief: Burt v Skelley, F v W, Yeoman v Public Trust. On that line of authority, separate proceedings in the High Court would probably be necessary to resolve equitable claims arising in PRA proceedings.
26.62 Commentators have questioned the High Court’s interpretation of
the relevant statutory provisions in F v W and the
distinction
471 H v H [2012] NZHC 537, [2012] NZFLR 688 at [44].
473 F v O [2012] NZHC 1021 at [88].
063-652, 29 April 2011; and H v H FC North Shore FAM-2010-044-1909, 17 June 2011 at [32]–[35]. This was confirmed in Fisher v Fisher [2015] NZHC 2693 at [102]–[108]. In F v W (2009) 2 NZTR 19-024 (HC), however, the High Court at [31] rejected the idea that the parties could validly consent to the Family Court determining whether a trust was a
sham, as it was not given on the basis that there was a waiver to the absence of jurisdiction, because the parties believed jurisdiction in fact existed.
drawn between equitable jurisdiction and equitable remedies, but
note there is scope for judicial interpretation:475
[W]e do not have the benefit of [the Judge’s] express views on why s 16(1) of the Family Courts Act 1980, which as noted above provides “the District Courts Act 1947 shall apply, with
any necessary modifications, to Family Courts and Family Court Judges in the same manner and to the same extent as it applies to District Courts and District Court Judges”, does not mean that s 34 of the District Courts Act 1947 – a provision of the District Courts Act 1947 – applies to Family Courts and Family Court
Judges in the same manner and to the same extent as it applies to District Courts and District Court Judges. With respect, that would appear to be the obvious position. Perhaps it can be inferred that His Honour’s answer is that a modification is “necessary” so that only the provisions of the District Court Act 1947 that are properly characterised as powers, and not those provisions that confer jurisdiction, apply to the Family Courts. But if that was right, Parliament could have easily stated that was the case. Equally, however, Parliament could have specified in s 11 of the Family Courts Act 1980 – that is, the provision entitled “Jurisdiction
of the Family Courts” – that the Family Courts have the same jurisdiction as District Courts. Instead, Parliament has placed the link to the District Courts Act 1947 in a different provision
(which admittedly leaves, as borne out by F v W, scope for judicial interpretation). It is arguable that Parliament meant to do something other than confer jurisdiction on the Family Court in s
16 (otherwise it would be in s 11).
26.63 Whatever the correct interpretation, this lack of certainty is problematic. It is already resulting in inconsistent decisions on jurisdiction, and it creates opportunity for delay and dispute on the proper forum for resolving the issues. If the Family Court
does not have substantive jurisdiction in equity, then where trust property is in issue it may not have jurisdiction to resolve all
the claims before it in PRA proceedings. This could require dual proceedings in the Family Court and High Court, which again has
consequences in terms of cost and
delay.
475 Andrew Butler “The Family Court’s jurisdiction to deal with equitable matters” in Mark O’Regan and Andrew Butler “Equity and Trusts in a Family Law Context” (paper presented to New Zealand Law Society Family Law Conference, Christchurch, November 2011) 269 at 295–296. See also Andrea Manuel “Why the Family Court has jurisdiction in equity” New Zealand Lawyer (New Zealand, 17 June 2011) at 10–11.
Issue 3: Should the Family Court have jurisdiction
under the Trustee Act 1956 and Companies Act
1993?
26.64 A further jurisdictional limitation on the Family Court is its lack
of jurisdiction under the Trustee Act 1956476 and the Companies Act
1993.477
26.65 Trust law in New Zealand is contained in both case law and statute,
and some of the courts’ powers relating to trusts
are contained in the
Trustee Act. The provisions of the Trustee Act relate mainly to the
administration of trusts and their oversight
by the High Court. The High
Court’s powers include the power to appoint new trustees,478
to authorise dealings with trust property,479 to authorise
variations of a trust,480 to review the actions of trustees,481
and to relieve a trustee from personal liability for any breach of
trust.482
26.66 These powers could be engaged where a difficult separation has affected the administration of a trust. A partner could invoke the High Court’s supervisory jurisdiction under the Trustee Act to ensure the trust is being properly administered. The High
Court’s powers do not, however, enable it to divide and distribute the trust property between the partners. Distributions of trust property under a discretionary trust will remain at the discretion of the trustees. Applications to the High Court to appoint a
new trustee or concerning any trust property can only be made by a trustee or a person with a beneficial interest in the trust property.483 The usefulness of the Trustee Act for partners who
have separated may be limited.
477 Section 2 of the Companies Act 1993 defines “court” to mean the High Court of New Zealand.
478 Trustee Act 1956, s 51.
479 Trustee Act 1956, s 64.
480 Trustee Act 1956, s 64A.
481 Trustee Act 1956, s 68.
482 Trustee Act 1956, s 73.
The Law Commission’s review of trust law and the resulting
Trusts Bill
26.67 The Law Commission observed in its review of the law of trusts that the lack of jurisdiction under the Trustee Act (regarding the District Court) causes inconvenience and difficulty.484 The Commission noted that perhaps the District Court’s equitable jurisdiction under the District Courts Act 1947 regarding trusts “is rendered ineffective” because it cannot make orders under the Trustee Act.485 For example, while the District Court has
jurisdiction to hear claims for breach of trust, it cannot grant relief
under section 73 of the Trustee Act to indemnify a trustee
from personal
liability.486 A separate application to the High Court is necessary.
As the Law Commission observed:487
This is not a satisfactory situation because two separate courts will have to consider the same salient facts and make determinations. It may also effectively force such breach of trust cases into the High Court notwithstanding that there are
relatively modest sums involved purely to avoid a multiplicity of
proceedings.
26.68 The Commission recommended that both the District Court and the
Family Court should have jurisdiction under the new trusts
legislation.488
It observed that the Family Court is required to consider aspects of
trust law when they arise in PRA proceedings or the Family
Protection Act
1955.489 The Commission considered
484 Law Commission Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts Fifth Issues Paper (NZLC IP28,
2011) at [3.12].
485 Law Commission Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts Fifth Issues Paper NZLC IP28,
2011) at [3.12].
reached the Court of Appeal, which held at [9] that “[t]he Legislature specifically reserved the power to grant relief under s 73 to the High Court”.
487 Law Commission Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts Fifth Issues Paper NZLC IP28,
2011) at [3.14].
Court Act 1980 and District Courts Act 1947 “do not confer the District Court’s substantive equitable jurisdiction under section 34 on the Family Court.” It cited Singh v Kaur [2000] 1 NZLR 755 (HC), Perry v West HC Auckland M1331-SD00,
8 September 2000, F v W (2009) 2 NZTR 19-024 (HC); and Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC). However, as we discuss above, we consider that there are now in fact two distinct lines of High Court cases (including the more recent cases of L v P HC Auckland CIV-2010-404-6103, 17 August 2011and Fisher v Fisher [2015] NZHC 2693), which calls into question whether this view is correct. Clearly, there is uncertainty.
489 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, Wellington, 2013) at [13.19].
that the Family Court should have the same powers as the
District Court under the new trusts legislation to better deal
with matters properly before it and reduce the need for parties to bring subsequent proceedings in the High Court.490 Accordingly
it recommended that the Family Court be able to exercise powers and make
orders under new trusts legislation as an ancillary jurisdiction,
to provide a
remedy where a matter is already within its
jurisdiction:491
We recommend that the Family Court should be able to make orders under the new Act where these are necessary during the proceedings to protect or preserve any property or interest that is the subject of those proceedings until the issues are fully resolved by the court. Our recommendation would allow the Family
Court to, for example, make an order removing one trustee and appointing
(even on a temporary basis) a new independent trustee where
this is necessary to
manage serious deadlock, hostility between trustees, ascertain the nature of the
trust assets, or to preserve
those assets until the property claims of the
parties can be properly resolved.
26.69 The Commission also recommended that the Family Court have the power to make orders, with the consent of the parties, to resolve a closely related dispute or issue between the parties where this is necessary, or would better promote the resolution
of the substantive proceedings between parties.492 This would give
the Family Court power beyond its ordinary jurisdiction to resolve closely
related trust matters with the consent
of the parties, therefore avoiding the
need for a separate hearing.493
26.70 In August 2017 the Government introduced the Trusts Bill to
Parliament.494 The Bill includes the following provision,
implementing the Commission’s recommendations regarding Family Court
jurisdiction:
136 Jurisdiction of Family Court
(1) This section applies where the Family Court has jurisdiction under
section 11 of the Family Court Act 1980 to hear and determine
a
proceeding.
490 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, Wellington, 2013) at [13.22].
491 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, Wellington, 2013) at [13.25].
492 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, Wellington, 2013) at [13.26].
493 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, Wellington, 2013) at [13.26].
494 Trusts Bill 2017 (290-1).
(2) The Family Court may during the proceeding make
any order or give any direction available under this Act if the Family
Court considers the order or direction is necessary—
(a) to protect or preserve any property or interest until the proceeding
before the Family Court can be properly resolved; or
(b) to give proper effect to any determination of the
proceeding.
(3) Where the parties to the proceeding consent, the Family Court may
make any order available under this Act to resolve an issue
or a dispute between
the parties that is closely related to the proceeding (but only if the Family
Court considers that making the
order is necessary or desirable to assist the
resolution of the proceeding).
(4) Despite subsections (2) and (3), the Family Court does
not have jurisdiction to appoint a receiver to administer a trust under
section 130.
(5) To avoid doubt, an exercise by the Family Court of jurisdiction under
this section is not subject to financial limits in relation
to the value of any
property or interest.
26.71 The Government notes that this provision will give the Family Court the tools necessary to deal with trust matters closely related to proceedings properly before it, reducing the need for parties
to bring subsequent proceedings in the High Court to resolve
disputes.495
Jurisdiction under the Companies Act
26.72 Occasionally end of relationship disputes will involve companies, and one or both partners may seek to rely on the remedies
under the Companies Act. This could include interim remedies to prevent one partner from operating in a way not in the best interests of the company,496 or for relief as a shareholder in that
company.497
495 Ministry of Justice Regulatory Impact Statement: A New Trusts Act – Agency Disclosure Statement (August 2017) at 28.
496 For example Simpson v Blythe [2013] NZHC 497.
26.73 The Family Court has no jurisdiction to hear claims under the
Companies Act. However it is not clear this is an issue that interferes with resolving relationship property disputes as inexpensively, simply and speedily as is consistent with justice.498
This is for several reasons. First, unlike dispositions of property to a
trust, which results in the complete alienation of that
property (and its
value), the value of company assets are ordinarily reflected in their share
value. Company shares are property
under the PRA and are therefore potentially
divisible as relationship property.
26.74 Second, there appears to be a clearer distinction between issues of
ownership of company shares (which can be relationship
property) and issues
about the control and management of a company, including company assets, which
are governed by the Companies
Act. While there could be scenarios where
separate proceedings are required under the PRA and the Companies Act (for
example where
partners run a company together), the issues will be distinct. At
this point we are not aware of any problems arising with the
Family
Court’s lack of jurisdiction under the Companies
Act.499
Summary of issues with the Family Court’s jurisdiction
26.75 The issues identified above affect the ability of the Family Court to hear and determine all issues that may arise in PRA proceedings. By far the most significant issue is the Family Court’s jurisdiction regarding trust property. Trusts are now widely used in New Zealand to hold property, including the family home. The PRA broadly recognises that when property is transferred to a trust,
it is no longer the separate property of the partners, nor is it
498 Property (Relationships) Act 1976, s 1N(d).
Proceedings under the 1976 Act are concerned with the division of property
between spouses. Proceedings concerning breaches of directors’
or
trustees’ duties and the like are of a different character altogether,
although there will be some interrelationship if
the shares are matrimonial
property or there is jurisdiction to exercise powers under proposed new sections
44A–44F. The relevant
considerations and the implications for third
parties (including trustees, directors, shareholders and beneficiaries) who may
also
need to be represented take such proceedings well beyond the scope of
matrimonial property proceedings which are essentially family
disputes.
Accordingly we do not consider it appropriate that such extended powers are
granted.
See Ministry of Justice Matrimonial Property Amendment Bill – Departmental Report Clause by Clause Analysis (2 March
1999) at 30–31. See also Ministry of Justice SOP To Matrimonial Property Amendment Bill – Departmental Report (16 August
2000) at 26.
relationship property. However the availability of several remedies
(within and outside of the PRA) recognises that sometimes it is appropriate
that trust property (or its representative value) is
brought into account
between the partners for division under the PRA. The adequacy of these
remedies is the focus of Part G of
this Issues Paper.
26.76 In this section we have canvassed the limitations on the Family Court’s jurisdiction to grant those remedies. This includes the PRA’s limited jurisdiction regarding third party and trust property, the unresolved question on its ability to hear and determine claims in equity, including constructive trust claims against third party trustees, and its lack of jurisdiction under the Trustee Act
1956 to ensure the proper administration of trusts while property issues are
being resolved. The effect of these limitations is that
multiple proceedings
under different areas of law and potentially in different courts may have to
resolve partners’ property
disputes when they separate. This increases
costs to the parties, will likely result in delay in proceedings and risks
inconsistent
findings of fact.
26.77 We discuss options to address these issues after our discussion of
issues with the High Court’s jurisdiction.
Issues with the High Court’s jurisdiction
26.78 The issues with the Family Court’s jurisdiction discussed above
highlight another matter – the limited role of
the High Court in PRA
proceedings.
Issue 4: Should the High Court have greater oversight of PRA proceedings?
26.79 As discussed at the start of this chapter, prior to 2001 the High
Court enjoyed concurrent jurisdiction with the Family
Court to hear and
determine PRA proceedings. The 2001 amendments abolished concurrent
jurisdiction, restricted the grounds for transferring
proceedings from the
Family Court and removed the High Court’s power to hear and determine
transfer applications itself.500 These amendments reflected a
deliberate policy
decision that the Family Court should hear and determine PRA
proceedings, balanced by a limited exception for particularly complex cases
to be transferred to the High Court. While the extent
of the High Court’s
jurisdiction under the PRA was revisited as part of the Family Court Review,
resulting in changes to the
test for transfer, concerns remain that it is too
difficult to have complex PRA proceedings transferred to the High
Court.501
26.80 The issue is whether Parliament’s deliberate decision to limit
the role of the High Court in PRA proceedings remains
appropriate, and whether
the right balance has been achieved.
Test for transferring proceedings to the High Court
26.81 Under the 2001 amendments, PRA proceedings could only be transferred to the High Court where a Family Court Judge was satisfied that the High Court was “the more appropriate venue for dealing with the proceedings, because of their complexity or the complexity of a question in issue in them.”502 Initially the Family Court took a fairly restrictive approach to transfer applications.
It interpreted Parliament’s intention as being that proceedings should be heard in the Family Court “where at all possible”.503
Transfers were, therefore, rare.504 However, that restrictive
approach was rejected by the High Court in H v H505 and J v
J.506 In H v H the High Court confirmed
that:507
The safest course when applying statutory criteria is not to gloss them. The statutory test is not a simple complexity test.
The test includes complexity but requires a characterisation and evaluation of the complexity against consideration of whether or not the High Court is the more appropriate venue. A case might be
very complex but still quite appropriate for the Family
Court.
501 Concerns were raised, for example, during the Law Commission’s review of the law of trusts. See Ministry of Justice
Regulatory Impact Statement: A New Trusts Act – Agency Disclosure Statement (August 2017) at 28.
502 Property (Relationships) Act 1976, s 22(3) (repealed by the Property (Relationships) Amendment Act (No 2) 2013).
505 H v H [2012] NZHC 537, [2012] NZFLR 688 at [23].
506 J v J [2012] NZHC 2292 at [20].
507 H v H [2012] NZHC 537, [2012] NZFLR 688 at [29]. Adopted in J v J [2012] NZHC 2292 at [19].
26.82 In J v J the High Court confirmed that the test requires an
assessment of the relative appropriateness of each court to deal with the particular proceedings.508 In making that assessment, due recognition should be given to the specialist nature of the Family Court and the warranting of Judges as being suitably qualified
to sit in that jurisdiction.509 There is no particular onus on
the party applying for transfer.510 There is no jurisdiction to
transfer proceedings simply because the parties agree to a
transfer.511
26.83 Complex or novel legal or factual questions will not justify a transfer to the High Court. The question is whether the High Court is more appropriate than the Family Court to deal with those questions. In J v J the High Court observed that the Family Court is often called upon to rule upon issues not previously determined by a higher court.512 Nor is complexity determined by the amount at stake.513 Similarly, valuation issues will not usually be of such complexity to justify a finding that the High
Court is better equipped to determine such matters. Family Court Judges can
be expected to be experienced in addressing valuation
issues in the PRA
framework.514 The High Court has also doubted whether the likelihood
of further appeals due to complex or novel questions, the value at stake or
the
distance between the parties’ positions would justify a transfer of
proceedings, noting that any pre-trial assessment
of the prospect of appeal is
likely to be highly speculative.515
26.84 The complexity test may be satisfied where there is a challenge to the Family Court’s jurisdiction to resolve all related issues. In H v H, the High Court concluded it was the more appropriate venue
as the proceedings involved a challenge to the Family Court’s
jurisdiction to deal with equitable claims regarding property
508 J v J [2012] NZHC 2292 at [21].
509 J v J [2012] NZHC 2292 at [21].
510 H v H [2012] NZHC 537, [2012] NZFLR 688 at [30].
512 J v J [2012] NZHC 2292 at [25].
514 J v J [2012] NZHC 2292 at [24].
515 J v J [2012] NZHC 2292 at [29].
Court’s lack of inherent jurisdiction and its inability to exercise
powers under the Trustee Act.517 The High Court observed that, had proceedings not been transferred, the result could have been multiple and overlapping proceedings before the Family Court and High Court contemporaneously, which contradicts the principle
of inexpensive, simple and speedy resolution of relationship property
disputes enshrined in section 1N(d) of the PRA. In principle,
the Court
considered that one judge should be seized of such a complex dispute as that
involved before him.518
26.85 The grounds for transferring proceedings were expanded in
2014,519 but the central question remains whether the High Court is a more appropriate venue than the specialist Family Court.520
Section 38A now provides that proceedings may be transferred if a Family
Court Judge is satisfied that the High Court is the more
appropriate venue
for dealing with the proceedings, having regard to:
(a) the complexity of the proceedings or of any question in issue in the
proceedings;
(b) any proceedings before the High Court that are between the same
parties and that involve related issues; and
(c) any other matter that the Judge considers relevant in the
circumstances.
26.86 The new test was expected to lower the barriers to transfer.521
Family Court data demonstrates that there has been an increase in the number
of cases transferred to the High Court, but the numbers
remain
small.
Number of PRA Proceedings Transferred from the Family Court to the High
Court
|
||||||||||||
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
3
|
5
|
4
|
12
|
5
|
9
|
11
|
9
|
8
|
6
|
17
|
15
|
15
|
516 H v H [2012] NZHC 537, [2012] NZFLR 688 at [35]–[48].
517 H vH [2012] NZHC 537, [2012] NZFLR 688 at [48].
518 H v H [2012] NZHC 537, [2012] NZFLR 688 at [55].
519 Property (Relationships) Amendment Act (No 2) 2013.
520 A v B [2015] NZHC 1113, [2015] NZFLR 379 at [26] citing J v J [2012] NZHC 2292 at [21].
may continue to be rare. In H v H, the Family Court refused an
application to transfer proceedings to the High Court, despite accepting these were complex proceedings.522 Mrs H claimed that the relationship property comprised assets of up to $100 million in value, which were held in at least 28 trusts and 12 companies, while Mr H argued the relationship property was
near $10,000 in value.523 In that case greater weight was given to the anticipated additional costs associated with the High Court hearing the proceedings and the impecunious position of Mrs H, particularly because of Mr H’s unwillingness or inability to pay the “substantial” spousal maintenance awarded in her favour.524
The Family Court Judge considered that it would be “inequitable to force Mrs [H] to litigate in a forum that she is unable to afford, particularly when that inability is directly related to Mr [H]’s failure to pay spousal maintenance that has been ordered.”525
It noted, however, that should Mrs H file proceedings in the High Court
seeking to establish constructive trusts, then these
proceedings should be
conducted from that point in the High Court.526
26.88 In Fisher v Fisher, the High Court upheld the Family Court’s decision refusing to transfer proceedings to the High Court.527
That case involved a challenge to a settlement agreement and issues on the use of property owned by Mr or Mrs Fisher to acquire trust property. The High Court observed these are claims
which the Family Court regularly deals with as part of its specialist jurisdiction.528 The appellant challenged the Family Court’s jurisdiction to deal with all issues raised in the proceeding,
arguing that the case involved consideration of whether there was a constructive trust and issues of tracing, the value of which might exceed the limit on the District Court’s jurisdiction.529 The High Court observed that the potential for separate proceedings
in that Court could be considered, however, the mere
possibility
522 H v H [2015] NZFC 635 at [24].
523 H v H [2015] NZFC 635 at [9]–[11].
524 H v H [2015] NZFC 635 at [39] and [42].
525 H v H [2015] NZFC 635 at [42].
526 H v H [2015] NZFC 635 at [42].
527 Fisher v Fisher [2015] NZHC 2693.
528 Fisher v Fisher [2015] NZHC 2693 at [44].
of such a claim or a mere statement of intention to bring such a
claim is “likely to be of little consequence”
and:530
For this to be a significant consideration there should be some real and
substantial evidential basis for such a claim. There should
be at least a high
likelihood that such a claim will eventuate.
26.89 The High Court also considered that it was relevant that the parties could agree to the Family Court hearing such claims under what is now section 81 of the District Court Act 2016. The possibility of such an agreement, and the appellant’s failure to consider or pursue that possibility, was “another reason why the
decision over transfer should not be made on the basis that there will
inevitably be proceedings that can be dealt with only in
the High
Court.”531
26.90 Further, the Court was not convinced by an argument that the High
Court was more appropriate because of its case management
protocols and the
potential for proceedings to come to hearing earlier:532
I am not satisfied that the implicit criticisms of the Family Court are
justified or that such benefits would necessarily result from
the transfer of
the proceedings to the High Court.
26.91 These decisions suggest that the threshold for transferring cases to
the High Court will remain high. There must be clear
evidence that the High
Court is the more appropriate venue, while having regard to the Family
Court’s specialist expertise
in PRA proceedings. Until questions on the
Family Court’s jurisdiction to determine the validity of express trusts
and of constructive
trusts (either under the PRA or in equity) are resolved,
however, there may continue to be uncertainty and inconsistency in
decisions.
530 Fisher v Fisher [2015] NZHC 2693 at [41].
531 Fisher v Fisher [2015] NZHC 2693 at [108].
Issue 5: Should there be a right of appeal for
interlocutory decisions?
26.92 Section 39 of the PRA provides a right of appeal to the High Court
regarding Family Court decisions to:533
(a) make or refuse to make an order; or
(b) dismiss the proceedings; or
(c) otherwise finally determine the proceedings.
26.93 While section 39 refers to any decision to “make or refuse to
make an order”, this has been interpreted by the
High Court to mean only
orders that finally determine proceedings:534
That section confers a right of appeal in respect of orders finally determining proceedings under the Act. While paragraph (a)
is not, on the words of that paragraph, limited to orders which finally determine some substantive right of the parties, the
use of the word “otherwise” in paragraph (c) makes it clear
that paragraph (a) extends only to the making of an order,
or the refusal to
make an order, which has the effect of finally determining the proceedings.
Interlocutory orders are not included.
26.94 This suggests that orders made during the case management or trial aspects of proceedings may not be appealable under the PRA. This might include any orders made prior to the final
determination, including interim distributions of property under section
25(3), orders restraining the disposition of property under
section 43, and
transfer decisions under section 38A,535 all of which may have
important consequences for one or both parties.
26.95 There is, however, authority that section 124 of the District
Court Act 2016536 provides a right of appeal against
interlocutory orders.537 Appeals under section 124 are heard in the
same manner as appeals under section 39 of the PRA.538
533 Property (Relationships) Act 1976, s 39(1).
534 Dunsford v Shanly [2012] NZHC 257 at [7] applying E v E [2005] NZFLR 806 (HC) and Crick v McIlraith HC Dunedin CIV
2004-412-37, 1 June 2004.
535 However we note the High Court in Fisher v Fisher [2015] NZHC 2693 proceeded on the basis that s 39 of the Property
(Relationships) Act 1976 applied to allow an appeal against the refusal to order a transfer.
536 Formerly s 72 of the District Courts Act 1947.
537 E v E [2005] NZFLR 806 (HC); G v G [2007] NZFLR 27 (HC); Dunsford v Shanly [2012] NZHC 257; and J v P [2013] NZHC
557.
538 That is, both are general appeals heard by way of rehearing. The principles in the Supreme Court decision of Austin,
Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 apply.
26.96 Regardless of the right of appeal under the District Court Act,
this is one area that calls for reform. Sometimes an interlocutory decision
may be of such importance that an appeal is appropriate.
Arguably it is not
desirable to have two sources of appeal rights, one under the PRA for final
decisions and one under the District
Court Act for interim decisions.
C ONSU LTATION QUESTION
H21 Should section 39 of the PRA be amended to provide for a right to appeal
interlocutory decisions under the PRA? If so, should
there be guidance as to
what interlocutory decisions are appealable?
Options for reforming the jurisdiction of the Family Court and High
Court
26.97 We think that all property disputes arising at the end of a
relationship should be decided by the same court, at the same
time. This is
consistent with the principle that all questions arising under the PRA
“should be resolved as inexpensively,
simply and speedily as is
consistent with justice.”539 Existing issues with the Family
Court’s jurisdiction, in particular to determine issues regarding trust
property, and the limited
role of the High Court, risk the need for multiple
proceedings to resolve related property disputes. This increases costs, will
likely
delay proceedings and risks inconsistent findings of fact. Reform is
called for so that “all issues can be placed before
the appropriate
Court(s) and dealt with in a principled coherent
way.”540
26.98 The real question is whether, when there are issues outside the PRA that arise in the context of PRA proceedings, that court should be the Family Court or the High Court. The options for reform fall into two broad categories. They favour either providing the Family Court, as a specialist court, with all the powers to hear and determine PRA proceedings and related issues, or a broader role for the High Court in PRA proceedings, so the High Court’s wider jurisdiction can be called upon. There are valid arguments
to support both approaches. In recent history Parliament has
favoured the latter approach, by making changes in 2014 that
539 Property (Relationships) Act 1976, s 1N(d).
540 Bruce Corkill and Vanessa Bruton “Trustee Litigation in the Family Context: Tools in the Family Court, and Tools in the
High Court” (paper presented to New Zealand Law Society Trusts Conference, Wellington, 2011) 103 at 106.
Court.541 The question one commentator raises is “whether that
ease of movement to the High Court is also a move towards access to
justice.”542
26.99 We note that while the options below represent two different
approaches, they are not mutually exclusive.
Option 1: Extend the jurisdiction of the Family
Court to address current gaps
26.100 The first option is to amend the PRA to ensure the Family Court has
jurisdiction to hear and determine related matters in PRA
proceedings, including
trust claims. There are several aspects to this option:
(a) Confirming that the Family Court has civil jurisdiction to hear claims in equity. This would resolve the current uncertainty discussed above as to whether the Family Court has jurisdiction to hear and determine a claim
of constructive trust against a third party trustee. This could be achieved by way of an amendment to the Family Court Act, confirming that the Family Court has the civil jurisdiction of the District Court, including
in equity. However this would have wide application and would affect not only
PRA proceedings, but all proceedings of the Family Court.
Alternatively the PRA
could include a provision conferring such jurisdiction on the Family Court only
if the claim is related to
PRA proceedings.
(b) Extending jurisdiction under the PRA to make decisions binding on third parties in limited circumstances. This would ensure that a Family Court is not limited in its ability to bring trust property
into account between the parties when determining entitlements under the PRA, where a third party trustee has legal ownership of the property. It may avoid the
need to bring a separate claim in equity against trustees.
to litigation should be able to have all issues relating to the relationship property dispute heard in a local court, by a suitably qualified judicial officer, as speedily and inexpensively as possible.
order to avoid unintended consequences. Given the
Court would be determining the third party’s beneficial interest in the property, appropriate safeguards must
be in place to ensure that party can participate in proceedings. One option
would be to amend section 37 to enable claims in respect
of property owned by
third parties to be dealt with alongside PRA proceedings.
(c) Granting the Family Court jurisdiction under the Trustee Act.
As discussed above, the Trusts Bill currently before Parliament proposes to
grant the Family Court ancillary jurisdiction to exercise
powers under that
Bill in PRA proceedings.
(d) Granting the Family Court jurisdiction under the Companies Act. This would give the Family Court an ancillary jurisdiction under the Companies Act 1993, similar to that proposed in the Trusts Bill. However we are not convinced there is a compelling need for the Family Court to have such powers. There appears to be a clearer distinction between issues of ownership of company shares (which can be relationship property) and control and management of a company, including company assets, which is governed by the Companies Act. While there could be scenarios where separate proceedings are required under the PRA and the Companies Act (for example, where partners run a company together), the issues will be separate. At this
point we are not aware of any problems arising with the Family Court’s lack of jurisdiction under the Companies Act.543
26.101 The advantages of extending the Family Court’s jurisdiction in
these respects is that it would mean the related issues
can be
Proceedings under the 1976 Act are concerned with the division of property
between the spouses. Proceedings concerning breaches of
directors’ or
trustees’ duties and the like are of a different character altogether,
although there will be some interrelationship
if the shares are matrimonial
property or there is jurisdiction to exercise powers under proposed new sections
44A–44F. The
relevant considerations and the implications for third
parties (including trustees, directors, shareholders and beneficiaries) who
may
also need to be represented take such proceedings well beyond the scope of
matrimonial property proceedings which are essentially
family disputes.
Accordingly we do not consider it appropriate that such extended powers are
granted.
See Ministry of Justice Matrimonial Property Amendment Bill – Departmental Report Clause by Clause Analysis (2 March
1999) at 30–31. See also Ministry of Justice SOP To Matrimonial Property Amendment Bill – Departmental Report (16 August
2000) at 26.
and where the hearing costs are less than in the High Court.544
As one practitioner observes, it means that the Judge hearing the case
will be:545
... well aware that the nature of their dispute is not simply ordinary
commercial litigation and is conversant with the sensitivities
required to
manage the previously domestic nature of the parties’ relationship and all
its attendant emotional turbulence.
26.102 This option also seems consistent with the general approach in the
Trusts Bill, which is to grant the Family Court the necessary
powers to deal
with ancillary matters arising in the context of PRA proceedings. In the context
of the Family Court Review, several
legal academics and the Auckland District
Law Society recommended that the Family Court’s jurisdiction be extended
so that
it may deal with trust and company issues that must currently be dealt
with in the District Court or High Court.546
26.103 As well as being a specialist court, the Family Court is also more
readily accessible than the High Court for those living
outside the major
cities.
26.104 There is, however, some concern that the Family Court is not resourced to deal with cases involving complex issues of trust law. While Family Court Judges are specialists in the PRA, the High Court has the advantage of experience in dealing with complex issues of variation of trust and tracing.547 In its review of the law
of trusts, the Law Commission observed that in consultation meetings some practitioners suggested that some members of
the Family Court have been operating under a misunderstanding
it is for Family Court judges to deal with trust cases. During
that review, submissions were evenly divided on the Family
Court having jurisdiction under the new trustee legislation.549
However, the prevalence of family trusts in New Zealand means that more and
more PRA proceedings involve trusts. As the High Court
observed in Fisher v
Fisher, the Family Court regularly deals with claims in relation to trust
property as part of its specialist jurisdiction under the PRA.550 Not
only does this mean that Family Court Judges are now likely to be more
familiar with the legal issues this involves, but it
may also be difficult to
justify a carve out of what is becoming a common aspect of PRA
proceedings.
Option 2: Return to concurrent jurisdiction
26.105 The second option is to give the High Court concurrent jurisdiction
to hear and determine PRA proceedings, as it had prior
to 2001.
26.106 This option would not resolve the issues with the Family Court’s jurisdiction, but would instead enable parties to avoid those issues by applying directly to the High Court. The High Court would be able hear and determine all related issues in exercising
its inherent jurisdiction (and its jurisdiction under the Trustee Act and
Companies Act where appropriate).
26.107 There are several advantages to this option:
(a) The High Court has supervisory jurisdiction over trusts, and has
experience in dealing with complex trust issues.
(b) The High Court has a more sophisticated set of rules on discovery than the Family Court, enabling tailor- made discovery and utilising electronic technology,551 and a more comprehensive and arguably efficient case management system. As a result proceedings can be heard and determined more efficiently in the High
Court in some cases.552 One practitioner notes that,
even
549 Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at [13.23].
550 Fisher v Fisher [2015] NZHC 2693 at [44].
551 H v H [2012] NZHC 537, [2012] NZFLR 688 at [55].
552 This was raised as a possible reason to transfer proceedings from the Family Court to the High Court in Fisher v Fisher
[2015] NZHC 2693, however, the High Court at [111] did not accept that “the implicit criticisms of the Family Court are
venue (its filing costs and hearing fees are higher than
the Family Court), its case management system often enables the High Court to determine PRA proceedings more cheaply and quickly than the Family Court.553
However these concerns could also be addressed by changes to the Family
Court case management procedures, as we discussed in the
previous
chapter.
(c) With complex or high value proceedings that are likely to be appealed further, the ability to apply directly to
the High Court removes a layer of decision-making, and enables parties to
appeal to the Court of Appeal by right, without leave.554 However,
appeals can already be fast tracked from the Family Court to the Court of
Appeal where the case is exceptional.555
(d) This option would be simpler to implement than option
1 (extending the jurisdiction of the Family Court),
and would avoid any risk of unintended consequences encompassed within option
1.
(e) Concurrent jurisdiction may avoid the expense and delay associated with
an application to transfer proceedings from the Family
Court to the High Court,
but not where proceedings are first filed in the Family Court.
26.108 Arguments against concurrent jurisdiction remain largely the same as they did in 2001, when Parliament gave the Family Court sole originating jurisdiction under the PRA.556 At that point in time, very few people were choosing to file in the High Court. The arguments against concurrent jurisdiction include:
(a) The Family Court is a specialist court, with particular expertise in
resolving family matters, including PRA
justified or that such benefits would necessarily result from the transfer of proceedings to the High Court”. Similarly, in H
v H [2015] NZFC 635 the Family Court considered at [37] that it can deal with applications made before it expeditiously.
555 As in Z v Z [1997] 2 NZLR 258 (CA). See s 59 of the Senior Courts Act 2016.
proceedings. It is appropriate that the specialist nature
of that Court is recognised.
(b) Concurrent jurisdiction is sometimes used for tactical advantage, often to disadvantage the poorer partner. PRA proceedings can occur at a time of emotional distress and can have a deeply personal impact
on partners. Disputes can be fraught, and power imbalances between the
parties can lead to abuse of process, by filing proceedings
in the more
expensive forum.
(c) Costs, including filing and hearing costs, are presumed to be lower for proceedings in the Family Court (however as noted above, this may not always be the case). For example, interlocutory applications attract
a filing fee of $200 in the High Court, whereas there is no such fee in the
Family Court. In an application to transfer a complex
proceeding to the High
Court, this was noted as a significant factor in declining the
application.557
26.109 We also note that applications for spousal maintenance and child support are often heard alongside PRA applications, and in rarer situations, applications to vary a nuptial settlement under section
182 of the Family Proceedings Act 1980.558 The Family Court has
jurisdiction to hear those applications,559 and concurrent
jurisdiction under the PRA risks these matters being heard in separate
courts.
Option 3: Empower the High Court to transfer proceedings and/or reduce the
threshold for transfer
26.110 This option would seek to improve the balance between the Family Court’s exclusive jurisdiction and the High Court’s limited role in PRA proceedings.
26.111 The High Court can only consider whether PRA proceedings should be
heard in that Court on appeal from a decision of the
557 H v H [2015] NZFC 635 at [41].
558 We discuss options for reform with respect to s 182 of the Family Proceedings Act 1980 in Part D.
559 Family Court Act 1980, s 11.
Family Court.560 The retention of the High Court’s power to
hear and determine applications for transfer was considered by Parliament
during its consideration of the 2001 amendments, in response
to concerns raised
by the Chief Justice Dame Sian Elias.561 The Ministry of Justice,
however, in advising the Justice and Electoral Committee, was concerned
that:562
Reinstating the power for a party to apply directly to the High Court for
transfer would risk negating part of the purpose of the
change which is to
ensure that the parties do not use High Court jurisdiction for tactical
advantage.
26.112 One lawyer also argues there have been conflicting and inconsistent responses to applications to transfer proceedings.563
Where proceedings only involve PRA matters, and there is no question of other
proceedings having been filed in the High Court, there
is room for judges to
form different value judgements about the appropriate
forum.564
26.113 As we noted above, the courts have interpreted the test for
transfer in section 38A to be a relatively high threshold.565 Further, the High Court recognises the Family Court’s specialist expertise
in determining whether transfer is appropriate. In Corbitt v Rowley
the High Court observed that:566
... the special skill and experience of Family Court Judges, in my view,
put them in as good a position as a Judge of the High Court
to determine whether
the complexity of the issue warrants transfer.
26.114 The High Court in Fisher v Fisher similarly observed
that:567
It is appropriate for me to recognise the specialist experience
and knowledge which the Family Court Judge had in making an assessment as
to what were likely to be the real issues in the case,
560 This was confirmed by the High Court in Corbitt v Rowley [2009] NZHC 414; 27 FRNZ 852 (HC) at [30].
561 Chief Justice Sian Elias “Submission to the Justice and Electoral Committee on the Matrimonial Property Amendment Bill
1998 and Supplementary Order Paper No 25 2000” at 1.
562 Ministry of Justice Advice to Justice and Electoral Committee: SOP to Matrimonial Property Amendment Bill (21
September 2000) at 5.
565 See Fisher v Fisher [2015] NZHC 2693.
566 Corbitt v Rowley [2009] NZHC 414; 27 FRNZ 852 (HC) at [25].
567 Fisher v Fisher [2015] NZHC 2693 at [8].
the High Court was the more appropriate forum for continuing
proceedings.
26.115 Because of these cases, it is unclear whether a power to hear an application to transfer proceedings directly would, by itself, effect any change in practice. Accordingly, consideration should also be given to whether the grounds for transfer should be amended, to provide a broader discretion and reduce the threshold for transfer. As we note above, the grounds for transfer under section 38A
were only recently reviewed and broadened in 2014, however the overall
question remained the same – whether the High Court
is the more
appropriate venue for hearing the proceedings. Further legislative guidance
could be provided as to when this test
will be met.
C ONSU LTATION QUESTIONS
H22 Have we identified all of the issues with the jurisdiction of the Family Court and High
Court to determine PRA and related disputes?
H23 Should the Family Court have jurisdiction to determine all issues related to PRA
proceedings, in particular to determine issues regarding trust property?
(Option 1)
H24 Should the High Court have a broader role under the PRA, to either hear
and determine PRA proceedings concurrently with the
Family Court (Option 2), or
to hear and determine applications to transfer proceedings (Option
3)?
Other jurisdiction issues
Issue 6: How should the courts resolve questions of tikanga
Māori?
26.116 Property matters under the PRA, including those where tikanga Māori is especially relevant, may be heard and determined by the Family Court or, in more limited circumstances, the High Court.568
These and other courts have developed a number of requirements for the recognition of Māori custom law.569 Māori custom law is part of the common law in New Zealand but what constitutes
Māori custom or tikanga in any particular case is a question
of
568 Property (Relationships) Act 1976, ss 38A and 39.
569 See Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [204]–[220] and [252].
fact for expert evidence, unless the particular tikanga has become
notorious by frequent proof and so judicial notice can be taken of it.570 Customary rules in issue have been proved in evidence by kaumātua or by academics, by reliance on earlier published decisions of the Māori Appellate Court and in an affidavit filed
“by a distinguished New Zealand chief ”.571 In a
recent case under the PRA the Family Court relied on expert evidence from a
Māori academic relating to taonga.572
26.117 However, there may be other measures that could better enable a
court to resolve questions of tikanga Māori. We consider
a number of
options that may be relevant in the PRA context.
Should the Family Court be able to seek assistance from experts in
tikanga?
26.118 David Williams notes that the procedures of the adversarial mode of trial in the general courts may often entail that tikanga Māori elements of cases are overlooked.573 We noted at paragraph
25.175.135 that the Family Court takes a semi-inquisitorial approach in
making its decisions, but that it can only proceed on
the evidence that is
before it. Expert evidence may not be given to support an assertion of tikanga
or may not be of sufficient
assistance to the court.
26.119 One option is to enable the Family Court to obtain advice during the
proceedings. Under some statutes, judges can request
cultural reports to be
completed to provide information that may better inform their decisions and
this information may include
the cultural ties and values of the people
concerned.574
as the first law of New Zealand with respect to which all other law must be negotiated see Ani Mikaere “The Treaty of Waitangi and Recognition of Tikanga Māori” in Michael Belgrave, Merata Kawharu and David Williams (eds) Waitangi Revisited: Perspectives on the Treaty of Waitangi (Oxford University Press, Melbourne, 2005) 330; and Valmaine Toki “Tikanga Māori in criminal law” [2012] NZLJ 357 for tikanga Māori in the criminal law context.
571 Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [205]. See S v S [2012] NZFC 2685 and
B v P [2017] NZHC 338 for recent cases where evidence of tikanga was given.
573 David Williams He Aha Te Tikanga Māori (unpublished draft paper for the Law Commission, 1998) at 41. See also Judge
Annis Somerville “Tikanga in the Family Court – the gorilla in the room” (2016) 8 NZFLJ 157 at 159.
574 Oranga Tamariki Act 1989, 187; and Care of Children Act 2004, s 133.
26.120 In option 7 at paragraph 25.62 above we discussed the ability
of the court under section 38 of the PRA to appoint a person to inquire into and report on facts in issue between the parties.575
This procedure could be adapted to enable the court to inquire into matters
of tikanga.
26.121 Another option is to empower the Family Court to appoint cultural
advisers to assist, as full members of the court, in particular
cases.576
26.122 The use of experts in tikanga, whakapapa and te reo Māori
sitting with judges of the court has significant precedent.577 The
original statute creating the Māori Land Court, the Native Lands Acts 1862
provided for “assessors” to sit
with judges. In practice this
meant Māori of chiefly status who sat in an advisory capacity.
26.123 There is also precedent in contemporary New Zealand law for experts to sit with the court. Te Ture Whenua Māori Act 1993 (TTWMA) allows experts in tikanga to be involved in the hearing of cases.578 In addition, the Commerce Act 1986 requires the
High Court to sit with two lay members appointed from a pool of people with
relevant experience to hear appeals from Commerce Commission
determinations.579
Should the Māori Land Court and/or Māori Appellate Court have a
role in PRA cases involving questions of tikanga?
26.124 The Māori Land Court and/or the Māori Appellate Court and its judges could play an important role in PRA cases involving questions of tikanga. In the Law Commission’s 2004 report Delivering Justice for All: A Vision for New Zealand Courts and Tribunals the Commission stated:580
Tikanga, by its very nature, is difficult to define and not universal. The
Māori Land Court and the Māori Appellate Court
are markedly more
appropriate than any other forum in our court
575 Property (Relationships) Act 1976, s 38.
577 See discussion in Law Commission Seeking Solutions: Options for change to the New Zealand Court System (NZLC PP52,
2002) at 193.
578 Te Ture Whenua Māori Act 1993, ss 28 and 31–33.
579 Commerce Act 1986, ss 52ZA and 77.
580 Law Commission Delivering Justice for All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at [342].
structure to make determinations about tikanga. It ignores the
very substance of what requires determination to suggest that decisions
can simply be made after hearing competing experts give evidence.
The
adjudicator needs an understanding of the context, beyond fact and precedent. It
involves sets of beliefs and values which are
subjected to careful and sensitive
assessment.
26.125 The Māori Land Court is “essentially a family court where
te reo Māori is spoken, and where tikanga is
observed in the processes
of the court.”581 Both the Māori Land Court and
Māori Appellate Court have specialist knowledge and expertise in matters
concerning Māori
land, tikanga and customary practices. The procedure of
both courts is flexible, and allows a high degree of judicial discretion.
Judges are directed to avoid formality, to apply the rules of marae kawa and to
encourage the appropriate use of te reo Māori.582
26.126 Justice Durie, (now Sir Edward Taihakurei Durie) former Chief
Judge of the Māori Land Court, said in a submission to the 1988
Royal Commission on Social Policy that the Court is both a court of law and
one of “social purpose”:583
....as distinct from most courts of law, it could be said that the main
function of the Māori Land Court is not to find for one
side or the other,
but to find solutions for the problems that come before it; to settle
differences of opinion so that co-owners
might exist with a degree of harmony,
to seek a consensus viewpoint rather than to find in favour of one; to pinpoint
areas of accord,
and to reconcile family groups.
26.127 It has also been suggested by another former Chief Judge of the
Māori Land Court that disputes involving Māori
communities are of a
similar nature, whether they involve land or other
property.584
26.128 Broadening the role of the Māori Land Court in some PRA cases would be consistent with recent calls to extend its jurisdiction in other areas of family law that concern Māori. During the Government’s review of TTWMA, judges of the Māori Land Court proposed that the jurisdiction of the Māori Land Court
be broadened to include claims under the Family Protection
Act
581 Law Commission Māori Custom and Values in New Zealand Law (NZLC SP9, 2001) at [368].
582 Law Commission Delivering Justice for All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at [308].
583 As cited in Seeking Solutions: Options for change to the New Zealand Court System (NZLC PP52, 2002) at 191.
584 Submission of the Chief Judge of the Māori Land Court cited in Seeking Solutions: Options for change to the New Zealand
Court System (2002 NZLC PP52) at 191.
Enable a Māori Land Court judge to sit in the Family
Court
26.129 An option is to enable a judge of the Māori Land Court to sit in the Family Court on PRA matters that are likely to involve questions of tikanga.586 Family Court judges are themselves District Court judges that are by reason of training, experience and personality suitable to deal with matters of family law.587
Another example of the cross-warranting of judges can be found under the Resource Management Act 1991 where Māori Land Court judges can sit as an alternate Environment Court Judge.588
This option could utilise the judges’ expertise and knowledge of
tikanga and may assist with raising the level of understanding
of tikanga in
the Family Court.
Empower the Family Court to refer questions of tikanga
26.130 Another option is to empower the Family Court to refer a question of tikanga to the Māori Land Court or the Māori Appellate Court for consideration. A process could be adopted similar to section
61 of TTWMA which empowers the High Court to state a case
to the Māori Appellate Court on matters of custom. The opinion of the
Māori Appellate Court is then binding on the High
Court. The Court of
Appeal has described this section as giving the High Court access to the
expertise of the Māori Appellate
Court in respect of mattes of fundamental
importance, land and tikanga.589
26.131 The Family Court could refer a question of tikanga to the Māori
Land Court in the first instance or directly to the Māori
Appellate
585 Māori Affairs Select Committee Te Ture Whenua Māori Bill 2016: Submission for the Judges of the Māori Land Court,
14 July 2016, at [189]–[191]. in relation to the Family Protection Act 1955 and Law Reform (Testamentary Promises) Act 1949 discussed in Jacinta Ruru and Leo Watson “Should Indigenous Property be Relationship Property?” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming). See also Law Commission Seeking Solutions: Options for change to the New Zealand Court System (NZLC PP52, 2002) at 189.
other primary court jurisdictions (such as the Family Court) as and when appropriate and as resourcing may permit: Law
Commission Delivering Justice for All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at [333] and R119.
587 Family Court Act 1980, s 5(2).
588 Resource Management Act 1991, s 249(2).
589 Law Commission Delivering Justice for All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at [345] citing
Hauraki Māori Trust Board v Treaty of Waitangi Fisheries Commission [1995] 2 NZLR 702 (CA).
Court. In the Law Commission’s report Delivering Justice for
All the Commission recommended that, in the interests of consistency,
efficiency and justice, the expertise of the Māori Appellate
Court should
be used by all courts where issues of tikanga require
determination.590
Empower the Māori Land Court and/or Māori Appellate Court to
hear PRA cases
26.132 A further option is to grant the Māori Land Court concurrent
jurisdiction to hear PRA cases in the first instance. A claimant
could have the
choice to file their claim either in the Family Court or in the Māori Land
Court if there was a question of
tikanga.591 If the parties cannot
agree where the case should be heard, the case could be heard by the Family
Court by default.
26.133 Alternatively, the Family Court could be empowered to transfer a case to the Māori Land Court, or to the Māori Appellate Court if matters were particularly complex, along the lines of the section
38A process, discussed at paragraphs 26.79 to 26.91 above.
26.134 However, while the Māori Land Court and its judges are
specialists in tikanga, there are arguments against Māori
Land Court or
Māori Appellate Court hearing PRA cases, including:
(a) the Family Court is a specialist court, with particular expertise in
resolving family matters, including PRA proceedings. It
is appropriate that the
specialist nature of that Court is recognised;
(b) the Māori Land Court and Māori Appellate Court do
not have expertise in property relationship matters and there may not be many
cases where the question of tikanga is the only matter
in dispute; and
(c) the general courts would not be able to build up a body of knowledge
of tikanga, which may be useful in other cases, if most
or all PRA cases
involving a question of tikanga were heard in the Māori Land Court or
Māori Appellate Court.
590 Law Commission Delivering Justice for All: A Vision for New Zealand Courts and Tribunals (NZLC R85, 2004) at [348]–[349].
Appeals on matters of tikanga
26.135 Appeals from the Family Court in PRA matters are heard by the High
Court.592 Given the Māori Appellate Court’s expertise, it
may be appropriate to enable an appeal from the Family Court on a matter
of
tikanga to be heard by the Māori Appellate Court rather than the High
Court. However, the arguments against the Māori
Land Court and Māori
Appellate Court hearing cases noted in points (b) and (c) of paragraph 26.134
above would also apply in
relation to appeals.
C ONSU LTATION QUESTIONS
H25 Should the Family Court be able to seek assistance from experts in
tikanga Māori, such as through powers of inquiry or through
the appointment
of cultural advisers?
H26 Should the Maori Land Court and/or Maori Appellate Court have a role in
PRA cases involving questions of tikanga? If so, should
that be through:
H27 Enabling Māori Land Court judges to sit in the Family Court?
H28 Referring questions of tikanga to the Māori Land Court?
H29 Allowing claimants to file a PRA case involving a question of tikanga in the Māori Land
Court?
H30 Enabling the Family Court to transfer a PRA case involving a question of tikanga to the
Māori Land Court, or to the Māori Appellate Court if the matter was
complex?
H31 Should appeals from the Family Court on matters of tikanga be heard in the Māori
Appellate Court rather than the High Court?
Issue 7: Should the separate regime under the
Domestic Actions Act 1975 remain?
26.136 The final issue we identify in this chapter does not relate to the
PRA itself, but another statue, the Domestic Actions Act
1975. While our review
does not extend to the Domestic Actions Act, the way in which it overlaps with
the PRA is of concern and,
we think, ought to be addressed.
26.137 The Domestic Actions Act was originally introduced to abolish actions for damages for various family-related matters including adultery and breach of a promise of marriage. However Part 2
of that Act also provides for the settlement of property disputes
592 Property (Relationships) Act 1976, s 39.
arising out of the termination of agreements to marry. Section 8
of the Domestic Actions Act provides that, where the termination of an
agreement to marry gives rise to a property dispute, a
party may apply to the
Family Court or the High Court for an order that will “restore each
party... as closely as practicable
to the position that party would have
occupied if the agreement had never been made.”593
26.138 The Domestic Actions Act is an uncomfortable fit with the PRA.
The two regimes partially overlap, as the Domestic Actions Act can apply to de facto relationships where the partners were engaged.594 The difficulty in applying the Domestic Actions Act to this category of relationships was recognised by the Court of
Appeal in Oliver v Bradley.595 The parties were engaged in
1980 and purchased a home together where they lived until their separation
in 1984. In relation to
the plaintiff ’s application under the Domestic
Actions Act, the Court of Appeal commented:596
My reservation about applying [the Domestic Actions Act] to these circumstances arises from the pending words of subs (1) – “Where the termination of an agreement to marry gives rise to any question between the parties” etc. These parties not only agreed to get married, but they also agreed to live in a “de facto” domestic and sexual relationship, and it was their decision to embark on that which can be seen as leading to the acquisition of the house property and to its maintenance as their family home. Similarly, it was the termination of that relationship which led to the dispute about dividing their property. The concurrent agreement to marry appears to be no more than a facet of that more fundamental association. It seems quite artificial to regard this question
about the property as being merely the result of their broken engagement.
This is borne out by the difficulties experienced in trying
to restore the
parties to the position they would have been in if the agreement to marry had
never been made, as enjoined by s 8(3).
Rather than introduce into the arena of domestic property disputes a new category of “engaged de factos”, I would prefer to see s 8 confined to what I think is its real purpose — namely, the settlement of disputes about property acquired to mark the
engagement (such as the ring in this case), or in contemplation
of
593 Domestic Actions Act 1975, s 8(3).
594 The potential for overlapping claims was recognised by the High Court in M v D [2012] NZHC 1152 at [66].
595 Oliver v Bradley [1987] NZCA 70; [1987] 1 NZLR 586 (CA).
596 Oliver v Bradley [1987] NZCA 70; [1987] 1 NZLR 586 (CA) at 591–592. These reservations have been shared by other Courts, for example in
Lee v Mahon [2002] NZFLR 1136 (FC) at 1140 and Nye v Reid [1993] NZFLR 60 (DC) at 62–63.
other personal relationship. I do not think the legislation was ever
intended to apply to the de facto situation in this case... However, in
the absence of any argument about the application of the Act,
I content myself
only with the expression of these reservations.
26.139 These comments were made in 1987. The Domestic Actions Act has not been updated to reflect the inclusion of de facto relationships into the PRA regime in 2001. It has been described by the High Court as legislation “from another age”.597 However, applications under that Act, while uncommon, are still made.598 In A v B, a case from 2015, the parties were in a de facto relationship and had two children.599 Following their separation the plaintiff commenced proceedings under the Domestic Actions Act for
the return of items allegedly given to Ms B throughout their relationship, or damages of at least $126,900. The defendant applied to strike out the Domestic Actions Act application. The High Court, while “very much doubt[ing]” whether the Domestic Actions Act application would succeed, could not strike out
the proceeding as, assuming the pleaded facts were true (as required for
strike out applications), the claim was not “clearly
untenable”.600
26.140 The existence of a separate regime for resolving property disputes under the Domestic Actions Act is problematic, as it means a specific category of relationships are subject to two overlapping regimes, each with different aims (restoring the parties to their position but for the engagement under the Domestic Actions Act, as opposed to achieving a just division of relationship property under the PRA). Further, as the High Court has concurrent jurisdiction under the Domestic Actions Act, there is a risk of parallel proceedings in different courts and, as observed in A v B, the risk of contradictory findings.601 The regime created under the Domestic Actions Act is also unnecessary. Parties in a qualifying de facto relationship under the PRA can apply to the Family
Court for resolution of their property disputes under the PRA,
597 M v D [2012] NZHC 1152 at [66].
599 A v B [2015] NZHC 487.
600 A v B [2015] NZHC 487 at [29].
be married may pursue a claim in equity based on constructive
trust.602
26.141 Our preliminary view is that Part 2 of the Domestic Actions Act
1975, providing for resolution of property disputes arising out of
agreements to marry, should be repealed. Parties would continue
to have a claim
based on constructive trust, and in respect of qualifying de facto partners,
they could apply to the Family Court
under the PRA for resolution of their
property disputes.
C ONSU LTATION QUESTION
H32 Should Part 2 of the Domestic Actions Act 1975 be
repealed?
Part I: How
should the PRA recognise children’s interests?
Chapter 27 – Children and the
PRA
Introduction
27.1 Many children experience the separation of their parents or
caregivers.1 A smaller number of children will experience the death
of one of their parents.2 In this part, “children” means
minor or dependent children, except where expressly stated.
27.2 In this chapter we explore how the end of a relationship affects
children, and the role of the PRA in addressing children’s
interests. The
rest of Part I is arranged as follows:
(a) In Chapter 28 we look at the case for taking a more
child-centred approach in the PRA, and consider who is a “child of the
relationship” for the purposes of the PRA.
(b) In Chapter 29 we look at what taking a more-child centred approach
would look like in practice, with specific options for reform.
27.3 Our discussion in this part of the Issues Paper focuses primarily on the division of property following parental separation.3
Different issues might arise on the death of one partner when children are involved. This situation is unlikely to arise as often. Children have different property rights when one parent dies, including possible claims under succession law.4 We discuss how
the PRA operates on the death of one partner in Part M. Some of
3 In this part, we refer to “parental separation” to include the separation of a child’s parents or caregivers.
4 Apart from any inheritance a child may receive under the deceased parent’s will, a child may have a claim under the Family Protection Act 1955, Law Reform (Testamentary Promises) Act 1949 and in the case of intestacy, the Administration Act 1969.
the issues and options for reform discussed in this part would,
however, also apply when a relationship ends on death.
C ONSU LTATION QUESTION
I1 Does the way that the PRA operates on the death of one partner raise any specific
problems for children?
How does parental separation affect children?
27.4 New Zealand studies observe a steady rate of parental separation in
the first few years of a child’s life, which means
that the number of
children experiencing parental separation increases as the children get
older.5 One recent study of 209 children aged 15 found that only 20
per cent had spent all their childhood living with both biological
parents.6
27.5 Parental separation is a turbulent time for children. They may
experience new care arrangements. They might be dealing with
inter-parental
conflict. The family home may be sold as one household splits into two, and
children might have to move to a new
house, neighbourhood or region. They may
have to change schools, losing ties with their friends and community. For some
children,
parental separation is associated with a prolonged period of lower
living standards.7
Table 1. These findings have also been reflected in the early results of the more recent Growing Up in New Zealand study, which identified that, overall, the number of children living in a single parent household is increasing as the children get older (3 per cent lived in a single parent household before birth, rising to five per cent by age two and eight per cent at age four: Susan MB Morton and others Growing Up in New Zealand: A longitudinal study of New Zealand children and their families. Now we are Four: Describing the preschool years (University of Auckland, May 2017) at 39.
27.6 Parental separation affects children differently.8 Some children are
harmed by their parent’s separation while others benefit.9
Some experts take the view that:10
Whether or not the risks for children associated with divorce are actually
realised is determined not by the separation itself, but
by the complex
interplay of other factors that are present before, during, and after
separation.
27.7 There is some evidence that children whose parents separate are at
higher risk of an adverse outcome than children whose parents
do not, although
the extent of that risk depends on a range of factors.11 Research
on parental separation and child outcomes suggests that:12
...there is an abundance of evidence that children who experience a parental separation are, on average, worse off than their
peers in intact families, on a number of measures of wellbeing. However, the scale of the differences in wellbeing between the two groups of children is not large and most children are not adversely affected. Parental separation then bears down most heavily
on a minority of children, generally in the presence of other exacerbating
factors.
Underlying these effects are multiple mechanisms: income declines following separation, declines in the mental health
of custodial mothers, interparental conflict and compromised parenting.
These mechanisms do not operate independently, but are related
in complex ways.
...
Part of the effects also arise from non-causal mechanisms: that is to say,
not all of the adverse child outcomes following separation
can be laid at the
door of the separation itself.
8 Mark Henaghan “Legally rearranging families: Parents and children after break-up” in Mark Henaghan and Bill Atkin
(eds) Family Law Policy in New Zealand (4th ed, LexisNexis, Wellington, 2013) 307 at 309.
9 Jan Pryor and Bryan Rodgers Children in Changing Families – Life After Parental Separation (Blackwell Publishers, Oxford,
2001) at 257.
10 Jan Pryor and Bryan Rodgers Children in Changing Families – Life After Parental Separation (Blackwell Publishers, Oxford,
2001) at 257.
12 Ross Mackay “The Impact of Family Structure and Family Change on Child Outcomes: A Personal Reading of the Research Literature” (2005) 24 Social Policy Journal of New Zealand 111 at 127–128. See also Jan Pryor and Bryan Rodgers Children in Changing Families – Life After Parental Separation (Blackwell Publishers, Oxford, 2001) at 66.
How do parents care for children after separation?
27.8 Parents have legal obligations to care for their children. The welfare and best interests of the child are the first and paramount consideration under the Care of Children Act 2004, which
sets out rules about the guardianship and care of children, and provides that a child’s guardians (usually the child’s parents) are responsible for providing day-to-care and contributing to the child’s intellectual, emotional, physical, social, cultural and
other personal development.13 The Crimes Act 1961 also imposes a legally enforceable duty on parents and guardians to provide children with necessaries (such as food, clothing, housing and medical care) and to take reasonable steps to prevent them from injury.14 Some parents who do not live with their children, or who share care of their children may have an obligation to pay child support (see paragraphs 27.15 to 27.21).15 The objects of the Child Support Act 1991 include affirming the obligation of parents to maintain their children, and ensuring that obligations to birth
and adopted children are not extinguished by obligations to
stepchildren.16
27.9 Care arrangements for children are likely to change when their parents separate. One parent may become the primary caregiver, or care may be shared, which usually means the children split their time across two different households.17 Some parents
may “live apart” in the same house,18 or practice “bird’s nest
parenting”,19 so that the children can stay in the family
home for
education and identity: ss 16 and 36–38. See also Education Act 1989, ss 20, 24 and 29 in relation to the responsibilities of parents and guardians to enrol children at school and ensure their regular attendance between ages 6 and 16.
14 Crimes Act 1961, s 152. See also Family Proceedings Act 1980, s 45.
16 Child Support Act 1991, ss 4(b) and 4(b)(i).
$1500 a week by living together in family home” (29 September 2017) <www.stuff.co.nz>.
a time. Whānau or extended family may become more involved in
care arrangements.20
27.10 Whatever the care arrangements are when parents separate, they will often change over time.21 In the period immediately after parental separation, initial arrangements may need modifying
as problems surface when arrangements are tried out.22 More
broadly, children’s needs change as they grow older, and the
circumstances of one or both parents may also change (such
as a change in job
or re-partnering) so that the existing arrangements no longer work for
them.23
27.11 The State provides services for separated parents who cannot agree
on how their children are to be cared for, including
a free parenting
information course, Parenting Through Separation, and access to subsidised
Family Dispute Resolution services.24
What financial support is available for parents and caregivers?
27.12 Ideally, future needs should be met without reliance on State support or intervention. Separating parents should be able to
agree amongst themselves on how they will meet the needs of any dependent children. Recognising however that it will not always
be possible for families and whānau to support themselves when relationships end, the State ensures that there are other means
of financial support available. These means of support, described as “pillars”, are discussed in Chapter 2.25 These are maintenance,
child support and State benefits. Each addresses a different
issue
husband” (3 July 2016) <www.stuff.co.nz>; and Cosima Marriner “Does the ‘bird’s nest parenting’ solution really work?” (13 September 2016) <www.stuff.co.nz>.
2014) 138 at 141.
and together with the PRA they establish a framework of post-
separation financial support.26
State benefits
27.13 A key State benefit that can meet children’s
post-separation needs is Sole Parent Support.27 This is available to
a single parent or caregiver with a youngest dependent child under age
14.28 Sole Parent Support is currently $329.57 (net) per week,
subject to an income test.29 Alternative State benefits that may
be available to single parents and caregivers include Jobseeker Support
(which may replace
Sole Parent Support when the youngest dependent child
turns 14)30 and the Supported Living Payment.31 Other
benefits that may be relevant include the Disability Allowance and Temporary
Additional Support.32
27.14 Parents and caregivers may also be eligible for housing
assistance,33 subsidies to assist with the cost of childcare34
and Working for Families tax credits.35
Child support
27.15 Child support is financial support paid by parents who do not live
with their children, or who share care of their children
with
26 We discussed maintenance under the Family Proceedings Act 1980 in Chapter 19 of this Issues Paper, under option 3.
27 Sole Parent Support replaced the Domestic Purposes Benefit in 2013.
28 See Social Security Act 1964, ss 20A and 20D. Further information is available at “Sole Parent Support” Ministry of Social
Development <www.workandincome.govt.nz>.
29 Social Security Act 1964, s 20G and sch 3A. This amount does not change regardless of the number of children.
30 Social Security Act 1964, s 20H, pt 2 and sch 9. Further information is available at Ministry of Social Development
“Jobseeker Support” <www.workandincome.govt.nz>.
31 Social Security Act 1964, pt 1E and sch 6. Further information is available at Ministry of Social Development “Supported
Living Payment” <www.workandincome.govt.nz>.
33 In the form of State-owned housing or the Accommodation Supplement. See Social Security Act 1964, pt 1K and sch 18. Further information is available at Ministry of Social Development “Accommodation Supplement” <www. workandincome.govt.nz>.
Hours ECE” <www.education.govt.nz> for more information.
35 Available for working parents with dependent children under the age of 18. See Inland Revenue What are Working for
Families Tax Credits? (IR691, March 2016).
someone else, such as another parent.36 Child support aims to
offset the costs to the State of providing financial support for children
and their carers by ensuring that liable parents take
financial
responsibility for their children.37 Child support also ensures that
a parent’s obligations to birth and adopted children are not extinguished
by obligations to
stepchildren.38
27.16 A parent can apply to the Commissioner of Inland Revenue for a child
support assessment. The amount of child support payable
is calculated by a
formula set out in the Child Support Act 1991 and is collected by Inland
Revenue.39 The formula takes into account each parent’s
income, living needs, number of dependent children and care
arrangements.40 Parents can also reach their own private agreement
on the payment of child support.41
27.17 When a parent is receiving a State benefit such as Sole Parent Support, any child support paid by another parent is first used to recover the cost of that benefit to the State.42 This means the
parent receiving child support will only receive the amount of the child
support payment (if any) in excess of his or her net
benefit.43
27.18 A court can make a departure from the set formula under the Child
Support Act in special circumstances.44 Three requirements must be
satisfied:45
37 Child Support Act 1991, ss 4(b) and 4(j); and Inland Revenue Helping you to understand child support (IR100, April 2016)
at 5.
38 Child Support Act 1991, s 4(i); and Inland Revenue Helping you to understand child support (IR100, April 2016) at 5.
40 Child Support Act 1991, pt 2. See also Inland Revenue Helping you to understand child support (IR100, April 2016) at 8–9.
42 Child Support Act 1991, s 142.
43 Child Support Act 1991, s 142.
Why should the children, as a matter of public interest, not have all the advantages they would have had educationally
and in their extracurricular activities but for the parents’ separation and subsequent inability to reach agreements to better provide for their welfare?
45 Child Support Act 1991, s 105(1).
(a) First, grounds for departure under the Child Support Act
must exist. These grounds include special circumstances relating to a
parent’s financial needs (including any duty to support
another child),
the child’s special needs and other factors which might make a formula
assessment “unjust and inequitable”
(including any payments made
under the PRA to or for the benefit of the child, or to either party).
(b) Second, it must be “just and equitable” to make a
departure order, as regards the child and the parties.
(c) Third, it must be “otherwise proper” to make the departure
order.
27.19 Lump sum orders can also be made under the Child Support Act.
A court has the discretion to order future or past child support
to be paid in a lump sum where it would be just and equitable as regards the child and the parties, and otherwise proper.46 A court must have regard to listed matters, including the child’s proper needs and the financial resources of each parent who is a party
to the proceeding.47 A court may make a lump sum order where
a parent has refused or failed to pay child support in the past, or where
there is a risk that a parent will fail to pay child
support in the
future.48
27.20 A court must have regard to any child support payable by one partner for a child of the relationship in proceedings under the PRA.49 Section 32 of the PRA allows a court to make certain orders under the Child Support Act, including departure and lump sum orders, if it considers it just.50 This ensures that child support arrangements can be revisited, if required, in PRA proceedings. Courts have used this power in a “conservative fashion”.51 In H v
H the High Court made it clear that the discretion in section 32 is
only to make orders under the stipulated provisions of the
Child
46 Child Support Act 1991, s 109.
47 Child Support Act 1991, ss 105(4) and 109(3)(c).
50 Property (Relationships) Act 1976, s 32(2)(c). A court may also cancel, vary, extend or suspend a voluntary agreement: s
32(2)(d).
51 F v M [2012] NZFC 7705 at [110].
Support Act, and that this requires sufficient evidence.52 The Court
went on to say that the amount of a lump sum award was almost certainly
limited, in “all but the most unusual circumstances”,
to a
capitalisation of the formula assessment in any given financial
year.53
27.21 Recent research by Fletcher into the economic consequences of separation among couples with children found that child support payments provide little support to many separated partners
with the primary care of children.54 Of those partners receiving
child support, average receipts were $2,367 for women (7 per cent of average
total family income) and
$709 for men (2 per cent of average total family
income) per annum, in the year after separation.55
Children may live in poverty despite State assistance
27.22 Some research shows that children in sole parent families
are more likely to experience poverty than children with two parents.56
The main reasons are said to be low rates of paid
52 H v H [2007] NZHC 309; [2007] NZFLR 910 (HC) at [100]. See also L v L [2015] NZFC 9689 at [43] as to the evidence required.
53 H v H [2007] NZHC 309; [2007] NZFLR 910 (HC) at [104].
opposite-sex couples who separated in 2009. It looked at the short to medium term financial consequences of separation by analysing the incomes of over 15,000 people in the Working for Families dataset who separated in 2009 and who,
prior to separating had at least one child living with them, and comparing outcomes with similar, still partnered individuals. While not representative of the whole population, the dataset covers approximately two-thirds of all parents with dependent children in New Zealand: see Draft Thesis at 3. For further information about this dataset see Study
Paper at Chapter 8. This research took place before changes to the child support formula were introduced on 1 April
2015. The new child support formula includes, among other things, the estimated average cost of raising children in New
Zealand (updated annually); a lower level of minimum shared care (now 28 per cent of ongoing daily care, down from
40 per cent of the nights in the child support year); and the child support income of both parents (not just the liable parent): see Inland Revenue “What a child support formula assessment is” (31 March 2016) <www.ird.govt.nz>; and Child Support Act 1991, s 30. Fletcher considered whether the new child support formula could be expected to improve outcomes, using data provided by Inland Revenue based on modelling produced from a dataset consisting of just under
90 per cent the total number of cases, and found that it would have little impact on child support payments and receipts overall: Draft Thesis at 176 to 180, and 189 to 191. Data limitations are discussed in the Draft Thesis at 168 to 170 and include the absence of equal-care cases and third-party carers, and the lack of exact information on the distribution and prevalence of shared care below the 40 per cent level.
56 Children’s Commissioner ’s Expert Advisory Group on Solutions to Child Poverty Solutions to Child Poverty in New Zealand: Evidence for Action (December 2012) at Chapter 8. See also Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i Aotearoa o nāianei (NZLC SP22, 2017).
employment and low levels of welfare benefits.57 Fletcher ’s
research suggests that “[i]n simple terms, the level of assistance
provided through welfare and family tax credits is often
insufficient to
ensure individuals are not below the poverty threshold, especially if they have
children living with them.”58
27.23 Experts say that child poverty can negatively affect child development in numerous ways.59 The issue is, however, complex. One expert says that “[a]lthough there is considerable evidence that poor child and later-life outcomes are correlated with household income in early childhood, this does not necessarily mean that low incomes during childhood cause all of these problems.”60 Housing is also “critically related” to child poverty.61
Poor quality housing and overcrowding can lead to health issues for children
and impact on their mental health, social wellbeing
and school
performance.62
How does the PRA Fit in?
27.24 The PRA governs the division of property when relationships end.
Decisions under the PRA can have a significant impact
on children’s
lives, influencing where children live and what their standard of living will
be after parental separation.
Historical background to the PRA
27.25 The PRA has always recognised the interests of children in property
division at the end of a relationship. In a White Paper
57 Children’s Commissioner ’s Expert Advisory Group on Solutions to Child Poverty Solutions to Child Poverty in New
Zealand: Evidence for Action (December 2012) at 6:
There are two main reasons why sole-parent families in New Zealand have a high rate of poverty: sole-parents have a comparatively low rate of paid employment by OECD standards, and welfare benefits are low relative to the poverty line
59 Children’s Commissioner ’s Expert Advisory Group on Solutions to Child Poverty Solutions to Child Poverty in New
Zealand: Evidence for Action (December 2012) at 14.
61 Children’s Commissioner ’s Expert Advisory Group on Solutions to Child Poverty Solutions to Child Poverty in New
Zealand: Evidence for Action (December 2012) at 45.
62 Children’s Commissioner ’s Expert Advisory Group on Solutions to Child Poverty Solutions to Child Poverty in New
Zealand: Evidence for Action (December 2012) at 45.
published on the introduction of the Matrimonial Property Bill
1975 to Parliament, the Minister of Justice said “[t]he children of a marriage have an indirect but nonetheless important interest
in any division of the matrimonial property”.63 The
resulting Matrimonial Property Act 1976 contained many of the same provisions
that take into account children’s interests
that are in the PRA
today.64
27.26 In 1988 a Working Group was established to review the Matrimonial Property Act 1976.65 The Working Group acknowledged that one partner ’s responsibility for dependent children following separation may cause problems, such as decreased earning capacity, financial dependency and a much lower standard of living.66 It recommended changes to bring more property into the relationship property pool available for
equal division, which would mean that more women would leave a marriage
with an amount of property equal to that of their husbands,
going “some
way toward avoiding discrepancies in the spouses’ standards of
living.”67 These proposals were implemented in the 2001
amendments.
27.27 The 2001 amendments largely retained the previous approach in the way that the interests of children were considered on property division, although children of de facto partners were included
for the first time.68 The 2001 amendments also gave a court
the discretion to make orders postponing vesting of property if immediate
vesting would cause undue hardship for the primary caregiver
of ongoing daily
care for children.69 In addition, courts were given the discretion to
make orders relating to child support and furniture
orders.70
64 See for example the long title and ss 26(1), 26(2), 27, 28 and 33(3) of the Matrimonial Property Act 1976.
66 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 6.
67 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at
13-14.
68 Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at 1.6.
69 Property (Relationships) Act 1976, s 26A.
70 Property (Relationships) Act 1976, ss 28B, 28C, 28D and 32.
Recognising children in a law primarily about
adults
27.28 The PRA’s historical background shows a longstanding willingness to accommodate children’s interests in the division of property
at the end of a relationship. But how this is meant to work in practice is a
complex issue.
27.29 The PRA is primarily about the property entitlements of adult partners that arise at the end of a relationship. As we discussed in Chapter 3, the PRA is built on the theory that a qualifying relationship is an equal partnership or joint venture, to which partners contribute in different but equal ways. Each partner ’s contribution to the relationship results in an entitlement to
an equal share in the property of the relationship. Dividing relationship property according to the partners’ entitlements, however, might not always be in the best interests of children. For example, on separation one partner may wish to sell the family home immediately so that he or she can use the proceeds to buy
a new home. But the children’s interests may favour delaying the sale
of the family home, enabling them to remain in the
home for a time and
maintain continuity while dealing with their parents separation.71
The focus on the adult partners may also be at the expense of a wider
focus on the family. In te ao Māori, there is greater
acknowledgment of
the interests of the whānau as well as a recognition of children as
taonga.72
27.30 The PRA must therefore balance partners’ property entitlements and children’s interests. It must also achieve a balance between parental autonomy and State direction. Partners may highly
value their parental autonomy to make decisions about how their children are looked after post-separation, without direction from the State. However, the State has a role in protecting children,
and it is concerned with children’s welfare and best interests.73
The State may also incur costs as a result of separation, including direct
costs such as one or both adult partners requiring access
to
72 See Joan Metge “Ko Te Wero – The Māori Challenge” in Family Court, Ten Years On (New Zealand Law Society, 1991) at
24–25 as cited in Re B [2016] NZFC 7039 at [22].
State benefits, and indirect costs that might result from longer-
term adverse outcomes for children. It is unclear where the balance lies
between the role of the State and parental autonomy in
some private law
disputes, including care arrangements, relationship property claims or claims
against an estate.74
27.31 The PRA must also achieve a balance between clear rules and
discretionary decision-making. Rules and speedy resolution of
disputes may
favour children because research indicates that “...prolonged exposure to
frequent, intense and poorly resolved
parental conflict is associated with a
range of psychological risks for children”.75 Quick
resolution may also be more appropriate to a child’s sense of time.
However discretion enables a court to treat each
child as an individual with
his or her own risk factors and interests – which may be different to
those of his or her
parents.
74 Ministry of Justice Reviewing the Family Court: A public consultation paper (20 September 2011) at [23].
and N Gavey “Is 50:50 shared care a desirable norm following family separation? Raising questions about current family law practices in New Zealand” (2010) 24 NZULR 136; J McIntosh and R Chisholm “Cautionary notes on the shared care of children in conflicted parental separation” (2008) 14 Journal of Family Studies 37; E Cummings and P Davies Children and marital conflict: The impact of family dispute and resolution (The Guilford Press, New York, 1994); and J McIntosh “Enduring conflict in parental separation: Pathways of impact on child development” (2003) 9 Journal of Family Studies 63.
Chapter 28 – The case for taking
a more child-centred approach under the PRA
28.1 Children have an indirect but nonetheless important interest in
property decisions following separation. As explored in Chapter
27, decisions under the PRA can have a significant impact on children’s lives, affecting their accommodation, standard of living and ability to maintain relationships with family, whānau, friends and community.76 Decisions that negatively affect children can
not only harm them, but can also result in high future costs to
society.77
How does the PRA recognise children’s interests?
28.2 In Chapter 3 we explained that an implicit principle of the PRA
is that a just division of relationship property should have regard to the interests of the children of the relationship.78 Section
26(1) imposes an overarching requirement on the court to “have regard to the interests of any minor or dependent children of
the marriage, civil union, or de facto relationship” in any PRA proceedings. This is of general application and can influence the court’s decision on a wide range of matters.79 It recognises that
the interests of children may be considered sufficiently important to warrant some degree of priority over their parent’s property entitlements. In practice, however, children’s interests are seldom prioritised in this way.
28.3 The PRA also provides a court with powers to make a range of orders
that can directly or indirectly benefit children. These
77 Children’s Commissioner Being child-centred: Elevating children’s interests in the work of your organisation (October 2015) at
2.
78 This principle is expressed in several places in the Property (Relationships) Act 1976, including ss 1M and 26.
79 See discussion at paragraph [2929.1617].
powers are discussed in detail in Chapter 29, but by way of
summary they include:80
(a) settling relationship property for the benefit of children of the
relationship;81
(b) postponing the vesting of a partner ’s share in relationship
property, if that would cause undue hardship for the principal
provider of
ongoing daily care for children of the relationship;82
(c) granting occupation of the family home to one partner, or transferring
a tenancy to one partner, so that children can stay
in the home for a period
of time;83 and
(d) granting one partner the possession and use of any furniture, household
appliances and household effects in order to provide
for the needs of any
children.84
28.4 Despite these provisions, children’s interests generally play
a minor role in PRA matters. Orders under these sections are rare, and we
understand from our preliminary consultation that parents
seldom ask the court
to make them.
Should children’s interests have a role in the PRA?
28.5 The underuse of the PRA’s orders that benefit children begs
the question: what is the proper role of children’s
interests in
relationship property division? One view is that that the PRA has no role in
providing for children’s needs.
Parents already have a fundamental
obligation to support their children,85 and separating parents
should have the freedom to make decisions amongst themselves on how they will
meet their children’s
needs. Where that is not possible,
children’s needs are addressed elsewhere,
to redress economic disparities.
81 Property (Relationships) Act 1976, s 26.
82 Property (Relationships) Act 1976, s 26A.
83 Property (Relationships) Act 1976, ss 27–28A.
84 Property (Relationships) Act 1976, ss 28B–28C.
85 See Crimes Act 1961, s 152; Care of Children Act 2004, s 5(b); and Child Support Act 1991, s 4(b).
under different pillars of financial support (child support, State
benefits and maintenance). Any shortcomings would be better addressed by
amendments to other legislation such as the Child Support
Act 1991 and the
Social Security Act 1964, or through broader social action such as eliminating
the gender pay gap and child
poverty.
28.6 Another view is that the PRA is just one pillar of a wider framework of financial support that ensures that parents fulfil their obligations and children’s needs are met. On this view, the PRA’s purpose is not to substitute or supplement child support. The PRA is, however, well placed to meet particular needs, such as
the need of some children to remain in the family home for a time to
minimise disruption while they deal with the after-effects of
relationship
breakdown. It would be unwise not to take advantage of the PRA as another
mechanism through which to support children
28.7 Our preliminary view is that children’s interests have an important role in the PRA. Children’s interests have been recognised in the statutory property regime since the 1970s, and we think removing children’s interests from the PRA would be a backwards step. Rather, as we discuss below, there is now arguably an even stronger case for recognising and protecting
children’s interests in the PRA because attitudes towards children
(and children’s rights) have changed. We should
not lose the
opportunity presented by PRA to make a difference for children.
Should the PRA take a more child-centred approach?
28.8 Our preliminary view is that the PRA should take a more child- centred approach. Our initial consultation indicates that there are concerns that the PRA is not working as well as it could to
recognise and protect children’s interests. These concerns, and the
issues we identify in Chapter 29, suggest that reform
is needed.
28.9 The Children’s Commissioner explains that being
child-centred is a way of elevating the status of children’s
interests,
wellbeing and views.86 It involves considering the impact of
decisions and
86 See Children’s Commissioner Being child-centred: Elevating children’s interests in the work of your organisation (October
2015).
processes on children, and seeking their input when appropriate.87
A child-centred approach places children at the centre, but it does not
necessarily mean making children’s interests paramount
over all other
considerations, all of the time.88 The overarching reason to be
child-centred is to ensure that children are supported to thrive.89
We consider the arguments for and against taking a more child-centred
approach in the PRA below.
The case for taking a more child-centred approach in the PRA
28.10 First, a more child-centred approach is consistent with the general responsibility parents have for the care, development and upbringing of their children and their duty to provide necessaries.90 Parenthood changes the relationship between partners because it imposes limitations on their individual financial autonomy, and is said to provide the greatest justification for property alteration.91 Separation is said to
“[change] the financial partnership of parents whereas it ends the
partnership of childless couples”.92
28.11 Second, the case for a more child-centred approach is supported by the level of change in New Zealand society. New Zealand
is a much more diverse society than in the 1970s, and many characteristics of relationships and family life have changed.93
The way we think about children and families has also changed. Children are regarded as people in their own right, entitled to
protection and care, and to be treated with dignity and
respect.94
87 Children’s Commissioner Being child-centred: Elevating children’s interests in the work of your organisation (October 2015) at
1.
88 Children’s Commissioner Being child-centred: Elevating children’s interests in the work of your organisation (October 2015) at
1.
89 Children’s Commissioner Being child-centred: Elevating children’s interests in the work of your organisation (October 2015) at
1.
90 See Care of Children Act 2004, s 5(b); Crimes Act 1961, s 152; and Child Support Act 1991, s 4(b).
91 Patrick Parkinson “Quantifying the Homemaker Contribution in Family Property Law” [2003] FedLawRw 1; (2003) 31 Federal Law Review 1 at
14
93 See Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Introduction.
28.12 Third, a more child-centred approach is also consistent with the
Māori view of children as taonga, who are the privilege and the
responsibility of not only parents but the whānau and hapū.
28.13 Fourth, there has been growing recognition of the importance of human rights, including children’s rights, over the last 40 years. In 1993 New Zealand ratified the United Nations Convention
on the Rights of the Child (UNCROC).95 UNCROC sets out the basic rights of children, including the right to have their best interests treated as a primary consideration in actions concerning them, the right to be heard on matters affecting them and for those views to be given due weight in accordance with the child’s age and maturity.96 Where possible, New Zealand’s domestic
law should be interpreted in such a way as to accord with the international
treaties New Zealand has ratified.97 UNCROC, however, is
“rarely mentioned” in PRA proceedings.98 The New Zealand
Bill of Rights Act 1990 and the Human Rights Act 1993 also reflect changes to
our approach to human rights.99
28.14 Fifth, taking a more child-centred approach in the PRA would also be consistent with other social legislation that directly impacts
on children.100 The Care of Children Act 2004, for example, makes the welfare and best interests of the child the first and paramount consideration under that Act.101 Principles that must be taken into account when considering the welfare and best interests of a child
under that Act include that:102
and Alice Osman “Demanding Attention: The Roles of Unincorporated International Instruments in Judicial Reasoning” (2014) 12 NZJPIL 345 at 346 citing New Zealand Air Line Pilots’ Association Inc v Attorney-General [1997] 3 NZLR 269 (CA) at 281. New Zealand submits periodic reports to the United Nations Committee on the Rights of the Child on UNCROC see: United Nations Human Rights Office of the High Commissioner “Reporting status for New Zealand” <www.ohchr. org>.
97 RI Carter and JF Burrows Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis, Wellington, 2015) at 30.
98 Nicola Peart “Protecting children’s interests in relationship property proceedings” (2013) 13(1) Otago LR 27 at 29. A
rare example is C v B [2013] NZFC 1105, [2014] NZFLR 277 at [273]–[286]. In that case the Family Court referred to the United Nations Convention on the Rights of the Child to assist with interpretation of the requirement in s 26 in the Property (Relationships) Act 1976 (PRA) to have regard to the children’s interests in the context of an application under s 33 for an order for the sale of the family home.
101 Care of Children Act 2004, s 4(1).
102 Care of Children Act 2004, ss 4(2)(a) and (5).
(a) a child’s care, development, and upbringing should be
primarily the responsibility of his or her parents or guardians;
(b) a child should have continuity in his or her care, development and
upbringing;
(c) a child should continue to have a relationship with both parents, and
his or her relationship with their family group, whānau,
hapū or iwi
should be preserved and strengthened; and
(d) a child’s identity (including, without limitation, his or her
culture, language, and religious denomination and practice)
should be preserved
and strengthened.
The case for retaining the current approach to children’s interests in
the PRA
28.15 The way the PRA currently recognises and protects children’s interests might be sufficient, for several reasons. First, as discussed in Chapter 27, the PRA is mainly about how the partners’ property is divided when their relationship ends.103 It overrides general property rights because of the special nature of
the relationship between the partners. A greater focus on children might be
inconsistent with the PRA’s primary focus and
the policy on which it is
based.
28.16 Second, it is not necessary to give greater priority to
children’s interests in the PRA because their needs are
already met
elsewhere. As discussed in Chapter 27, parents have a fundamental obligation to
support their children, no matter what
the PRA provides.104 The cost
of providing for children’s ongoing financial needs is theoretically
already shared between parents by agreement
or through the Child Support
regime, with any unmet need addressed through State benefits.
28.17 Third, giving children’s interests greater priority in the
PRA and the indirect benefits that could flow to the
primary caregiver (for
example a higher standard of living) could inadvertently lead to negative
consequences for some children.
It may encourage the primary caregiver to go to
court in the hope of using the children’s
103 Property (Relationships) Act 1976, s 1C(1).
104 See Crimes Act 1961, s 152; Care of Children Act 2004, s 5(b); and Child Support Act 1991, s 4(b).
interests to obtain a financial advantage, discouraging partners
from resolving their property matters out of court and increasing conflict
levels. It may distort care arrangements as parents vie
for the role of primary
caregiver, or it may encourage other strategic behaviour that is not in the
children’s best interests.
Another view is that these risks are already
a reality for some children because “end of relationship” issues
such as
relationship property division, care and child support are inevitably
heavily interlinked, and this will continue regardless of what
the PRA provides.
Some of these risks may be mitigated by taking a more holistic approach to all
legal matters arising from parental
separation.105
28.18 Fourth, giving children’s interests a greater priority also risks indirectly lowering the priority given to the interests of other family members. The New Zealand family has changed in the last 40 years. The family home does not always accommodate only a couple and their children. Some families live with several generations in one house. Partners may also have financial
obligations to their wider family or whānau, or to a new partner, other
children or stepchildren.
28.19 Fifth, giving children’s interests a greater priority may
require the exercise of more judicial discretion. This
is because a rules-
based approach could not capture all possible scenarios. The flexibility that
can be achieved through judicial
discretion would make it easier to recognise
children’s individual needs. It could, however, mean less certainty for
the
majority of people who resolve property matters out of court. It could also
unduly restrict parental autonomy.
The general rule of equal sharing should remain
28.20 Our preliminary view is that the PRA should take a more child-
centred approach. In Chapter 29 we identify specific issues
and outline in
detail what a more child-centred approach might look like in the PRA.
28.21 A significant question, however, is whether a more child- centred approach means that the general rule of equal sharing
of relationship property should be changed. Currently, there are
few exceptions to equal sharing. For example section 13 allows
for a departure from equal sharing where there are “extraordinary
circumstances” that make equal sharing “repugnant to
justice”. Section 26 can also be used to settle property
for the benefit
of children, but is not authority for simply reducing the proper entitlement of
one partner and increasing that
of the other.106 As Atkin has
said:107
The division of property is premised on the right of each adult party to
receive a half share, subject to some narrow exceptions.
Thus, the primary rules
for dividing property have nothing to do with children and regard for their
interests cannot upset these
primary rules.
28.22 It could be argued that a more child-centred approach would be to
increase the primary caregiver ’s share of relationship
property to
ensure that the children are adequately provided for. This could be achieved
in one of two ways:
(a) The general rule of equal sharing could be replaced with a new rule or rebuttable presumption that
the primary caregiver receives a greater share of relationship property
(for example 60 per cent) where there are children. This
has the advantage of
certainty, particularly for couples making their own arrangements in the
PRA’s shadow. Litigation
would, however, still occur to rebut any
presumptive rule and may even increase given that there could be perceptions of
unfairness.
It may also be too inflexible given other competing interests and
possible subsequent changes to care arrangements.
(b) New Zealand could move away from a rules-based property division regime and adopt a more discretionary regime, like in Australia’s Family Law Act 1975 (Cth).108
Although this regime has been criticised for its uncertainty, Peart and Henaghan note that it is common for the party with primary responsibility for children
of the relationship to receive between 5 per cent
CIV-2004-485-611, 16 March 2005 at [59]: “[s]ection 26 is not intended to be an alternative way of dividing the property unequally”.
107 Bill Atkin “Children and financial aspects of family breakdown” (2002) 4 BFLJ 85.
108 Family Law Act 1975 (Cth), s 79 (see in particular ss 79(4)(e) and 75(2)(c)).
and 20 per cent more of the parties’ capital assets.109
A discretionary regime could better accommodate children’s individual needs. However greater discretion inevitably has the effect of making the law less predictable.110 As most partners settle their property affairs without going to court, it is desirable that the law provides them with as much certainty as possible in order that disputes may be resolved inexpensively,
simply and speedily as is consistent with justice.111 This would
be a significant change to the PRA and might increase conflict and
litigation.
28.23 Changing the general rule of equal sharing would, however, be a major change to the PRA. Our preliminary view is that, while the PRA should take a more child-centred approach, the general rule of equal sharing should remain. Changing that rule would bring the risks we have identified at paragraphs 28.17 – 28.20 to the fore. It may also be unnecessary because the legal link between a parent and child is not broken by the end of a relationship, and there are other mechanisms, such as child support, to provide for children’s financial needs.112 Each partner ’s share of relationship property may need to sustain him or her over a much longer period than that partner, as a parent, is financially responsible to maintain their children. Accordingly, the discussion in Chapter
29 is based on the assumption that the PRA’s general rule of equal
sharing remains.
C ONSU LTATION QUESTIONS
I2 Do you agree with our preliminary view that the PRA should take a more
child-centred approach, but that the general rule of equal
sharing should
remain?
I3 How can any risks associated with a more child-centred approach be
mitigated?
promote greater use of informal dispute resolution mechanisms: Australian Government Access to Justice Arrangements: Productivity Commission Inquiry Report (2014) at 874. In September 2017, the Australian Government commissioned the Australian Law Reform Commission to undertake a comprehensive review of the Family Law Act 1975 (Cth), including the substantive rules and general principles in relation to property division: Attorney-General for Australia “First comprehensive review of the family law act” (press release, 27 September 2017).
111 Property (Relationships) Act 1976, s 1N(d).
112 As noted at paragraph [28.5], any shortcomings may be better addressed by amendments to other legislation such as the
Child Support Act 1991.
Which children is the PRA concerned
about?
28.24 Section 26 of the PRA requires the court to have regard to the
interests of any children of the relationship. It is therefore
important to
understand who is a “child of the relationship” under the
PRA.113
28.25 There are three relevant definitions in the PRA: “child of the
marriage”, “child of the civil union”
and “child of the
de facto relationship”.114 Where we have no need to
distinguish between these in this part of the Issues Paper, we use the term
“child of the relationship”.
28.26 The three definitions are broadly equivalent. The one difference is
that “child of the marriage” includes children
of an immediately
preceding qualifying relationship between the spouses.115 This
creates a distinction between children on the basis of relationship type for no
obvious reason, although it is unlikely to
affect many children.116
Our preliminary view is that the definitions should be
consistent.
28.27 The definitions of child of the relationship include “any
child”, without reference to age or dependence. The
definitions include
two categories of children:117
(a) any child of both partners; and
(b) any other child (whether or not a child of either partner) who was a
member of the family of the partners at the relevant time,
being:
(i) when they ceased to live together;
(ii) immediately before a PRA application, if they had not ceased to live
together; or
115 Property (Relationships) Act 1976, s 2.
117 Property (Relationships) Act 1976, s 2.
(iii) at the date of the death of one of the partners.
28.28 The first category is straightforward, and seems intended to include
both biological and adopted children.118 The second category can
include a child of one partner, or neither partner, provided they were a
member of the partners’ family
at the relevant time. It may include
stepchildren, foster children and some children who are also members of another
household,
such as where care is shared.
The courts’ approach to other children who are members of the
family
28.29 The Family Court took a narrow approach in M v L, a case involving a short-term de facto relationship.119 Section 14A provides that a court cannot make a property division order where there is a short-term de facto relationship unless it is satisfied
that there is a child of the relationship or the applicant has made a substantial contribution to the relationship. In either case, the court must also be satisfied that failure to make an order would result in substantial injustice.120 The Court in M v L said that in interpreting “any other child” it should be mindful of the fact
that section 14A enables a court to consider an exception to the general rule that the PRA does not apply to short-term de facto relationships.121 It said that the definition should not mean any child who has lived with the partners, such as an ind ependent child having a month’s holiday with a parent at the time of separation.122 The purpose of section 14A suggested to the Court that:123
...“children” are those who are wholly or partially dependent
on at least one of the parties for physical, material, emotional
or social
support. A disabled or invalid adult child, a child without another available
home at that time may qualify. A degree of
dependence and having interests
requiring protection not available in other civil proceedings are
entailed.
118 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.81].
119 M v L (2005) 24 FRNZ 835 (FC).
120 See discussion in Chapter 17.
121 M v L (2005) 24 FRNZ 835 (FC) at [30].
122 M v L (2005) 24 FRNZ 835 (FC) at [30].
123 M v L (2005) 24 FRNZ 835 (FC) at [33]. The Family Court in H v C FC Christchurch FAM-2007-057-337, 30 August 2011 at
[49] concurred with this reasoning.
28.30 The Court also considered the phrase “member of the family”,
saying that:124
“Member of the family” suggests some presence in or belonging
to the particular household. It would not exclude a child away on school camp, hospital or respite care or on holiday. The provision enables the Court to make an order if it considers it necessary because of such a child. It is not to be used in an arbitrary way
to mean any child at all who was in the parties’ home when the
parties lived apart.
28.31 The approach in M v L has been followed in subsequent Family Court cases. In H v C the partners were in a short-term de facto relationship.125 Both had children from previous relationships. The Family Court considered that C’s children were children of the relationship because they had lived with the couple every second week for the last nine months of the partners’ relationship, and during that week both partners provided full parental care for
the children.126 H’s children were not children of the relationship because they had returned to live with their father at the time of separation.127 In A v A the Family Court similarly found that a child being cared for by the partners was a child of the relationship because the child had spent a significant amount of his life in
the couple’s home and they were effectively providing him with a
stable and supportive environment.128
28.32 The need to have a presence in the household can have significant consequences for stepchildren. It may mean that stepchildren do not qualify as children of one parent’s new relationship, and as a result that their interests are not taken into account if that new relationship ends. In Public Trust v W the deceased’s children from
a previous marriage would not have qualified as children of his new de facto relationship because they lived with their mother.129
As such, the Court of Appeal did not have to take their
interests
124 M v L (2005) 24 FRNZ 835 (FC) at [34].
125 H v C FC Christchurch FAM-2007-057-337, 30 August 2011.
127 H v C FC Christchurch FAM-2007-057-337, 30 August 2011 at [26] and [48].
128 A v A [2012] NZFC 10192 at [26]–[34].
into account in PRA proceedings between the estate and the
deceased’s new partner.130
Is the current interpretation of “member of the family”
appropriate?
28.33 The current approach to deciding who is a child of the relationship under the PRA (when the child is not the child of both partners) may be too restrictive. The approach laid down in M v L involves establishing a presence in the partners’ household.131 This might
be too narrow for several reasons.
28.34 First, it may be outdated. Modern New Zealand families take many
different forms:132
Families may have one parent or two, or more; adult family members can be
married or living together and sometimes they live in different
households.
Parents can be same-sex or opposite- sex, biological parents, adoptive parents
or step-parents. Adults can formally or
informally adopt children, and may have
no children, a few children or sometimes many children; they may have adult
children and
their children living with them, and sometimes other relations and
generations too.
28.35 New partners will often accept the other partner ’s children from a previous relationship as part of their family, and the children may live with the partners full-time or part-time where care
is shared.133 One New Zealand study suggests that children have an inclusive view of what constitutes a family.134 New Zealand’s growing cultural diversity also brings different cultural perspectives on families, some of which may endorse more collective values and family structures.135 Superu has identified four core family functions that contribute to family wellbeing.136
These are to: care, nurture and support; manage resources;
provide
130 Nicola Peart “Children’s Interests Under the PRA & s 182 FPA” (paper presented to New Zealand Law Society Seminar, May 2013)
at 2; and Property (Relationships) Act 1976, s 26(1).
131 M v L (2005) 24 FRNZ 835 (FC).
132 See Families Commission The kiwi nest: 60 years of change in New Zealand families (Research Report No 3/08, June 2008) at
12.
134 Andrea Rigg and Jan Pryor Children’s Perceptions of Families: What Do They Really Think? (2007) 21 Children & Society 17 at
29. Rigg and Pryor examined the perceptions of 111 New Zealand primary and intermediate schoolchildren.
135 Superu At a Glance – Families: universal functions, culturally diverse values (July 2017) at 1.
136 Superu At a Glance – Families: universal functions, culturally diverse values (July 2017) at 3.
socialisation and guidance; and provide identity and a sense of
belonging.137
28.36 Second, it may exclude some children (and some short-term de facto
relationships) from the PRA. Peart has said that that
the approach in M v L
could be “unnecessarily narrow”, as it would potentially exclude
children at boarding school who regularly return home
during the
holidays.138 It may also exclude some children who are financially
dependent on one partner but have no presence in the couple’s household.
A
narrow interpretation of the second category of children makes it harder to
pass the test in section 14A for short-term de facto
relationships.
28.37 Third, the current approach may also fail to adequately recognise
whānau relationships. The PRA does not refer to whānau.
While the
terms “family” and “whānau” are often used
interchangeably, they are not the same.139 There is no universal or
generic way of defining whānau, but there is broad consensus that
genealogical relationships form
the basis of whānau, and that these
relationships are intergenerational, shaped by context and given meaning through
roles
and responsibilities.140 Some legislative definitions refer to
whānau as a distinct family type.141
28.38 It may, however, be appropriate to have a narrow definition of child of the relationship. Some might even argue that it should be interpreted more restrictively, particularly if the PRA is amended to better provide for children on separation, so that any new benefits are available to a more restricted group of children.
A narrower definition may also be considered appropriate because it is relevant to other provisions that require a narrow interpretation, for example the test in section 14A for short- term de facto relationships, which can be partially satisfied if there is a child of the de facto relationship (see Part E). There is
a view that the PRA should only be concerned with children who
137 Superu At a Glance – Families: universal functions, culturally diverse values (July 2017) at 3. See also Families
Commission The kiwi nest: 60 years of change in New Zealand families (Research Report No 3/08, June 2008) at 16.
138 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR2.03.01].
tutu te puehu, kia mau: Māori aspirations and family law policy” in Mark Henaghan and Bill Atkin (eds) Family Law Policy in New Zealand (4th ed, LexisNexis, Wellington, 2013) 57 at 59–60.
have a strong connection to the partners’ household or who are
financially supported by both partners. This is because a concern for a wider group of children would be inconsistent with the
PRA’s individualistic focus and the primary theory of entitlement. Acknowledging whānau relationships, for example, could increase the number of children recognised by the PRA which might be out of step with its focus on the partners. Widening the definitions may also create new issues of equity, for example between
children with different degrees of connection to the household.
C ONSU LTATION QUESTION
I4 Is the current interpretation of a “child of the relationship” in the PRA too narrow or too
broad?
Option 1: Narrow the concept of “member of the family”
28.39 If a narrower concept of “member of the family” is preferred, this could be achieved by introducing a new maintenance requirement. This would require an inquiry into the partners’ financial contributions towards the child’s upkeep and would restrict the PRA’s benefits to children maintained during the relationship. A similar requirement exists in the Family Protection Act 1955 in relation to stepchildren of the deceased entitled
to claim for provision out of an estate.142 Under that Act, only the stepchildren of the deceased who were being maintained wholly or partly, or were legally entitled to be maintained wholly or partly, by the deceased immediately before his or her death
are entitled to claim.143 The PRA, however, has a very different focus and this approach may place too much weight on financial arrangements and insufficient weight on affective factors such
as whether the partners treated the child as a member of their
family.
Option 2: Widen the concept of “member of the family”
28.40 If, however, a wider concept of “member of the family”
is preferred, it could be achieved by a new definition.144 A new
definition of “member of the family” could include a broad list
of
142 Family Protection Act 1955, s 3.
143 Family Protection Act 1955, s 3(1)(d).
factors a court must take into account in determining whether a
child qualifies. This option has the advantage of flexibility, but will reduce certainty. A list of factors for a court to take into account
in determining whether a child was a member of the family could
include:
(a) the nature and extent of the child’s presence in, or belonging
to, the partner ’s household (this would reflect
the approach in M v
L);145
(b) any arrangements for the financial support of the child (including but
not limited to any obligation to pay child support under
the Child Support Act
1991);146
(c) guardianship responsibilities and day-to-day care arrangements for the
child;
(d) the child’s identity;
(e) the nature and extent of the partners’ role in the care,
development and upbringing of the child;
(f ) whether the child is a whāngai of one or both partners;
(g) whether the child is a member of the partners’ whānau or
other culturally recognised group.
C ONSU LTATION QUESTION
I5 Which children should be children of the relationship?
Whāngai relationships
28.41 Whāngai is a Māori customary practice in which a child is
raised by whānau members, such as grandparents,
or other members of the
same hapū or iwi.147
145 M v L (2005) 24 FRNZ 835 (FC) at [34].
147 The term whāngai is used in this part of the Issues Paper as it is defined in s 4 of the Te Ture Whenua Māori Act 1993.
For some iwi the terms “whangai” and “atawhai” have slightly different meanings: Basil Keane “Whāngai – customary fostering and adoption – The custom of whāngai” (1 June 2017) Te Ara – the Encyclopaedia of New Zealand <www.TeAra. govt.nz>.
28.42 Whāngai arrangements have been described as “fluid and open”.148
Fluid, in that the child may return to the care of his or her birth parents
or be cared for by another relative. Open because the
arrangement is public
and the child knows of, and often has contact with, birth parents and
whānau. According to traditional
Māori custom whāngai placements
may be made for many reasons,149 including to provide a child for
people who cannot have children, consolidate land rights150 or pass
down tribal traditions and knowledge.
28.43 The institution of whāngai “remains as a strong vehicle for both the care of children and for the nurturing of whāngai kinship relationships”, and it “will be valued and carried into the future.”151
In a recent study of 209 young people aged 15, four had spent time in a
whāngai arrangement.152
28.44 The PRA does not expressly refer to whāngai, and the status of whāngai for the PRA is not determined in accordance with tikanga Māori.153 This means that a whāngai child is treated no differently than any other child under the PRA. There are two consequences. First, a child that is whāngai may be a child of the relationship under the PRA in respect of the partners that are raising him or her, even if there is no relationship of descent as determined
by the tikanga of the respective whānau or hapū.154 Second, a
whāngai child might not be considered a child of the
relationship
148 Brookers Family Law – Child Law (online looseleaf ed, Thomson Reuters) at PA2.14.03.
149 Basil Keane “Whāngai – customary fostering and adoption – The custom of whāngai” (1 June 2017) Te Ara – the
Encyclopaedia of New Zealand <www.teara.govt.nz>.
151 Karyn Okeroa McRae and Linda Waimarie Nikora “Whangai: remembering, understanding and experiencing” [2006] 1
MAI Review at 1.
153 The tikanga relating to whāngai varies between iwi: Law Commission Adoption: Options for Reform (NZLC PP38, 1999) at
[315].
57 at 72. A child who is a whāngai is not a “child” for the purposes of s 3 of the Family Protection Act 1955 (which sets out who is entitled to claim under that Act for provision out of the estate of a deceased person) unless the child has also been adopted by the deceased under the provisions of the Adoption Act 1955: see K v P [2002] NZCA 296; (2002) 22 FRNZ 792 (CA). Although the question arises in a different context, if similar reasoning were followed a child who is a whāngai would only qualify as a child of the relationship for the purposes of the Property (Relationships) Act 1976 if he or she was a member of the partners’ family at the relevant time (the second category of children).
in respect of a relationship involving a biological parent, because
that child may not have a presence in the household.
28.45 The Te Ture Whenua Māori Act 1993 defines whāngai as a person adopted in accordance with tikanga Māori.155 This is an exception to the general rule in the Adoption Act 1955, which provides that Māori customary adoptions made after the commencement of the Native Land Act 1909 have no force or effect.156 However, because the PRA does not apply to Māori land, and focuses primarily
on how property is shared between the partners when their relationship
ends,157 there may be less need to provide specifically for
whāngai in the PRA.
Should the status of whāngai children be determined in accordance
with tikanga Māori?
28.46 The PRA currently applies in the same way to all children, regardless of whether a child is whāngai. It might, however, be appropriate that the question of whether a whāngai child is a child of the relationship under the PRA be determined in
accordance with tikanga Māori, as it is under Te Ture Whenua
Māori Act for certain purposes.
28.47 Determining whāngai status by tikanga Māori would, however, add a layer of complexity and potentially cost to PRA proceedings. Expert evidence would be needed on the tikanga of the respective whānau or hapū.158 In Chapter 26 we discussed options to
improve access to experts in tikanga and to extend the jurisdiction of the
Māori Land Court in some cases.
C ONSU LTATION QUESTIONS
I6 Should the PRA make special provision for the status of whāngai
children as a child of the relationship to be determined
in accordance with the
tikanga of the respective whānau or hapū?
156 Adoption Act 1955, s 19.
157 Property (Relationships) Act 1976, ss 1C(1) and 6.
The timing requirement is problematic for the
purposes of assessing contributions to the relationship
28.48 The timing requirement in the second category of children (see
paragraph 28.27(b)) is an issue for the purposes of assessing
contributions to
the relationship.159 Contributions to the relationship are relevant
in several scenarios under the PRA, including where there are extraordinary
circumstances
making equal sharing repugnant to justice, where there is a
short-term relationship or successive or contemporaneous relationships,
or where
one party makes post-separation contributions.160
28.49 Under section 18(1)(a)(i) the care of a child of the relationship
is a contribution to the relationship. However, as one text notes, in a lengthy relationship the chances are high that at least some children that were previously treated as members of the family will, by the time the partners separate, have reached adulthood and left home.161 They may not qualify as children of the relationship because of the timing requirement, and if so, their care during the relationship would not count as a contribution
to the relationship. This is an issue because contributions in
the form of childcare are made throughout a relationship, while section
18(1)(a)(i) is confined to the care of a child of the relationship.162
There are two possible options for reform.
Option 1: Clarify that the care of a child that no longer qualifies as a
child of the relationship is still a contribution to the
relationship
28.50 One option is to add an extra sub-paragraph (b)(iv) to the
definitions of child of the relationship. This could include,
for the
definition of contribution to the relationship in section 18 only, any child who
was a member of the family of the partners
during their
relationship.
159 Property (Relationships) Act 1976, s 18.
161 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.81].
162 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.81].
Option 2: Remove the timing requirement from the
definition
28.51 Another option is to remove the timing requirement from
the definitions of child of the relationship. This option would, however,
have a broader effect and may risk unintended consequences.
C ONSU LTATION QUESTION
I7 Is there a need for a timing requirement in the definition of the second category of
children?
Minor or dependent children
28.52 The PRA is primarily concerned with the interests of “minor
or dependent” children of the relationship.163 Our
preliminary view is that this is appropriate because it focuses on protecting
the vulnerable and recognises the obligations
of the partners as
parents.
Should a “minor” be a person under the age of 18?
28.53 For the purposes of the PRA, a “minor” is a person under the age of 20.164 This is on the high side when compared to other age limits, and may be out of step with how we think about age limits in 2017.165 There is a view that the age limit is too high, as by 18 years guardianship responsibilities have ceased and child support may no longer be payable in respect of the child. However parents may still feel a moral duty to support children up until the age of
20, particularly during a period of relationship breakdown and
separation.
164 Age of Majority Act 1970, s 4(1). See also B v B (2009) 27 FRNZ 622 (HC) at [80].
19. At 18 years a child is legally independent of guardianship: Care of Children Act 2004, s 28(1); and will not qualify for child support unless he or she is enrolled at and attending school: Child Support Act 1991, s 5(1). For the purposes of the United Nations Convention on the Rights of the Child 1577 UNTS 3 (opened for signature 20 November 1989, entered into force 2 September 1990), a child is a person under the age of 18 years unless under the law applicable to the child majority is attained earlier: art 1.
Option for reform: Define “minor” as a person under the age of
18
28.54 One option is to include a new definition of “minor” meaning “a person under the age of 18 years”. This would lower the age limit where the PRA specifically refers to minors without disturbing more general references to children, such as in the context of
the test for short-term de facto relationships or the definition of
contribution to a relationship.166
C ONSU LTATION QUESTIONS
I8 Do you agree with our preliminary view that the PRA’s current focus on minor or
dependent children is appropriate?
I9 Should a “minor” for the purposes of the PRA be a person under
the age of 18?
Who is a “dependent” child?
28.55 Whether a child is “dependent” for the purposes of the PRA is a question of fact.167 Adult children may depend on their parents for support if they are physically or intellectually disabled.168 B v B suggests that adult children without a disability and who have not progressed to financial independence due to lack of desire
or motivation are unlikely to be “dependent”.169 Our preliminary view is that this approach is sound. It follows the view of children as independent actors who, once they have reached adulthood,
no longer need a court’s “protective” overview.170
It strikes an appropriate balance between protecting the vulnerable and
recognising the partners’ entitlements. The lack of
direction in the PRA
as to the type or level of dependence required may, however, mean that the PRA
is not as accessible or clear
as it could be.
Option for reform: Define “dependent child”
28.56 Definitions of “dependent child” in other legislation may
provide a starting point for a new definition of “dependent
child”
in the
166 Property (Relationships) Act 1976, ss 14A(2)(a)(i) and 18(1)(a)(i).
167 B v B (2009) 27 FRNZ 622 (HC) at [80]–[81].
168 B v B (2009) 27 FRNZ 622 (HC) at [81].
170 See Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR26.02(2)].
PRA.171 For example, the Social Security Act 1964 and Income Tax
Act 2007 share a core definition of “dependent child” that
includes a child whose care is primarily the responsibility
of the person; who
is being maintained as a member of that person’s family; and who depends
financially on that person.172 A similar definition for the PRA
would adopt a relatively high threshold and may provide an accessible concept
of dependency that
is consistent with the purpose of restricting the focus of
some of the PRA’s provisions to “minor or dependent”
children.
C ONSU LTATION QUESTION
I10 Who should be a dependent child for the purposes of the
PRA?
171 See discussion in Anna-Marie Skellern “Children and the Property (Relationships) Act 1976” (LLM Dissertation, Victoria
University of Wellington, 2012) at 71.
Chapter 29 – Options for reform
that take a more child-centred approach
29.1 In this chapter we identify issues with specific provisions of the
PRA that affect children’s interests and propose some options for
reform that would take a more child-centred approach.
Promoting Children’s interests in the principles of the PRA
29.2 As explained in Chapter 3, the policy of the PRA is the just division of property at the end of a relationship. This policy
is reflected in the statutory purpose and principles set out in sections 1M
and 1N of the PRA. Children’s interests are referred
to in section 1M, but
not section 1N, although we think the principle that a just division of
property should have regard to the
interests of children of the relationship is
implicit in the framework and rules of the PRA.173
29.3 Children’s interests have been described as something of an
“addendum to the adult considerations” in section
1M.174
It provides that property division should “take account”
of the interests of any children of the relationship.175
Children’s interests are referred to at the end of section 1M and
the language used is weak.176
29.4 This is an issue because of the role purpose and principle provisions
can play in statutory interpretation. The Interpretation
Act 1999 provides that
the meaning of an enactment must be
173 See discussion in Chapter 3 of this Issues Paper.
174 Anna-Marie Skellern “Children and the Property (Relationships) Act 1976” (LLM Dissertation, Victoria University of
Wellington, 2012) at 33.
175 Property (Relationships) Act 1976, s 1M(c).
ascertained from its text and in the light of its purpose.177 The
principles form the basis for the PRA’s rules.178 This means that the way children’s interests are presented in the purpose provision
and their absence in the principles provision can set the theme for the
entire PRA. For example, in B v B the High Court said that section 26
authorities must be read in the context of sections 1C and 1M, which
“recognise the subsidiary
nature of the children’s interests in the
division of relationship property”.179
29.5 In Chapter 4 we said that the PRA should include a comprehensive list of principles to guide the interpretation of the rules of the PRA. We outline three options for addressing the priority of children’s interests in a new explicit principle in the PRA. These options recognise that partners have responsibilities if they are parents and that children’s interests must be a consideration in PRA proceedings. These responsibilities
underpin the basis for a more child-centred approach in the PRA. Recognition
of these responsibilities through a principle that promotes
the interests of
children would also be consistent with the Care of Children Act 2004 and the
Child Support Act 1991 and the view
that State assistance is a “safety
net”.180
29.6 Each of these options propose to replace the existing language of children’s “interests” with a reference to children’s “best interests”. The concept of a child’s best interests is flexible and must be assessed and determined in light of the child’s specific circumstances.181 This inquiry could help highlight where the child’s interests are independent of, or in conflict with, the
partner ’s interests. A reference to children’s “best interests” would
also align more closely with the wording of UNCROC and
other
178 See the discussion on what is meant by a principle in William Dale “Principles, Purposes, and Rules” [1988] 1 Stat LR 15 at 18 and 22. Dale suggests that a principle is a first idea which is the starting point or basis for legal reasoning. A rule in a statute answers the question “what”, whereas a principle answers the question “why”.
179 B v B (2009) 27 FRNZ 622 (HC) at 636.
November 1989, entered into force 2 September 1990), arts 18 and 27.
child-focused legislation such as the Care of Children Act, where
the child’s “welfare and best interests” are
relevant.182
Option 1: Children’s best interests as a primary consideration
29.7 One option is to elevate children’s best interests to a primary consideration.183 This would require a court to assess children’s best interests and take them as a primary consideration when different interests (such as the interests of the partners) are being considered. It may mean that children’s best interests are sometimes given greater weight than other considerations when
a court is exercising discretion.184 This option reflects the
language of UNCROC, which refers to children’s best interests as “a
primary consideration”
in actions concerning them.185
Option 2: Children’s best interests as the first and paramount
consideration
29.8 Another option is to treat children’s best interests as the first and paramount consideration. This would adopt a higher standard than option 1. It would give children’s best interests the highest priority in the PRA, either generally (with the exception of the general rule of equal sharing) or in relation to specific provisions such as non-division orders. It would mean that children’s best
interests may trump a partner ’s interests where there is a conflict. The Care of Children Act 2004 takes this approach, although in a different context, as it requires that the welfare and best interests
of the child be “the first and paramount consideration”.186
A similar
183 Anna-Marie Skellern “Children and the Property (Relationships) Act 1976” (LLM Dissertation, Victoria University of
Wellington, 2012) at 70.
approach is taken in the United Kingdom. The Matrimonial
Causes Act 1973 (UK) provides that it is a court’s duty to give
first consideration, when granting financial relief, to the welfare of
any minor child of the family who has not attained the age of
18.187
29.9 This option might not, however, be consistent with the PRA’s focus on the division of property between the partners or
the primary theory of entitlement. It may put “needs” above
“entitlement” and therefore not achieve an appropriate
balance
between partners’ interests and children’s best interests. It may
not take sufficient account of other legal
obligations parents have to maintain
their children.188
Option 3: Refer specifically to implementation of relationship property
division
29.10 A further option is for a new principle recognising children’s
best interests to specifically refer to the implementation
of relationship
property division under the PRA. At paragraph 29.20 we consider the option of
introducing a specific duty to consider
children’s interests in the
implementation of property division between the partners. If that option is
pursued it would
be consistent to signal in a new principle that the primary
way the PRA prioritises children’s best interests is through
the use of
non- division orders.
Preferred Option
29.11 Our preliminary preferred option is to elevate children’s best interests to a primary consideration (option 1). This would give children’s interests a higher priority and align the PRA more
closely with the wording of UNCROC.189 A court would be required
to give more weight to children’s interests when balanced
against
Oranga Tamariki Act 1989. This can be contrasted with the youth justice provisions in pt 4 of the Oranga Tamariki Act where paramountcy of the child’s best interests does not apply and guidance is given in the principles in s 208, recognising that there are competing objectives in youth justice.
188 Crimes Act 1961, s 152; Care of Children Act 2004, s 5(b); and Child Support Act 1991, s 4(b).
those of the partners and other third parties. For example, a
court may be more willing to make non-division orders that would indirectly
benefit children, or to take children’s interests
into account when
calculating occupation rent, or to find that children’s interests
constitute extraordinary circumstances
that make equal sharing repugnant to
justice for the purposes of section 13. We prefer option 1 over option 2 and
option 3 as we
think it strikes the right balance between the interests of the
partners and children. Option 2 would prioritise children in all
cases, which is
inconsistent with the PRA’s primary focus on the partner ’s
property entitlements, while option 3 is
too limited (it is narrower than
section 26, which requires the court to have regard to children’s
interests in all PRA proceedings).
C ONSU LTATION QUESTIONS
I11 Do you agree with our preliminary view that children’s interests
should be a primary consideration in PRA proceedings?
I12 Should parents’ responsibilities have greater prominence in the PRA’s principles
provision?
Section 26
29.12 Section 26 is the primary provision through which children’s
interests are recognised and protected:
26 Orders for benefit of children of marriage, civil union, or de facto
relationship
(1) In proceedings under this Act, the court must have regard to the interests of any minor or dependent children of
the marriage, civil union, or de facto relationship and, if it considers
it just, may make an order settling the relationship property
or any part of
that property for the benefit of the children of the marriage, civil union, or
de facto relationship or of any of
them.
(2) If the court makes an order under subsection (1), the court may reserve such interest (if any) of either spouse
or partner, or of both of them, in the relationship property as the court
considers just.
(3) An order under this section may be made and has effect regardless of any agreement under Part 6.
The dual functions of section 26(1)
29.13 Section 26(1) has two functions.190 First, it requires a court
to “have regard” to the “interests” of any minor or
dependent children of the relationship in PRA proceedings.
Second, it gives a
court discretion, if it considers it just, to make an order settling
relationship property for the benefit of
children of the
relationship.191
29.14 The attempt to deal with two significant and distinct functions in
section 26(1) has led to issues of statutory interpretation.192 Our
preliminary view is that section 26(1) should be separated into two
stand-alone sections to clarify the purpose and scope of
each:
(a) The first function of section 26 should form the basis for a new
stand-alone operative provision dealing with the priority
of children’s
interests in PRA proceedings and setting out what that means in practice. This
new section would reflect
the language of any new principle.
(b) This would leave the existing section 26 to fulfil the function of
focusing on orders settling relationship property for the
benefit of
children.
29.15 The options discussed below are presented on this basis.
Requirement to have regard to children’s interests
29.16 The requirement to have regard to children’s interests in section
26(1) is of general application. It applies in any proceedings under the
PRA, including proceedings where children’s interests
may not be an
obvious concern.193 Children’s interests have been considered
relevant in proceedings to set aside a contracting out agreement,194
and to decline to order compensation for post-
190 See L v L (1993) 11 FRNZ 81 (FC) at 82–83.
191 Note that this discretion cannot be exercised in respect of Māori land: see s 6 of the Property (Relationships) Act 1976.
See also Matrimonial Property Act 1976, s 26.
separation contributions.195 Children’s interests are also arguably
relevant to the general exercises of classification, valuation and division of relationship property.196 Other sections of the PRA also require a court, when considering how it will exercise its powers, to have regard to the position of children, such as sections 15–
15A (economic disparity awards), 28A (occupation orders), 28C (furniture
orders) and 44C (compensation for property disposed of
to a trust).
29.17 A court has a wide discretion in interpreting and providing for children’s interests.197 For example, in C v B the Family Court considered that it was in the children’s interests to have the security of a home with their mother, and therefore declined the father ’s application for an order for the sale of the family home.198
In J v [LC], the Family Court considered the child’s interests
by giving the wife the first option to buy out the husband’s share
in the
family home.199
The requirement to have regard to children’s interests has little
practical impact
29.18 Section 26 has been criticised for failing to ensure that
children’s interests are given a sufficiently prominent role
in PRA
proceedings.200 There are several reasons why section 26 could be
said to have little practical impact:201
(a) Section 26 is of “indirect application” to the implementation of other PRA orders which can benefit children.202 Key non-division orders that can
benefit children already refer to children’s interests. For
example, sections 28A and 28C already require a court
196 Nicola Peart “Protecting Children’s Interests in Relationship Property Proceedings” (2013) 13(1) Otago LR 27 at 43.
197 C v B [2013] NZFC 1105, [2014] NZFLR 277 at [286].
199 J v [LC] HC Auckland CIV-2007-404-2955, 16 November 2007 at [16].
200 See Bill Atkin “Children and financial aspects of family breakdown” (2002) 4 BFLJ 85; and Nicola Peart “Children’s Interests
Under the PRA & s 182 FPA” (paper presented to New Zealand Law Society Seminar, May 2013) at 1.
201 See also paragraphs 28.20 to 28.23 where we discuss the relationship between s 26 of the Property (Relationships) Act
1976 and the general rule of equal sharing.
202 Bill Atkin “Children and financial aspects of family breakdown” (2002) 4 BFLJ 85.
to have particular regard to children’s needs in relation
to occupation, tenancy and furniture orders.
(b) The clean break concept can soften the impact of section 26. The value placed on a clean break for the adult partners can reduce the priority given to children’s interests. For example, in P v P the wife suggested options enabling her to remain in the family home so that she could live close to services she and the children were used to.203 The Family Court had regard to the interests of the children, one of whom had a “special need” due to health issues, and for whose benefit
$4,000 had already been allocated pursuant to section
26.204 However, the Court “...did not regard it as a wise
exercise of any discretion ...to produce a result which will require the
parties to continue in partnership in property for longer than is
necessary”.205
(c) Section 26 uses weak language. A court is simply required to
“have regard” to children’s interests. It does not have to
have regard to children’s
best interests or treat them as a
primary consideration.
(d) No guidance is provided on how children’s interests should be
ascertained or what they might be. A court has a wide discretion in
interpreting what a child’s interests are, and can face a significant
challenge in deciding
how best to give effect to section 26 in the absence of
statutory guidance.
29.19 If children’s interests are given a higher priority in PRA
proceedings it is critical that the PRA clearly sets
out what that means in
practice.
Option 1: Give children’s interests a higher priority, in particular
in the implementation of the division of property between
the
partners
29.20 One option is to replace section 26 with a provision that does three
things:
203 P v P FC Auckland FP004/596/94, 18 October 1996 at 3–4.
204 P v P FC Auckland FP004/596/94, 18 October 1996 at 4.
205 P v P FC Auckland FP004/596/94, 18 October 1996 at 4.
(a) Retains the general duty to consider children’s interests
in PRA proceedings. This would, however, reflect and reinforce the standard set in the PRA’s new principle promoting children’s best interests (see paragraphs
28.20 to 28.23). While abstract, this would maintain and enhance the current approach and general application
of section 26(1) (see paragraphs 29.16 and 29.17). Our preliminary view is that the general duty should be qualified so it is clear that children’s interests do not affect the general rule of equal sharing (see paragraphs
28.20 to 28.23).
(b) Introduces a new specific duty to consider children’s interests when implementing a division of property. This would also reflect the standard set in the PRA’s new principle promoting children’s best interests (see paragraphs 2929.2 to 29.26). This would direct a court to have particular regard to children’s interests in
determining whether to make non-division orders such as an order postponing vesting, or occupation, tenancy or furniture orders. It would direct a court to give less weight to a “clean break” in this context. The focus of
a specific duty is a concrete way to incentivise the use of non-division orders, which can make a practical difference for some children by keeping them in the family home for a time to maintain continuity and help ensure an orderly transition from one household to
two. It would also require a court to focus on children’s interests
when deciding which items of property should be allocated
to each partner
once the net value of each partner ’s half share in the global
relationship property pool is ascertained.
For a discussion on how the court
implements a division of property, see Chapter 14.
(c) Incorporates non-division orders. Re-worked versions of sections 26A, 28A and 28C(4) (and potentially other sections in Part 7 of the PRA) would emphasise the priority to be given to children’s interests in
the implementation of the division of relationship property between the partners. Options to re-work these provisions are considered below, and should be
considered regardless of what this new section provides.
29.21 This option would recognise that separation can have a significant
impact on children and their living standards. It may make
it easier to obtain a non-division order if the applicant is the primary
caregiver for all children. However, where each partner
is the primary
caregiver for one or more children of the relationship or care is equally shared
it will continue to be a complicated
exercise as a court must balance the
interests of each child.
Option 2: Retain the general duty but provide guidance in a list of
factors to consider when making non-division orders
29.22 Another option is to retain the general duty to consider children’s interests in PRA proceedings, reflecting the standard set in the PRA’s new principle promoting children’s best interests (see paragraphs 2929.2 to 29.26), and add a new section to incorporate guidance setting out an inclusive list of matters to which a
court must have regard when considering an application for a non-division order. The list of relevant factors could include matters such as the provision of a home for the child; the child’s educational requirements; the child’s need for suitable furniture, household appliances and household effects (including toys); and the maintenance of the child’s relationships with the partners, family and whānau, and friends. This would enhance the duty
and may help a court identify children’s interests and guide the use of judicial discretion where children’s interests are relevant
to non-division orders. It may, however, increase uncertainty and raise new
practical issues in terms of how evidence is funded
and placed before a court
(see paragraph 29.26).
Option 3: Require a court to be satisfied that children’s needs have
been met before making a division order
29.23 Peart and Henaghan have suggested that a court could be mandated not
to make a property division order unless it is satisfied that the needs of
any minor or dependent children are adequately met.206 The duty
would only apply after the partners’ relationship property entitlements
had been provisionally determined, including
any provision for economic
disparity made
NZPD.
under section 15 of the PRA.207 Peart and Henaghan say that
this option would better protect children’s welfare, provide for a
family-centred approach in decisions affecting property
division and improve
New Zealand’s compliance with its obligations under
UNCROC.208
29.24 Peart and Henaghan refer to children’s “needs” in
a similar way to which we have referred to children’s
“interests” in this Issues Paper, and suggest that they should
include:209
...the children’s financial needs, their housing, the standard of
living enjoyed by the family during the relationship, the
manner in which the
children were being educated and the parties’ expectations as to their
children’s education, any
special needs arising from a child’s
physical or mental disability, the financial resources available to each party
and the
children, and the parties’ own financial needs.
29.25 A similar provision exists in the Family Proceedings Act
1980 in relation to an order dissolving a marriage or civil union.210
It provides that a court must normally be satisfied that arrangements
have been made for the day-to-day care, maintenance and
other aspects of the
welfare of any children under 16 years and those arrangements are satisfactory
or the best that can be devised
in the circumstances.211 Unlike this
provision, however, Peart and Henaghan’s duty would apply following
separation and include de facto
relationships.212
210 Family Proceedings Act 1980, s 45.
29.26 A court would be required to discharge this obligation regardless
of the evidence offered by the partners. It would not rely on the partners to proactively raise matters such as the children’s accommodation interests. As such, to ensure a court is able to make an informed decision it may also require the power to order that evidence and reports about children (such as social worker ’s reports) be provided.213 This raises practical issues in terms of how provision of this evidence would be funded and the threshold
for appointment of lawyer for child (see paragraphs 2929.69 and
2929.70), and may require additional State funding to implement. This option
may also be viewed by some as an unacceptable erosion
of parental
autonomy.
C ONSU LTATION QUESTION
I13 How should the children’s interests be given a higher priority in
PRA proceedings?
Property orders for the benefit of children
29.27 The second function of section 26 is to give a court the power, if
it considers it just, to make an order settling relationship
property for the
benefit of children of the relationship.214 This is an important
tool.
29.28 The principles that guide the exercise of the power in section 26
have developed through case law. In R v R, the Family Court set out the
approach in these terms:215
(1) Prima facie the matrimonial property is to be regarded as the
property of the parties.
(2) In every case where there are minor or dependent children the Court
is obliged to have regard to the respective interests of
each such
child.
(3) The context of the consideration of the welfare and interests of the
children is “In the light of the property division
between husband and
wife, to ensure their financial protection during minority or
dependency”...
213 See for example Family Proceedings Act 1980, s 46.
214 Note that this discretion cannot be exercised in respect of Māori land: see s 6 of the Property (Relationships) Act 1976.
See also Matrimonial Property Act 1976, s 26.
215 R v R [1998] NZFLR 611 (FC) at 622. See also B v K HC Wellington CIV-2004-485-611, 16 March 2005 at [56]–[57]; and C
v B [2012] NZFC 7042 at [153].
(4) The Court is not precluded from considering the interests
of adult children and may have jurisdiction under s 26 to settle property
for the benefit of an adult child...
(5) It will be the exceptional case where the consideration leads to an
actual award for a child.
(6) It would be wrong in principle to use s 26 to anticipate
succession.
(7) Default or inability of a parent to provide appropriate maintenance,
upbringing, shelter or nurture for a child are relevant
factors, whether or not
the default is wilful.
(8) In the general run of cases a s 26 order should not be used to
substitute or supplement child support arrangements. Nonetheless
the
Court’s discretion is unfettered by statute.
(9) Section 26 is not a backhanded means of providing damages to a child
for ordinary parenting shortcomings.
(10) An award under s 26 must be reasonable in all the
circumstances.
29.29 Peart notes that “...the courts have generally adopted a very restrictive approach by insisting on evidence of exceptional and extraordinary circumstances, such as criminal offending within
the family or severe parental neglect”.216 A review of
cases supports this:
(a) In X v X, one partner had been admitted to a psychiatric hospital with no prospect of recovery.217 The Supreme Court made an order vesting part of that partner ’s
share of relationship property in a trustee for the maintenance, education
and advancement of some children of the relationship who
were under the care of
child welfare authorities.218
(b) In N v N, one partner was charged with the murder of
the other.219 The accused renounced their interest
under
216 Nicola Peart “Children’s Interests Under the PRA & s 182 FPA” (paper presented to New Zealand Law Society Seminar, May
2013) at 33–34. Referring to N v N (1985) 3 NZFLR 694 (FC); R v R [1998] NZFLR 611 (FC); and noting H v H [2007] NZHC 309; [2007] NZFLR 910 (HC). In H v H the High Court said at [109] that “An award is normally only justified if, after a division of property and taking into account child support obligations, there are remaining grounds for belief that during a child’s minority or dependency he or she will not be adequately provided for by the parents. Settlements appear to occur where the situation is ‘somewhat out of the ordinary’, there being cited examples of parental disappearance or death; sexual abuse; or some form of physical or mental disability on the part of the child.”
217 X v X [1977] 2 NZLR 423 (SC) at 424.
218 X v X [1977] 2 NZLR 423 (SC) at 428.
219 N v N (1985) 3 NZFLR 694 (FC) at 695.
the deceased’s will and the children were substituted as
legatees. The accused agreed that the estate should be compensated for the loss of value of some property by providing for the accused’s share in the family home to be vested in the estate. The Family Court made a section
26 order vesting the family home in a trustee for the children’s
benefit.220
(c) In S v C, one partner had killed another person in front of a child of the relationship.221 That partner had mental health issues and would likely never be subject to
less than full-time care and supervision.222 The Family Court
concluded that that partner probably would not have need for the whole of
their property entitlement and that
some recompense for the most difficult of
upbringings could and should in justice be made by settling property on the
children.223
(d) In R v R, a child of the relationship suffered post- traumatic
stress disorder as a result of sexual abuse by one partner.224 The
Family Court ordered that a payment be made directly to the child from that
partner ’s estate, and that the child be
trusted to apply it to
counselling and to setting themselves up in life.225
29.30 Despite what these cases suggest, however, the High Court has said
that it is not necessary to show “exceptional circumstances”
before
a section 26 order may be made.226 Cases where section 26 orders
have been made in less extreme circumstances include:
(a) H v H, where the partners intended a life insurance policy to
be a benefit for their children.227 The Family Court used a section
26 order to vest one half of a life insurance policy in trust for the
children’s benefit.228
220 N v N (1985) 3 NZFLR 694 (FC) at 696.
221 S v C (1998) 17 FRNZ 176 (FC) at 177.
222 S v C (1998) 17 FRNZ 176 (FC) at 178–179.
223 S v C (1998) 17 FRNZ 176 (FC) at 181.
224 R v R [1998] NZFLR 611 (FC) at 622.
225 R v R [1998] NZFLR 611 (FC) at 623.
226 B v B (2009) 27 FRNZ 622 (HC) at [83].
227 H v H [2015] NZFC 4376, [2015] NZFLR 107.
228 H v H [2015] NZFC 4376, [2015] NZFLR 107 at [36].
(b) L v L, where the partners made a joint application for
orders by consent vesting part of their relationship property in
trust.229
29.31 The following are examples of cases where courts have declined to
make section 26 orders:
(a) In M v M, the dependent child had high and complex needs
relating to a medical condition, however the relationship property pool was
modest.230
(b) In C v B, the child did not have a disability or special needs;
and the child’s primary caregiver was able to provide adequately for
the
child’s needs, which were not found to be exceptional or out of the
ordinary.231
(c) In H v H, the child’s attention deficit hyperactivity
disorder was not significant enough to be relevant, only a modest amount was in
dispute between the parties, each party had a new home and one was paying child
support.232
(d) In B v B, the child had the capacity to earn income while
attending university, or to undertake tertiary studies with a student
loan.233 There were no issues of misconduct and the fact that the
child was estranged from one partner was not relevant.234
29.32 Section 26 orders are contemplated on “rare occasions”.235 Potential reasons for the low number of section 26 orders may be the restrictive approach discussed above; a reluctance to undermine the partners’ property rights; insufficient or unavailable evidence; lack of lawyer for child; and/or the low number of applications.
The low number of applications may indicate that section
26 orders are not appealing to parents (as the most
obvious
229 L v L (1993) 11 FRNZ 81 (FC).
230 M v M [2012] NZFC 5019 (FC).
232 H v H [2012] NZFC 4543 at [66]–[70].
233 B v B (2009) 27 FRNZ 622 (HC) at [89].
234 B v B (2009) 27 FRNZ 622 (HC) at [89]–[90].
235 See de Malmanche v de Malmanche (2002) 22 FRNZ 145 (HC) at [202]. See also Nicola Peart “Children’s Interests Under the
PRA & s 182 FPA” (paper presented to New Zealand Law Society Seminar, May 2013) at 33.
applicants) or that lawyers are not providing advice on section 26
orders because they are not seen as a useful tool.
Courts have taken a restrictive approach to section 26 orders
29.33 The current approach to section 26 demonstrates a reluctance to
disturb the partners’ property entitlements, which arguably
does not sit
well with UNCROC236 and places too much of an adult focus on a
child-centred provision.237 Peart is of the view that:
238
As the constraint is a judicial gloss on the section, there is scope for a
more liberal approach that provides better protection for
minor or dependent
children of the relationship whilst not losing sight of the parties’
rights to a just division.
29.34 The current approach may, however, achieve an appropriate balance between competing interests. A power that takes property and settles it for the benefit of children should only be used sparingly because it is inconsistent with the PRA’s primary theory of entitlement on the part of the adult partners. Parents have an obligation to provide for their children’s needs regardless of the PRA, and there are other mechanisms, such as child support, to ensure that happens. Parents should have the freedom to use
their property to provide for any additional needs as they see
fit.
Option for reform: Section 26 orders to meet children’s specific
needs
29.35 If the approach taken under section 26 is unduly restrictive, an
option is to amend section 26 to signal that orders can
be made to meet
children’s specific needs in certain circumstances.239
Specific needs could include children’s educational requirements,
high medical costs such as dental costs, or costs arising
due to special needs.
Other factors may also be relevant in determining whether to make an order,
such as whether it would cause
hardship, the partners’ ability and
willingness to provide for the child, and the partners’ financial
resources and
other responsibilities. This could
236 Nicola Peart “Protecting Children’s Interests in Relationship Property Proceedings” (2013) 13(1) Otago Law Review 27 at
52.
237 See Anna-Marie Skellern “Children and the Property (Relationships) Act 1976” (LLM Dissertation, Victoria University of
Wellington, 2012) at 45.
238 Nicola Peart “Protecting Children’s Interests in Relationship Property Proceedings” (2013) 13(1) Otago Law Review 27 at
52.
239 Advice to the Law Commission from Bill Atkin regarding options for reforming s 26 of the Property (Relationships) Act
1976 on file with the Law Commission (5 July 2017).
be recognised by, for example, providing that an order may only be
made if it would be just and equitable as regards the child and the partners,
and otherwise proper. This option could be accompanied
by a more general
mechanism that allowed, for example, for an order to be made for the payment of
a third party invoice or the
payment of money to the child’s
guardian.
29.36 One concern with this option may be that it is inconsistent with the PRA’s main focus on a just division of property between adult partners, underpinned by a primary theory based on entitlement. It could also be said to undermine parental autonomy and may be unnecessary given the other obligations parents have to provide financial support for their children.240 It would risk extending
the PRA into territory already covered to an extent by the Child Support Act 1991.241 Orders can be made under the Child Support Act to meet some specific needs in special circumstances.242 It is not the PRA’s role to address any actual or perceived shortcomings with the Child Support Act. Further work would be required to consider the risks, complexity and policy difficulties associated with the PRA’s interaction with the Child Support Act if this
option is favoured. Issues may arise if orders are made at the
point property is divided and circumstances subsequently change, or one
partner refuses to pay. Such orders may lead to repeat
applications to the
court, leading to ongoing costs for parents as well as requiring further court
resources.
29.37 However, children’s needs are already recognised in the PRA, consistent with the secondary theory of need that sits alongside the primary entitlement theory. This option simply recognises the PRA as another way to provide for children’s specific needs, at a particular point in time. An order to meet a specific need may be
of considerable benefit to children where assessed child support is low or the child has expensive specific needs that cannot be met
in another way.243 It avoids the need to navigate the lump sum provisions of the Child Support Act 1991 (see paragraph 27.19). It
may also benefit children where child support is retained by
the
240 Child Support Act 1991, s 4(b).
242 Child Support Act 1991, s 104–106. Note that section 105(2)(c)(ii) of the Child Support Act 1991 links with the Property
(Relationships) Act 1976 and would require careful consideration if this option is pursued.
March 2018: see Inland Revenue “Child support annual adjustments” (9 February 2017) <www.ird.govt.nz>. Note that the minimum rate of child support is adjusted each year in line with inflation.
State to offset a benefit. Some parents may favour this option as
a way to ring-fence property for a specific purpose that directly benefits the children, with no implication that the primary caregiver has been unjustly enriched by increasing their share. In our preliminary consultation, we were told by practitioners
that often one of the few things parents can agree on is that their
children should be adequately provided for.244
C ONSU LTATION QUESTION
I14 In what circumstances should a court settle property for the benefit
of children?
Should section 26 allow property to be settled for the benefit of
independent adult children?
29.38 Section 26 tries to do two things at once (see paragraphs 29.13 and
29.14). Its first function is clearly limited to minor
or dependent children.
Whether this limitation extends to the second function has been the subject of
debate. This is due to the
way section 26 is drafted and the wide definitions
of “child of the relationship”, which include independent
adults.245
29.39 In Re Roberts the Family Court held that the court had jurisdiction to vest relationship property in a family trust for the benefit of independent adult children.246 However, more recently in B v B, the High Court held that section 26 orders may only be made for the benefit of minor or dependent children.247 The Court held
that settlement of property on an independent adult child would only be
justified if the child held property for the benefit of
one or more minor or
dependent siblings.248
29.40 One view is that section 26 orders should only be made for the
benefit of minor or genuinely dependent children, and
not for the benefit of
adult children who remain dependent by reason of lack of desire or motivation
to become independent.249 This approach
244 See also Margaret Casey “Mitigating the Painful Effects of a Clean Break” (paper presented to New Zealand Law Society
Family Law Conference, Auckland, October 2003) 225 at 233.
245 Property (Relationships) Act 1976, s 2.
246 Re Roberts [1993] NZHC 2292; (1993) 10 FRNZ 668 (HC) at 675. See also L v L (1993) 11 FRNZ 81 (FC).
248 B v B (2009) 27 FRNZ 622 (HC) at [83].
249 Anna-Marie Skellern “Children and the Property (Relationships) Act 1976” (LLM Dissertation, Victoria University of
Wellington, 2012) at 45 and 71–72.
would follow B v B, protect the most vulnerable children of the
relationship and avoid the risk of claims by independent adult children
seeking to anticipate succession. This clarification may
also be desirable if
section 26 is extended to signal that orders can be made to meet
children’s specific needs in certain
circumstances (see paragraphs 29.35
to 29.37).
29.41 It might, however, be appropriate that a court have the discretion to make section 26 orders in favour of independent adult children in limited circumstances. For example, to address need arising from parental criminal offending or severe parental neglect while the child was a minor, or where a joint application is made by
both partners.250 It may only be appropriate for this power to be
exercised in exceptional circumstances. This is because an independent adult
can
earn income themselves and it should be the parents’ decision as to
whether any further support is provided.251
C ONSU LTATION QUESTION
I15 Should orders be able to be made settling relationship property for the
benefit of independent adult children? If so, should
these orders only be made
in exceptional circumstances?
Postponement of vesting
29.42 Section 26A gives a court the power to make an order postponing the
vesting of any share in the relationship property. There
are several
limitations:
(a) First, it can only be used for the benefit of the partner who is the “principal provider” of ongoing daily care for one or more minor or dependent children of the relationship (we refer to this partner as the “primary
caregiver”). Logic suggests that where ongoing daily care is shared equally neither partner will be the primary caregiver.252
(b) Second, a court must be satisfied that immediate vesting would cause
“undue hardship” for the primary caregiver.
250 For example R v R [1998] NZFLR 611 (FC); N v N (1985) 3 NZFLR 694 (FC); and L v L (1993) 11 FRNZ 81 (FC).
251 See B v B (2009) 27 FRNZ 622 (HC) at [88].
252 See also Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR26A.02(2)].
In H v H the High Court said that the threshold for
“undue hardship” is high.253
(c) Third, vesting cannot be postponed indefinitely. Vesting can only be
postponed for as long as necessary, and only to the extent
necessary, to
alleviate the undue hardship. A court must specify when vesting will occur,
either by reference to a specified
future date or a specified event.
29.43 The following cases are examples where children’s interests
have been considered by the court in deciding whether
to make an order under
section 26A to postpone vesting:254
(a) In H v D, the Family Court postponed vesting for three years because, among other things, the children were young, the house was modest and in need of repair, and the wife was not in a position to pay out the husband and purchase reasonable alternative accommodation.255
The wife did not have to pay interest or occupation rent256 to the
husband because he had traditionally been a poor provider and was at the time
in prison and unable to provide for the children
either by way of care or
child support.257
(b) In E v W, the relationship ended when Ms W’s daughters disclosed that they had been sexually abused by Mr E.258
Ms W’s objective was to remain in the family home to avoid further disruption to the children.259 Immediate division would involve the sale of the family home, and possibly a move away from the area and a change of school.260 This amounted to hardship and division was deferred for just over two years, until Mr E’s sentence end date, to give the children time to adjust to the separation and Ms W a longer period to improve her
circumstances.261 Mr E was unlikely to be
disadvantaged
253 H v H [2007] NZHC 309; [2007] NZFLR 910 (HC) at [114].
254 See also F v H FC Porirua FAM-2005-004-1312, 11 April 2011.
255 H v D FC Gisborne FAM-2004-016-140, 21 December 2005.
256 See Chapter 14 for a discussion on interest and occupation rent.
257 H v D FC Gisborne FAM-2004-016-140, 21 December 2005 at [112].
258 E v W (2006) 26 FRNZ 38 (FC) at [1].
259 E v W (2006) 26 FRNZ 38 (FC) at [3].
260 E v W (2006) 26 FRNZ 38 (FC) at [92].
261 E v W (2006) 26 FRNZ 38 (FC) at [92] and [96].
because he was in prison and, even if released early, it
would take him some time to obtain employment and find a suitable
property.262
29.44 Section 26A orders appear to be uncommon,263 and this is
likely due to a combination of reasons. First, few applications are made.
Lawyers might not advise their client to seek
a postponement order, due to the
perceived desirability of immediate vesting, or because the partners might
share care, in which
case section 26A may not be applicable.264
Second, there is a high threshold for making a postponement order, which
suggests that section 26A was designed to meet exceptional
circumstances.
Changing social conditions, including residential mobility and
re-partnering265 may also explain why it is difficult for the primary
caregiver to show that immediate vesting will result in undue
hardship.
29.45 Our preliminary view is that there is a clear need for section 26A.
For some primary caregivers, immediate vesting does not result in independence or allow them to “move on” with their lives.266
Property division often results in the sale of the family home, and the proceeds may not be sufficient to enable the primary caregiver to purchase a new house of the same standard in the same
area, although this may also be the result for the other partner. Immediate sale of the family home requires some children to move schools and break ties with friends and community when they are dealing with the trauma of separation. Some primary caregivers and children may be left in difficult circumstances if
property is divided
immediately.
262 E v W (2006) 26 FRNZ 38 (FC) at [97].
265 In H v H [2007] NZHC 309; [2007] NZFLR 910 (HC) the High
Court said at [114] that:
In the 1960s and 1970s, agreements were relatively commonplace whereby the primary caregiver and children would remain in a family home with its sale being delayed until certain stipulated events occurred. Social conditions, however, have changed with geographic relocation and relatively rapid re-partnering in the wake of broken relationships being commonplace.
266 See Margaret Casey “Mitigating the Painful Effects of a Clean Break” (paper presented to New Zealand Law Society Family
Law Conference, Auckland, October 2013) 225 at 234.
Should it be easier for the primary caregiver to
obtain a postponement order?
29.46 Postponement orders can have a positive impact for some children, yet section 26A sets a high threshold and the evidence we have suggests that few applications are made. A postponement order can enable children to stay in the family home for a time, postponing the disruption caused by changing schools and communities and allowing for better planning. A postponement order may also assist in circumstances where an occupation
order would not. For example, where a primary caregiver has insufficient income to retain the family home post-separation. It would allow for the family home to be sold, a cheaper home purchased, and for the primary caregiver to retain the other partner ’s share in the equity of the family home to provide the funds to establish the new home for the children.267 It might also assist when continuing capital provision not necessarily
tied to providing a home may be necessary for the benefit of the children.268 It could, however, be argued that the high threshold in section 26A is appropriate because a postponement order interferes with the other partner ’s property entitlement, may
cause him or her hardship, and means that he or she does not get an
immediate “clean break”.
29.47 The restrictions on the power to postpone vesting in section
26A are unusual when contrasted with other PRA provisions. For example, the discretion in section 26 to settle property for children’s benefit is relatively unencumbered in its drafting, yet it can have the effect of permanently depriving one or both partners of property rights. Another example is the ancillary power in section 33(3)(d) to postpone vesting of relationship property
until a specified future date or event. This power has the same effect as
section 26A, it may even be used in wider circumstances
to postpone vesting,
and yet section 33 is not restricted by an “undue hardship”
test.
29.48 Section 26A focuses on undue hardship for the primary caregiver.
There is no express requirement to consider whether immediate vesting would
cause undue hardship for the children. Many children
will experience some
hardship as a result of immediate
267 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR26A.01].
268 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR26A.01].
vesting because household income generally declines as one
household becomes two. Some children may experience a significant decline in housing quality or living standards, disadvantage or risk of negative outcomes if immediate vesting occurs close to a life event such as exams or the birth of a sibling, or the child’s special needs going unmet. Courts, however, seem to be alive to the impact of immediate vesting on children’s circumstances.269 This may be due to the general
requirement in section 26 to have regard to children’s interests in
PRA proceedings. Or it may simply be because it is difficult
to determine the
undue hardship of the primary caregiver without considering the
children’s situation.270
29.49 We explore some options for changing the threshold for section
26A orders below.
Option 1: Expressly refer to undue hardship for children in section
26A
29.50 An option is to extend section 26A to provide that a court may make a postponement order if it is satisfied that immediate vesting would cause undue hardship for children. Relevant factors may include whether a postponement order is necessary in order for the child to remain in the family home, for example where the home has been adapted to accommodate any physical disabilities of the child, or to remain in proximity to the child’s
school or day care (whether the child remains in the family home or the proceeds of that home’s sale are needed to purchase a smaller, less valuable home nearby), or whether a child would
face a significant reduction in standard of living if an order is not made. This would ensure that the impact of immediate vesting
on children is always considered and recognises that children’s interests may be different to those of the primary caregiver. It would retain the well-understood test of “undue hardship”. This
option may not be a significant change from the current
approach
269 For example, in S v W HC Auckland CIV-2008-404-4494,
27 February 2009 the High Court said at [38] that:
Undue hardship will generally be reflected in evidence of the inability of
the principal provider of care to manage financially in
the event that the house
is sold immediately. That will usually entail a need to examine income and
outgoings, the ability of the
claimant to meet his or her own needs, the proper
requirements of the children as to schooling and so forth.
See also E v W (2006) 26 FRNZ 38 (FC).
270 See Ministry of Justice Matrimonial Property Amendment Bill – Departmental Report Clause by Clause Analysis (2 March
1999) at 23.
given the way the courts have interpreted section 26A in practice,
but would remove any doubt.
Option 2: Replace the undue hardship test in section 26A with a more
general discretion
29.51 This option could be achieved by providing that a court may make a
postponement order if it considers it just. Removing
the undue hardship
requirement would give a court more discretion, however the court would be
required to balance the interests
of the partners and any children of the
relationship. This may not be advantageous for children unless children’s
interests
are given a higher priority in the implementation of the division
of property between the partners (see paragraphs 29.20 to 29.21).
Option 3: Automatic postponement of vesting where there are minor or
dependent children
29.52 A more significant reform option is a new presumption that vesting must be postponed for a short period in prescribed circumstances unless the partner that is not the primary caregiver can show undue hardship.271 Automatic postponement could
be appropriate where immediate vesting would lead to sudden and significant
geographical relocation for the primary caregiver
and children. This would
recognise the importance of stability and continuity for children in the
aftermath of relationship breakdown.
It may only be appropriate for an automatic
postponement to apply for a period of say six or 12 months from the date of
separation,
to provide a short window for adjustment and planning.
29.53 This option may not strike an appropriate balance between the
interests of the primary caregiver, the other partner, and
the children. It may
also be too inflexible and unnecessary where there is a large property pool or
where the primary caregiver
has no need for the property. It may also distort
care arrangements and create an incentive for parents, at least initially, to
insist that care is shared equally. There are also questions about the
practical
impact this option would have. It may not make much difference
where relationship property disputes are resolved through the courts
because it is likely that a short automatic postponement
period would expire
before PRA orders are made. It may influence those settling relationship
property disputes in the shadow of
the law, however our preliminary
consultation suggests that many couples that resolve their property matters
out of court already
postpone vesting.
C ONSU LTATION QUESTIONS
I16 Should the threshold for making postponement orders be changed? If so, what should the
threshold be?
I17 Should vesting be automatically postponed in certain
circumstances?
Occupation and tenancy orders
29.54 Section 27 gives a court jurisdiction to make an occupation order granting exclusive possession of the family home (or other premises) to one partner provided it forms part of the relationship property.272 Section 28 gives a court jurisdiction to
vest the tenancy of any dwellinghouse in either partner. Section
28A is an attempt to improve the chances of primary caregivers staying in the family home with the children in either situation.273
It provides that a court, in determining whether to make an occupation or tenancy order, and the period and conditions of such an order, “shall have particular regard” to the need to provide
a home for any minor or dependent children of the relationship. A
court may also have regard to all other relevant circumstances.
29.55 Occupation and tenancy orders can provide children with stability during the upheaval of relationship breakdown by maintaining continuity of housing, schooling, social and sporting activities
and helping them cope with stress. They can also ensure that
children’s need for adequate housing is met.
29.56 In 2016, 785 applications for the division of relationship property
under section 25 were filed in the Family Court, but
only 59 applications were
filed for occupation orders and one application
272 Occupation rent is discussed in Chapter 14 of this Issues Paper.
273 Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at [11.4.1].
for a tenancy order.274 We do not know how many of those
applications were granted.275 The low number of applications is
likely due to a combination of factors such as couples reaching agreement as
part of a wider discussion
around childcare and support, trends towards shared
parenting, the accommodation needs of children of new relationships, and the
possibility that such orders are unattractive to parents, for example due to
the prospect of occupation rent.276 New arrangements such as
“bird’s nest parenting”277 or couples
“living apart” in the same house278 may have also eroded
the need for such orders.
The priority given to children’s accommodation needs
29.57 The need to provide a home for the children of the relationship was initially treated as the first and most important consideration by the courts, and given greater weight than the “other relevant circumstances” that a court may consider under section 28A.279
In N v N the High Court remarked that it must usually be “paramount”.280 More recent cases have taken a more subdued approach. In G v G the High Court said that elevating the need to provide a home to the status of paramountcy seemed to go further than section 28A requires.281 In W v W the High Court took a moderate approach, saying that the children’s interests
should be given weight greater than other considerations, but that where children would not be significantly prejudiced, competing
considerations were not to be
overlooked.282
274 Email from Ministry of Justice to the Law Commission regarding applications filed in the Family Court (5 May 2017).
275 See also Nicola Peart “Occupation orders under the PRA” [2011] NZLJ 356 at 356.
276 See Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at [11.4.1].
277 “Bird’s nest parenting” is where the children stay in the family home and the parents rotate in and out of the “nest”. See for example K v K [2005] NZFLR 881 (FC) where the court declined an application for exclusive occupation of the family home where the parties had a “nesting” regime. See also fn 19 for recent media coverage of bird’s nest parenting.
279 See W v W (1984) 2 NZFLR 385 (FC) at 389–390.
280 N v N (1985) 3 NZFLR 766 (HC) at 769.
281 G v G [1988] NZHC 1313; (1988) 3 FRNZ 665 (HC) at 677.
282 W v W [1997] NZFLR 543 (HC) at 547.
Option for reform: Give more weight to children’s
accommodation needs
29.58 An option is to amend section 28A to direct a court to give children’s accommodation needs a higher priority when considering occupation or tenancy orders. This could be achieved by replacing the direction to have “particular regard” to the children’s need for a home with a direction to treat
the children’s need for a home as a primary consideration, or even
the first and paramount consideration. This would give
children’s
accommodation needs greater weight when balanced against other relevant
factors. This may, however, not achieve
an appropriate balance between
children’s interests and the interests of others, such as the partners,
other family members
or children of new relationships.
C ONSU LTATION QUESTION
I18 Should more weight be given to the need to provide a home for the children when
considering occupation and tenancy orders?
Furniture orders
29.59 The PRA gives a court the discretion to make furniture orders under sections 28B, 28C and 28D. Under section 28B, a court may make an ancillary furniture order giving the use of furniture to the partner in whose favour an occupation or tenancy order has been made. The direction in section 28A to have particular regard to
the need to provide a home for children is arguably relevant to the making
of an ancillary furniture order under section 28B, however
that could be
usefully clarified.283
29.60 Under section 28C, a court may make a furniture order giving
the use of furniture to either partner. In determining whether to make an order under section 28C a court must have particular regard to the applicant’s need to have suitable furniture to provide for the needs of any children of the relationship living with him
or her.284 Furniture orders can be made in relation to “furniture,
household appliances, and household effects” – this is likely
to
283 See Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR28B.02].
284 Property (Relationships) Act 1976, s 28C(4).
cover essential items such as cots and car seats, and is arguably
wide enough to cover children’s toys.285
29.61 Furniture orders are uncommon. In 2016, 785 applications for the division of relationship property under section 25 were filed in
the Family Court, but only 10 applications were filed for ancillary furniture
orders under section 28B and only two applications
for furniture orders under
section 28C.286
There is no separate category of children’s property
29.62 Calls have been made for a separate category of children’s
property in the PRA. In the lead up to the 2001 amendments,
submissions were
made that children’s property should be excluded from relationship
property because its inclusion could
diminish the caregiver ’s
share.287 The direction in section 28C to have particular regard to
children’s needs when making furniture orders was included as
a
compromise.288
29.63 Children’s property may include gifts to children, children’s bedroom furniture, car seats, clothes, toys, and school and
hobby equipment used for and by children of the relationship. A
separate category of children’s property could help ensure that it
is identified, ring-fenced and set aside for their continued use and
benefit. It would also recognise children’s interests
in a way that is
independent of those of the partners.
29.64 A separate category of children’s property may, however, pose
problems and there is a view that it is not required.
It may be difficult to
determine whether mixed-use assets are children’s property. For example,
a computer may be used by
both the children and the partners. It may also be
difficult to determine where children’s property should be physically
situated when care of children is shared. There are also existing mechanisms in
the PRA that can address issues with children’s
property, such as
orders settling property for children’s
benefit.289
285 See Bill Atkin and Wendy Parker Relationship Property in New Zealand (2nd ed, LexisNexis, Wellington, 2009) at [11.4.4].
286 Email from Ministry of Justice to Law Commission regarding applications filed in the Family Court (5 May 2017).
289 Property (Relationships) Act 1976), s 26(1). See also ss 26A, 28B and 28C.
C ONSU LTATION QUESTION
I19 Is there a need for a separate category of children’s property?
If so, how should it be defined and dealt with under
the PRA?
Participation of children in PRA
proceedings
29.65 Section 37 sets out who is entitled to be heard in PRA proceedings. It provides that a court may direct that notice be given to any person “having an interest in the property” that would be affected by a PRA order.290 In H v R children with a contingent interest in trust property that would be affected by PRA orders were joined as parties to their parents’ relationship property proceedings.291 One commentator says that it is “rare” for this discretion to be exercised in respect of minor children.292
Possible explanations for this are the lack of specific reference to children
in section 37, the requirement for a property interest
and the view that
ordinarily children should be kept out of their parents’ property
disputes.293
29.66 Section 37A sets out when a lawyer for child is appointed in PRA proceedings.294 It provides that a court may appoint a lawyer for any minor or dependent children of the relationship if “special circumstances” make the appointment necessary or desirable. Special circumstances may exist where children are likely to
be affected and the assets at stake are unusually high or where property might be settled on children.295 For example, in L v P
a lawyer was appointed to represent a child whose substantial
inheritance had been partly intermingled with
relationship
292 Anna-Marie Skellern “Children and the Property (Relationships) Act 1976” (LLM Dissertation, Victoria University of
Wellington, 2012) at 21. See also Pauline Tapp, Nicola Taylor and Mark Henaghan “Agents or Dependants: Children
and the Family Law System” in John Dewar and Stephen Parker (eds) Family Law: Processes, Practices and Pressures (Hart
Publishing, Portland, 2003) 303 at 310–311.
294 See also Family Courts Act 1980, s 9B(1).
295 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.82].
property.296 Peart says that this power is “seldom utilised”.297 The
threshold for appointment, the expense that may be incurred by the
partners298 and the potential delay involved are possible
explanations.
Should children’s voices be heard more often in
PRA proceedings?
29.67 Perceptions of children and their rights to be heard in decision- making processes that affect them have changed.299 This is recognised in the Care of Children Act 2004, which provides for children to be given reasonable opportunities to express views on matters affecting them, not only in care or guardianship arrangements but also in decisions about their property.300
Any views the child expresses, either directly or through a representative,
must be taken into account.301 However although the outcome of PRA
proceedings can affect children, the primary focus is generally on the division
of property between
the partners.
29.68 Court proceedings can be difficult and stressful for children. Any
occasion to be heard would require safeguards that consider
the age and
maturity of the child, do not require participation and do not require a court
to act in accordance with the child’s
views.
296 L v P HC Auckland CIV-2010-404-6103, 17 August 2011.
300 Care of Children Act 2004, s 6.
301 Care of Children Act 2004, s 6. See also the Oranga Tamariki Act 1989, ss 5, 11 and 22.
Is the threshold for appointment of lawyer for child
too high?
29.69 The threshold for appointment of lawyer for child is relatively high.302 This may be an issue if there is a risk that children are unable to exercise a right to be heard effectively (particularly if children are given additional rights in PRA proceedings) or in
a manner free of parental influence. It may also be an issue if
children’s interests are inadequately represented by the partners
or
overlooked, for example if it is not in the partners’ interests to raise
them or because the partners are distressed or
distracted, and not well placed
to focus on their children’s needs.
29.70 Another view is that more frequent appointment of lawyer for child
is inappropriate because of the PRA’s focus on
the partners and their
entitlements, and could turn PRA proceedings into a three-way contest between
the partners and the children
in which some children feel pressure to choose
sides.
How would greater participation of children in PRA
proceedings be funded?
29.71 If greater participation of children in PRA proceedings is
considered desirable it raises the issue of how the associated
costs are funded.
Increased costs may be incurred in providing support structures and procedural
mechanisms to enable children
to express their views, and in the form of
lawyer ’s fees where lawyer for child is appointed.303
C ONSU LTATION QUESTIONS
I20 Should children’s views be heard more often in PRA proceedings, and if so, in what
circumstances?
I21 Is the threshold for appointment of lawyer for child too high? If so, what should the
threshold be?
I22 Who should pay for the cost of greater participation of children in
PRA proceedings?
303 See fn 298 above.
Part J – Can
partners make their own agreement about property?
Chapter 30 – Contracting out of
the PRA
Introduction
30.1 Partners do not have to divide their property according to the
PRA’s rules of division. Partners can, at any time, make
an agreement
under Part 6 of the PRA that governs the status, ownership and division of
their property and is enforceable by a
court. We call this a “contracting
out agreement”.
30.2 The provisions governing contracting out agreements in Part 6 of the
PRA have a significant role in New Zealand’s relationship
property regime,
both in theory and in practice. Over the years, many partners have substituted
the PRA’s rules with their
own arrangements.
30.3 There are two types of contracting out agreements:
(a) Section 21 provides that partners can make an agreement before or during their relationship, relating to “the status, ownership and division of their property (including future property)” during the joint lives of
the partners, or when one partner dies. Section 21 agreements are sometimes
referred to as a “pre-nuptial agreements”.
(b) Section 21A provides that partners may make
an agreement to settle any differences that have arisen between them about their property. Section
21A agreements are sometimes called “settlement
agreements”.1
30.4 A contracting out agreement under section 21 can make provision for the
death of one partner.2 Similarly, section 21B provides that when
one partner has died, the deceased’s personal representatives and the
surviving
partner may make an agreement
21B.
2 Property (Relationships) Act 1976, s 21(2)(b).
to settle any claim with respect to the partners’ property.3 We
discuss how these provisions work further in Part M.
30.5 Many separating partners will agree on how their property should be
divided, but will not enter into a formal contracting
out agreement that
complies with the PRA. These informal agreements are generally unenforceable,
although a court may enforce
them in certain circumstances, as we discuss
below.
30.6 In this part we look at the PRA rules governing contracting out
agreements and the basis for these rules. We then examine problems
with how the
rules may operate in practice.
30.7 We address contracting out agreements that involve cross-border
issues in Part L.
The law governing contracting out agreements
Why does the PRA allow partners to contract out?
30.8 The PRA is often described as an “opt out system”. It will apply to all those in a qualifying relationship and, if those partners wish to deal with their property differently to the PRA’s rules, they must “opt out” by entering into a contracting out agreement under
Part 6. This promotes couple autonomy rather than individual autonomy, as
both partners must enter the agreement.4
30.9 When devising the PRA regime, the Government recognised the potential objections to applying general rules of classification and division of property to all relationships. In a White Paper published on the introduction of the Matrimonial Property Bill
1975 to Parliament, the Minister of Justice explained that the
new law had been prepared on the assumption that most partners would be happy to order their affairs in the way contemplated
by the Bill.5 It was not, however, the Government’s policy to
“force married people within the straight-jacket of a fixed and
3 If the only personal representative is the surviving partner, the court must approve the agreement beforehand in order
for it to be valid: Property (Relationships) Act 1976, s 21B(3). In any case, either or both the personal representatives and the surviving partner can submit the draft agreement to the court for approval: s 21C.
4 See Chapter 3 for a discussion of the principles of the Property (Relationships) Act 1976.
unalterable regime of matrimonial property”.6 The Minister
explained that the Bill therefore granted spouses the freedom to adopt such
property arrangements as they saw fit.
30.10 The role of contracting out agreements as described by the
Minister of Justice in 1975 has been affirmed and retained. The
2001 amendments strengthened the contracting out provisions to give partners
greater certainty that their agreement would be upheld,
in light of the
PRA’s extension to de facto relationships at the same
time.7
30.11 Several leading cases dealing with contracting out agreements have given similar explanations for why the PRA allows partners to contract out. In Wood v Wood the High Court said that
contracting out agreements ensured partners are not consigned to
“the same Procrustean bed whether they liked it or not”.8 In Wells v Wells the High Court observed that the general thrust of the legislation and its legislative history indicated a desire to respect the capacity of persons to contract out of the PRA.9 The Court said “[p]ublic acceptance of the whole statutory scheme was based
in part on the recognition that people could opt out – it was an
integral feature of its public legitimacy.”10
Matters a contracting out agreement may deal with
30.12 Section 21D prescribes the matters an agreement under sections
21 or 21A may deal with. The agreements may do all or any of the
following:
(a) provide that any property, or any class of property, is to be
relationship property;
(b) define the share of the relationship property, or any part of the
relationship property, that each partner is entitled to
when the relationship
ends;
1976, s 21(10). Parliament amended this test to provide that a court could set aside the agreement if giving effect to it would cause a “serious injustice”: Property (Relationships) Act 1976, s 21J(1).
8 Wood v Wood [1998] 3 NZLR 234 (HC) at 235.
9 Wells v Wells [2005] NZHC 1761; [2006] NZFLR 870 (HC) at [38].
10 Wells v Wells [2005] NZHC 1761; [2006] NZFLR 870 (HC) at [38].
(c) define the share of the relationship property, or of
any part of the relationship property, that a surviving partner and the
estate of a deceased partner is to be entitled to on the
death of one
partner;
(d) provide for the calculation of those shares; and
(e) prescribe the method by which the relationship property, or any part of
the relationship property, is to be divided.
30.13 Section 21L confirms that contracting out agreements may be relied
upon and enforced like any other contract. It provides
that the parties to an
agreement enjoy all remedies under law or equity available to enforce contracts
to implement an agreement
under sections 21 or 21A.11
Requirements of a contracting out agreement
30.14 The PRA’s provisions regarding contracting out agreements
attempt to strike a balance. They promote partners’
autonomy by granting
them freedom to choose the property consequences of their separation. The PRA
is, however, social legislation
aimed at ensuring a just division of property
between partners who may be of unequal bargaining positions.12 The
contracting out provisions prevent a partner from signing away his or her rights
without appreciating the implications of the
agreement and entitlements under
the PRA. Part 6 also attempts to prevent a partner from entering an agreement
when the partner
is under improper pressure.13
30.15 Section 21F is the principal mechanism through which Part 6 of the
PRA attempts to safeguard partners from bad or oppressive
bargains. Section
21F provides that a contracting out agreement is void unless several
requirements are complied with.
and then laying down a general rule of equal sharing of those assets was intended to overcome this disparity by elevating a wife’s bargaining position.
30.16 The first requirement is that the agreement must be in writing
and signed by both parties.14
30.17 The second requirement is that each party to the agreement must have independent legal advice before signing the agreement.15
What constitutes adequate legal advice has been considered by the courts on several occasions. The Court of Appeal decision
in Coxhead v Coxhead is often cited as the leading case.16 The case concerned a settlement agreement between a husband and wife who had separated. The husband had complex business affairs. The wife went to see a lawyer some hours before she
was due to travel to London. The lawyer advised the wife he had concerns that the timing did not allow for a proper consideration of the extent of the partners’ property and her rights to it. The lawyer signalled that he did not have the necessary information regarding the partners’ affairs to properly analyse the agreement. The agreement provided for quite a large disparity between what the wife was to receive and what she may have received under the PRA. The wife executed the agreement. The wife later argued
that the agreement was void as she had received inadequate legal
advice.
30.18 The Court of Appeal said that the lawyer had properly indicated the information he lacked in order to comprehensively advise on the agreement. The Court said that the advice was as complete
as it could have been. The lawyer formed a professional opinion on the
wisdom of entering the agreement on these terms, which the
lawyer advised
against. The client was then free to enter the agreement, even though the
lawyer believed the agreement was unfair.
The lawyer should not have been
reluctant to certify that he believed the agreement was unfair.
30.19 In a passage often cited, Hardie Boys J explained what is meant by
independent legal advice:17
Each party must receive professional opinion as to the fairness and appropriateness of the agreement at least as it affects that party’s interests. The touchstone will be the entitlement that the Act gives, and the requisite advice will involve an assessment
of that entitlement, and a weighing of it against any
other
14 Property (Relationships) Act 1976, s 21F(2).
15 Property (Relationships) Act 1976, s 21F(3).
16 Coxhead v Coxhead [1993] 2 NZLR 397 (CA).
17 Coxhead v Coxhead [1993] 2 NZLR 397 (CA) at 404.
considerations that are said to justify a departure from it. Advice
is thus more than an explanation of the meaning of the terms of the agreement. Their implications must be explained as well. In other words the party concerned is entitled to an informed professional opinion as to the wisdom of entering into an agreement in those terms. This does not mean however that the adviser must always be in possession of all the facts. It may not be possible to obtain them. There may be constraints of time
or other circumstances, or the other spouse may be unable or unwilling to give the necessary information. The party being advised may be content with known inadequate terms. He or she may insist on signing irrespective of advice to the contrary. In such circumstances, provided the advice is that the information
is incomplete, and that the document should not be signed until further
information is available, or should not be signed at all,
the requirements of
[section 21F(3)] have been satisfied.
30.20 In other cases, the courts have said that legal advice has been
inadequate where the lawyer purported to give advice even
though the lawyer had
no information about the partners’ circumstances surrounding the
agreement,18 where the lawyer had only a 15 minute interview with
the partner,19 or where the lawyer had previously acted for the other
partner to the agreement and was not independent.20
30.21 The third requirement is that the signature of each party to the
agreement must be witnessed by a lawyer.21 The courts have said
that the lawyer witnessing the signature must be the lawyer who gave the
independent legal advice.22
30.22 The fourth and final requirement is that the lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer explained to that party the effect
and implications of the agreement.23 The courts have said that a lawyer ’s certificate is not conclusive evidence of the adequacy of advice.24 The courts have also said that the certifying lawyer owes
a duty of care to the other partner that advice has been
properly
18 Odlum v Odlum [1989] NZHC 1806; (1989) 5 FRNZ 41 (HC).
19 West v West [2003] NZFLR 231 (HC).
20 Wells v Wells [2005] NZHC 1761; [2006] NZFLR 870 (HC).
21 Property (Relationships) Act 1976, s 21F(4).
22 Williamson v Williamson (1980) 3 MPC 200 (HC) at 201.
23 Property (Relationships) Act 1976, s 21F(5).
24 Coxhead v Coxhead [1993] 2 NZLR 397 (CA) at 404; and Wells v Wells [2005] NZHC 1761; [2006] NZFLR 870 (HC).
given.25 That means if the advice is inadequate and the agreement
is void for non-compliance with section 21F, the other partner can make a
claim against the lawyer.
Agreements that would cause serious injustice may be set aside
30.23 Even if a contracting out agreement satisfies the requirements of section 21F, section 21J(1) provides that a court may still set the agreement aside if, having regard to all the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice. A partner may apply to a court specifically to set aside the agreement. A court may set an agreement aside under section
21J(1) on its own initiative, in any PRA proceedings.26
30.24 In deciding whether giving effect to the agreement would cause a
serious injustice, a court must have regard to:27
(a) the provisions of the agreement;
(b) the time since the agreement was made;
(c) whether the agreement was unfair or unreasonable because of all the
circumstances at the time it was made;
(d) whether the agreement has become unfair or unreasonable in the light
of any changes in circumstances since it was made (whether
or not those changes
were foreseen by the parties);
(e) the fact that the parties wished to achieve certainty on the status,
ownership, and division of property by entering the
agreement; and
(f ) any other matters that the court considers relevant.
30.25 Section 21M provides that if a contracting out agreement is set aside under section 21J, the PRA has effect as if the agreement had never been made.
30.26 The purpose of section 21J is to address the situation where, even
though a contracting out agreement complies with all
25 Connell v Odlum [1992] NZCA 256; [1993] 2 NZLR 257 (CA).
26 Property (Relationships) Act 1976, s 21J(2).
27 Property (Relationships) Act 1976, s 21J(4).
requirements under section 21F, the result the agreement
will achieve is seriously unjust. In 2001 Parliament amended section 21J by raising the threshold for when a court could set an agreement aside, from “unjust” to “serious injustice”.28
Accompanying this amendment was the addition of section 21J(4) (e) which, when considering whether the agreement would lead
to a serious injustice, requires the court to consider the fact that the
parties wished to achieve certainty in their affairs.
The basis for these
amendments was the concern that the courts were setting aside contracting out
agreements too readily.29
30.27 Some examples of notable cases that have interpreted “serious
injustice” are discussed below.
Harrison v Harrison
30.28 In Harrison v Harrison, the partners encountered difficulties in their relationship.30 At one point they separated, but discussed reconciliation. The husband refused to reconcile unless the wife signed a section 21 agreement. The partners’ principal asset (a farm) had been purchased during the marriage from the sale proceeds of a previous farm owned by the husband. The section 21 agreement protected the partners’ pre-relationship property and gave the wife an interest in the new farm and stock. The wife’s lawyer advised her that she may have had greater entitlements to the farm under the PRA than what she would receive under the section 21 agreement, because it was acquired for the partners’ common use and benefit. The lawyer also advised that the
husband had not given adequate disclosure of information. The wife did not follow her lawyer ’s advice, and instead executed the agreement. After the partners’ final separation the wife sought
to set the agreement aside on the grounds it would cause her
serious injustice. The wife had emphasised the pressure the
29 In Wood v Wood [1998] 3 NZLR
234 (HC) at 235 the Court said:
My fear is that these contracting-out agreements are being set aside too
readily. Those who criticise the Matrimonial Property Act
for the readiness with
which it captures property sourced from outside the marriage partnership
(pre-marriage assets, third-party
gifts and inheritances) are invariably met
with the same answer: if people do not like the statutory regime they can
contract out
of it. One gathers that the same legislative approach is about to
be taken with de facto marriage. But if effective contracting out
were as
difficult to achieve as these Family Court decisions suggest, the answer would
be a hollow one. All would be consigned to
the same Procrustean bed whether they
liked it or not.
In Harrison v Harrison [2005] 2 NZLR 349 (CA) at [82] the Court of Appeal observed “The Parliamentary history of the
2001 amendments shows that the approach taken by Fisher J in Wood (which was seen as raising the bar for setting aside agreements) was welcomed.”
30 Harrison v Harrison [2005] 2 NZLR 349 (CA).
husband placed on her to enter the agreement as a condition of
reconciliation.
30.29 The Court of Appeal noted the 2001 amendments and Parliament’s intention to raise the test from unjust to serious injustice.31 The Court explained the benefits of the higher threshold: unless people can have reasonable confidence that the contracting out agreement will be honoured by a court, they will be less likely to attempt reconciliation, like Mr Harrison did
here.32 The Court discussed how the question of serious injustice
should be approached, and made these points:
(a) It would be unreal to measure fairness by assessing the extent to
which the agreement deviated from the partners’ entitlements
under the
PRA, as the partners have contracted out of those rights.33 Partners
should be free to agree on different arrangements to those otherwise imposed
upon them by the PRA.34
(b) The position may be different for settlement agreements under section
21A as by that stage a party’s relationship property
entitlements have
already accrued and the agreement should reflect those
entitlements.35
(c) There will always be pressure when one partner asks the other to enter
into a contracting out agreement. Usually there will
be an implicit threat that
the relationship will be terminated if the agreement is not entered. It would
therefore be very destabilising
if the Court found this pressure, which is
almost always present in these cases, is a reason for holding that the
agreement
is unjust.36
(d) Serious injustice is most likely to be demonstrated by an unsatisfactory process resulting in an inequality of outcome rather than mere inequality of outcome itself.37
(e) The Court said that the agreement provided the wife with the
entitlements she had accrued when she
31 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [28]–[30].
32 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [88].
33 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [93].
34 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [112].
35 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [112].
36 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [84].
37 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [112].
entered the agreement. Against the higher threshold
in the legislation, there was nothing undue about the pressure the husband may have put on the wife to
enter the agreement. The Court said that the agreement
should not be set aside.
Clark v Sims
30.30 In Clark v Sims the partners had entered a section 21
agreement that provided that a block of land was to be Mr Sim’s
separate property.38 At the time of the agreement the partners
understood the property had an approximate value of $186,000. The land was
subject to
a covenant which Ms Clark believed prevented the land from being
subdivided. About six years after the partners entered the agreement,
Mr Sims
obtained approval to subdivide the property into ten lots. He sold seven lots
for $1.5 million and the remaining sections
were valued at $1.5
million.
30.31 The High Court said that the increased value of the property was due to the change in zoning, inflation and the efforts of Mr Sims in obtaining the subdivision. The Court said that, although there was a change in circumstances, the agreement could not be said to have become unfair or unreasonable because of the changed circumstances.39 The partners were mature and intelligent people with business experience. They understood the agreement
and were both independently advised. Although the change of circumstances
may have become unfair, the agreement had not.40
T v T
30.32 In T v T the husband operated a company in Christchurch.41 The shares of the company were held on trust for the husband and wife. The dividends from the company accounted for roughly
80 per cent of the family income. The partners separated in
2010 and entered a settlement agreement under section 21A of the PRA. The
pool of property valued for equal distribution was sizeable,
reflecting the
valuation of the company shares. Under the agreement, the wife was to resign as
trustee of the trusts
38 Clark v Sims [2004] 2 NZLR 501 (HC).
39 Clark v Sims [2004] 2 NZLR 501 (HC) at [74].
40 Clark v Sims [2004] 2 NZLR 501 (HC) at [74].
41 T v T [2014] NZFC 5335, [2015] NZFLR 185.
and forgo any interests in them. That provided the husband with
the full benefit of the income and assets from the company. In return, the husband agreed to pay the wife her share of the assets by purchasing her a home and making periodic payments up
to a certain amount. The purchase of the wife’s home was to be
financed by a mortgage which the husband took responsibility
for
paying.
30.33 The Christchurch earthquakes in early 2011 affected the
company’s business. The husband presented evidence he had received
no
income from the company since the earthquakes. When the agreement was signed he
had expected to receive an annual income of
around $230,000-$250,000 from
dividends paid by the company. However, the value of the shares in the company
had dropped to less
than half their earlier value. The husband claimed he did
not have sufficient income or assets to meet his obligations under
the
settlement agreement. He applied to have the agreement set aside under section
21J.
30.34 The Family Court accepted that to enforce the agreement would cause
a serious injustice. The agreement had become unfair
due to the change of
circumstances since the agreement was made. The combination of factors resulting
in a considerable loss of
value of the company shareholding made it impossible
for the husband to meet his payment obligations under the agreement.42
The Court set the agreement aside under section 21J.
W v K
30.35 In W v K the partners separated after a 25 year
marriage.43 Eight years earlier, the husband arranged for his lawyer
to draft a contracting out agreement, which the parties entered into. The
agreement provided that each partner was to retain the property registered in
their sole names. The agreement did not, however,
identify any particular items
of property or the value of any property. During the relationship, the husband
held all valuable property
in his own name, such as the family home, company
shares and cars. The effect of the agreement was that when the partners
separated,
the husband retained 100 per cent of the property. The family home
alone was valued at over $1 million.
42 T v T [2014] NZFC 5335, [2015] NZFLR 185 at [202].
43 W v K [2017] NZHC 1643.
30.36 The High Court held that the agreement should be set aside under
section 21J. The Court noted that the provisions of the agreement were unjust. The Court said that the agreement was “opaquely” drafted; it obscured the level of property the husband held and suggested that the wife held property in her own name when she did not.44 The Court also observed that, as to section 21J(4)(e), while the agreement achieved certainty, there was no obvious benefit in certainty for the wife.45 The Court noted that the
courts in previous cases had said that a disparity in the division of
property would not in itself meet the threshold of serious
injustice. But given
that the agreement split the property 100:0 between the partners to an orthodox
25 year marriage, the Court
said “generalities must, in such a case, go
out the window.”46
A court may give effect to non-complying agreements
30.37 Although section 21F provides that an agreement that does not
comply with the requirements is void, section 21H allows
a court to give effect
to non-complying agreements, wholly or in part, if it is satisfied that the
non-compliance has not materially
prejudiced the interests of any party to the
agreement.
30.38 The test is aimed at capturing circumstances where the partners
intended to create a legally binding arrangement but failed
to do so under the
requirements of section 21F.47
30.39 The courts have said there are two elements to consider
when determining whether to give effect to a non-complying
agreement:48
(a) Is there an agreement?49
44 W v K [2017] NZHC 1643 at [63].
45 W v K [2017] NZHC 1643 at [73].
46 W v K [2017] NZHC 1643 at [80].
47 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [5.73].
48 McGill v Crozier (2001) 21 FRNZ 157 (HC) at [21].
(b) Has the non-compliance materially prejudiced the
interests of either partner to the agreement?
30.40 There have been a few cases where the courts have found that, even
if the agreement had complied with section 21F, the
partner challenging the
validity of the agreement would have entered it anyway. In those cases, the
courts have said the non-compliance
does not materially prejudice the interests
of that partner.50
Are the contracting out provisions are working well?
30.41 Below we make some preliminary observations on how well we think the
contracting out provisions are working in practice.
Who is using contracting out agreements, when and why?
30.42 We do not know how many people enter into contracting out agreements, when they enter contracting out agreements
or why they do so. There is no research in New Zealand that comprehensively
studies partners who contract out of the PRA.51 We intend to use
responses to this Issues Paper to add to our understanding of how New Zealanders
use (or do not use) contracting
out agreements.
30.43 Anecdotal evidence we have received as part of our preliminary
consultation suggests the following trends:
(a) Some partners will not enter a contracting out agreement, either before
or during the relationship, or when the relationship
ends. Instead, they will
resolve their property division by their own informal
50 McGill v Crozier (2001) 21 FRNZ 157 (HC); and West v West (2001) 21 FRNZ 157 (HC).
arrangements. We are unsure about the number of
partners who fall into this category. We are also unsure why these partners
determine their property relations informally. It may
be because partners are
happy to divide their property according to their own sense of fairness with
no formal agreement.52 It may be because they do not know they have
property rights under the PRA. Or it could be because legal advice is
unaffordable.
(b) The majority of partners who enter a contracting out agreement either before or during the relationship are entering a second or subsequent relationship. Their motivations usually include a desire to provide
protection or certainty regarding assets obtained prior to the
relationship. Sometimes the goal may be to protect assets for the
benefit of
children from a previous relationship.53
(c) High net worth partners are more likely than partners with few assets
to enter contracting out agreements before or during
the relationship. High net
worth partners, although perhaps disproportionately represented among those who
litigate their contracting
out agreements, are likely to be a small minority of
partners.
30.44 Many people are likely to encounter practical challenges which make entering a contracting out agreement difficult. Partners must know contracting out of the PRA is an option. They must then have sufficient resources to obtain independent legal advice. Partners may also find conversations regarding a contracting
out agreement uncomfortable. An agreement that supposes the partners’ separation and protects their financial interests is likely to be a difficult subject in most relationships, although we have heard that partners entering a subsequent relationship are less
troubled by these types of conversations.
2014) at [1.37].
30.45 We do not have information about whether Māori are using,
or wish to use, Part 6 of the PRA to ensure that they have enforceable contracting out agreements which may reflect tikanga Māori. It may be that, as in these circumstances tikanga Māori would itself likely govern the enforceability of agreements, there
is little concern about meeting the Part 6 requirements for an enforceable
agreement.54 We would like to hear more about whether this is an
issue.
C ONSU LTATION QUESTIONS
J1 How common is it for partners to enter a contracting out agreement under
section 21 or section 21A?
J2 In what circumstances will partners enter a contracting out agreement
under section 21 (pre-nuptial agreement)? For what purposes
do partners enter
section 21 agreements?
J3 How common is it for matters to be settled without a section 21A agreement
(settlement agreement)? What prevents people from entering
a section 21A
agreement?
J4 Are there particular issues in relation to contracting out agreements which reflect tikanga
Māori?
Preliminary observations on the policy underpinning Part 6 of the PRA
30.46 Part 6 of the PRA reflects what we have described in Chapter 3 as the implicit principle that, subject to safeguards, the PRA gives partners the freedom to organise their affairs in a manner of
their choosing. As we have explained, there are good reasons why partners
would want this freedom:
(a) they may wish to shield the assets they each bring to the relationship
from equal sharing;
(b) they may wish to safeguard the interests of their children from a
former relationship;
(c) they may wish to create a clear method for dividing their property
should the relationship end, particularly if their property
affairs are
extensive or potentially complex.
30.47 Partners may have their own sense of what constitutes a just
division of property. The PRA has always reflected the position that it is entirely proper that partners are not forced within the straightjacket of an unalterable relationship property regime.55
This is likely to become increasingly important, given the increasing diversity of New Zealand’s population.56 Partners
may wish to contract out of the PRA in a way that allows greater recognition
of different cultural values.
30.48 The PRA’s contracting out provisions attempt to provide effective safeguards so partners do not sacrifice their rights under the
PRA through a lack of awareness or foresight or because of undue pressure. Partners in a relationship and in love may agree to things they would not otherwise contemplate.57 As the Law Commission of England and Wales has recently observed in its review of the law governing matrimonial property agreements, people in love may have a firm belief the relationship will never end.58 They may feel pressure, whether pressure is intended or not, to enter an agreement.59 Sometimes there may be an implicit threat that the relationship will be terminated if the agreement is
not entered.60 As the New Zealand Court of Appeal said in Harrison v Harrison, there will usually be some pressure when one party
asks the other to enter an agreement.61
30.49 The procedural safeguards under section 21F may appear to restrict
the partners’ autonomy as they can impose a fairly
significant
administrative and financial burden, such as obtaining legal advice. The PRA is
premised on the policy that its principles
and rules provide for a just
division of property. Therefore few partners would lightly give up their
rights.62 The section 21F requirements are designed to ensure
partners enter a contracting
55 AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial Property Bill 1976” [1975] II AJHR E6 at 11.
57 Law Commission of England and Wales Matrimonial Property, Needs and Agreements (LAW COM No 343, 2014) at [5.27].
58 Law Commission of England and Wales Matrimonial Property Agreements: A Consultation Paper (Consultation Paper No
198, 2010) at [5.27].
59 Law Commission of England and Wales Matrimonial Property Agreements: A Consultation Paper (Consultation Paper No
198, 2010) [5.28].
60 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [84].
61 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [84].
62 AM Finlay “Matrimonial Property – Comparable Sharing: An Explanation of the Matrimonial Property Bill 1976” [1975] II AJHR E6 at 11. The Minister of Justice claimed that the original Matrimonial Property Act 1976 had “been prepared in the belief that most couples entering marriage will be happy to order their affairs in the way provided.”
out agreement with a clear understanding of their rights under
the agreement in comparison with their rights under the PRA.
The requirements are therefore to enhance the partners’ ability to make
an autonomous decision.63
30.50 We also recognise that contracting out agreements, particularly
settlement agreements under section 21A, are integral to
the ability of
partners to resolve their property matters without expensive and lengthy
dispute resolution processes. We therefore
see the contracting out procedure as
consistent with the PRA’s principle that issues should be resolved as
inexpensively,
simply and speedily as is consistent with
justice.64
30.51 Although we have come across several deficiencies with the
contracting out provisions, which we discuss below, the overall
approach
appears sound. Our preliminary view is that the contracting out provisions
generally strike the right balance between
the interests of autonomy and
protection.
30.52 The PRA has maintained roughly the same balance between the partners’ freedom and procedural safeguards during its 40 year life. The section 21F procedural requirements have always been a feature of the contracting out regime. They have been tested and interpreted often. The only aspect of the regime that has been fine-tuned is the test for when a court set an agreement
aside under section 21J. That test, we think, strikes a satisfactory
balance. It equips a court to address unjust agreements while
still providing
partners an adequate level of certainty as to when their bargain might be
overturned.
30.53 We acknowledge that contracting out is likely to be a difficult process for many New Zealanders. Even though we suggest the procedural safeguards are set at an appropriate threshold, many partners may struggle with the process. They may be unaware
of the requirements of the contracting out provisions in the PRA. The costs of compliance, such as the cost of legal advice, may be beyond the reasonable means of many New Zealanders. Also, a contracting out agreement is a bargain struck by the two
partners. There may be wider family and whānau interests
at
64 Property (Relationships) Act 1976, s 1N(d).
stake, especially the interests of children. There may be a need for
more public education about the opportunity to contract out of the
PRA.65
C ONSU LTATION QUESTION
J5 Do the contracting out provisions in the PRA strike the right balance
between (a) offering partners freedom to arrange their
own property affairs, and
(b) ensuring each partner contracts with informed consent?
J6 Do any issues arise from New Zealand’s increasingly diverse population wishing to
contract out of the PRA in order to recognise other cultural norms?
J7 Is more public education needed so people better understand the opportunity to contract
out of the PRA?
Issues regarding what a contracting out agreement can cover
30.54 There is significant uncertainty about whether a contracting out
agreement may govern:
(a) property held on trust;
(b) claims under section 15 of the PRA; and
(c) KiwiSaver scheme entitlements.
30.55 We discuss each of these below.
Property held on trust
30.56 Many families in New Zealand use trusts as a way to hold property. Nearly 15 per cent of households have reported that their home was held on trust.66 A member of the household in around 20 per cent of New Zealand households has reported some involvement with a trust, meaning they are a settlor, trustee or beneficiary of a trust.67
30.57 In Part G we discussed in greater detail how the PRA responds when
property is held on trust. By way of summary, we note
that:
65 See discussion in Chapter 4 about public education.
66 Statistics New Zealand “2013 Census QuickStats About Housing” (March 2014) at 12.
(a) Property held on trust is legally owned by the trustees
of the trust. The beneficiaries are the beneficial owners of the
property.68 A person can be both trustee and a beneficiary, but he or
she cannot be the sole beneficiary. Only beneficial owners are considered
owners of property for the purposes of the PRA.69
(b) If the trust is a discretionary trust and the beneficiaries’
interest depends on the trustees exercising discretion in their favour, the
beneficiary will not be an owner of property for the
purposes of the
PRA.
(c) If a partner transfers property to a trust, the disposition can potentially defeat the other partner ’s rights to that property under the PRA. Sections 44 and 44C allow
the court to recover all or part of that property, or to compensate the
other partner, in certain circumstances.
(d) Besides the remedies in the PRA, a partner can look to wider law to claim property held on trust. Section
182 of the Family Proceedings Act 1980 is relevant in this context. It allows the court to vary a “nuptial settlement” (which can include a trust) when a partner to a marriage reasonably expected to benefit from the settlement, but those expectations have been defeated by the dissolution of the partners’ marriage.70 The courts are also prepared in some circumstances to recognise that a trust is subject to a constructive trust in favour
of a partner. To establish a constructive trust, the partner must show he
or she made contributions to the trust property and that
he or she had a
reasonable expectation of an interest in that property.71
30.58 Given the widespread use of trusts in New Zealand, it is common for
trusts to be bound up with partners’ property matters.
Two important
questions arise:
70 For further discussion on s 182 of the Family Proceedings Act 1980, see Part G.
(a) Can partners agree in a contracting out agreement what
will happen to trust property in the event they separate, or if they have
already separated?
(b) Can partners settle a claim against a trust through a section 21A
agreement?
Can partners agree in a contracting out agreement what will happen to
trust property?
30.59 Section 21 provides that the partners may make any agreement
regarding the “status, ownership and division of their
property”. Similarly, section 21A provides that the agreement may
address property “owned by either or both” partners.
30.60 Often, the trust property cannot accurately be described as property
owned by the partners. If the partners are not beneficiaries,
or have only
discretionary beneficial interests, they will have no property interest for the
purposes of the PRA.
30.61 In addition, the trustees may be third parties. As legal owners
of the trust property, they have a duty to deal with the property in
accordance with the terms of the trust. The partners cannot
purport to bind
third party trustees through their own contract under section 21 or section
21A.72
30.62 Sometimes the courts have been prepared to take a more flexible approach. In M v S partners entered a contracting out agreement under section 21 that purported to deal with trust assets.73 The partners had previously established mirror trusts into which significant assets had been transferred.74 The beneficiaries under the trusts were the partners and their family. The partners
later entered an agreement that provided that, if the partners separated, the mirror trusts were to be resettled on separate trusts under which the partners’ children were to be the sole beneficiaries. One partner sought to challenge the agreement
under section 21J because, among other reasons, the
agreement
73 M v S [2012] NZFLR 594 (HC).
had “wrongly regarded” the trust assets. In response the High
Court said:75
I do not accept the [contracting out agreement] disregarded or wrongly
regarded assets when it came to the [the trust property]. There
is a growing
tendency to treat trusts as transparent for the purposes of a relationship
property agreement. The legal basis for drawing
trust property into a
relationship property assessment is in s 44C of the Act and s 182 of the Family
Proceedings Act 1980.
30.63 The High Court in M v S declined to set aside the agreement
under section 21J based on how the agreement treated the trust property. Other
cases have taken
a similar approach.76
30.64 In other cases, however, the courts have not taken such a flexible approach. In Phipps v Phipps the partners had entered an agreement following a judicial settlement conference in the Family Court.77 The partners did not then implement the
agreement and so the issue was whether that agreement could be viewed as a section 21A agreement. The Court said that a “formidable argument” against treating the agreement as a section
21A agreement was that section 21A could only apply to “property owned
by either or both of the spouses or partners”
and the agreement purported
to deal with property held on trust legally owned by the
trustees.78
30.65 Regardless of the strict legal position, we understand from our
preliminary consultations with lawyers that in many cases
involving trusts, the
partners will agree to a division of the trust property between themselves as
if the property was their own
and the trust did not exist. The partners often
record their agreement in a contracting out agreement. The trustees will simply
accept the
75 M v S [2012] NZFLR 594 (HC) at [76].
76 In T v T [2014] NZFC 5335, [2015] NZFLR 185 the family’s principal income-earning asset was shares held in a company.
The shares were held on a discretionary trust. The trustees were the husband and wife and a third party. When the partners separated, they entered a settlement agreement under s 21A of the Property (Relationships) Act 1976. As part
of the settlement agreement, the wife forfeited her rights under the trust and resigned as trustee. In return, the husband promised to use the income earned from the shares to make certain payments to the wife and purchase a house for her. The husband’s obligations were secured by a general security agreement over the shares in the company held by the trustees. In an application to set aside the agreement under s 21J, the court noted that the s 21A agreement purported
to deal with trust property. The court noted this was trust property, but did
not question that the agreement could legitimately
deal with the property. The
court observed at [68]:
Clearly the parties adopted what could be described as an expedient and pragmatic approach by dealing with the trust property in the agreement. I note that there was no provision to have the parties, in their capacities as trustees and [a third party] in his capacity as a trustee sign any collateral agreement so as to legally bind the trusts to the terms of the agreement.”
77 Phipps v Phipps [2015] NZHC 2626, [2016] NZFLR 554.
78 Phipps v Phipps [2015] NZHC 2626, [2016] NZFLR 554 at [29].
partners’ agreement. We have no evidence to test how widespread
this practice is.
30.66 Some have suggested that there are some, albeit limited, ways for partners to resolve questions about trusts when the trust is a discretionary trust and the trustees are third parties. The authors of Family Property say that a contracting out agreement can simply record the details of the trust, what is happening with the trust property and what each partner will retain.79 The authors also
say that the agreement can be made conditional upon other arrangements in relation to a trust being completed. This could include the trustees agreeing to exercise their discretion in a manner consistent with the agreement. Other commentators and practitioners affirm this approach.80 They say the way to deal with trust property through a contracting out agreement is to refer to the property in the agreement. The trustees are then
recommended to execute separate documents, such as a deed of ratification,
linking the property division in the agreement to the
trustees.81
Can partners settle a claim against a trust through a section 21A
agreement?
30.67 Similar principles apply when a partner makes a claim against a
trust. When a relationship ends a partner may make a claim
against a trust,
such as claims under sections 44 or 44C of the PRA, or under section 182 of the
Family Proceedings Act 1980, or
a constructive trust. The partners cannot bind
third party trustees through a section 21A settlement agreement to use trust
property
to settle the partner ’s claim.82
30.68 Instead, the trustees may sometimes enter an agreement directly with
the partner to settle the claim. Such an agreement would
not be a contracting
out agreement under the PRA. Rather, it would
be a separate agreement exercised pursuant to the trustees’ power
under the Trustee Act 195683 or under the trust instrument to
settle claims relating to the trust.84
Should the PRA be amended to better enable partners and trustees to
resolve matters regarding trusts?
30.69 Based on the law discussed above, the partners cannot bind third
party trustees through their own contracting out agreement.
Usually the
trustees must separately agree to deal with the trust property outside the
framework of the PRA.
30.70 There are, however, advantages if the partners and trustees can resolve all of their property matters at the same time and record that agreement in the same document. Given how often families use trusts to hold key items of family property, like homes,
the treatment of trust property could well form a key part of the partners’ overall bargain about their property matters. It is undesirable for the partners’ agreement to be incomplete in the sense that it depends on a separate ratification by the trustees,
or the trustees to enter a separate settlement agreement with the partner.
The procedure could be made more inexpensive, simple and
speedy if the PRA gave
the partners and trustees the ability to make agreements regarding the totality
of their property matters.
30.71 In any event, it appears from what people have told us during
our preliminary consultation that in many instances the partners and
trustees will treat the trust property like it is the partners’
personal
property. The trustees will simply implement whatever agreement the partners
reach between themselves. It may be desirable
to regulate this practise by
expanding the contracting out provisions in the PRA to include
trustees.
30.72 If the contracting out provisions of the PRA were expanded to enable
partners and trustees to resolve matters regarding
trusts, careful
consideration would be required on several matters, such
as:
83 Trustee Act 1956, s 20(g).
84 For trustees’ powers to engage in dispute resolution, see Robert Fisher “Including Trusts in Relationship Property
Arbitrations” (2014) 8 NZFLJ 76; and Law Commission Court Jurisdiction, Trading Trusts and Other Issues: Review of the
Law of Trusts Fifth Issues Paper (NZLC IP28, 2011) at Chapter 5. The Trusts Bill 2017 currently before Parliament contains provisions regarding the trustees’ ability to participate in dispute resolution processes: Trusts Bill 2017 (290-1), cls
137–142.
(a) What particular matters should the partners and
trustees be able to agree? For example, could the trustees commit through a
section 21 agreement to distribute property to the partners
according to their
respective beneficial interests if the partners separated? What types of claims
could the trustees agree to
settle through a section 21A
agreement?85
(b) Should the trustees be subject to the same requirements under section 21F? Should, for instance, they be
required to obtain independent legal advice?
(c) How should the interests of other beneficiaries under the trust be
protected, particularly if those beneficiaries are minors,
incapacitated or
unascertained?
C ONSU LTATION QUESTION
J8 Should the contracting out provisions in the PRA be amended to enable
partners and trustees to resolve matters regarding trusts?
If so, what would be
appropriate amendments?
Can partners contract out of claims under section
15 of the PRA?
30.73 Some uncertainty exists about whether partners can contract out of section 15 of the PRA. Section 15 provides that if, after the relationship ends, the income and living standards of one
partner are likely to be significantly higher than the other partner due to
the division of functions within the relationship, a
court may order that the
partner with the higher living standards pay compensation to the
other.86
30.74 It is unclear whether an agreement that addresses a claim under
section 15 can be an agreement regarding the “status,
ownership, and
division” of the partners’ property. Although very few cases have
addressed this issue directly, commentators
have suggested that an agreement
under section 21A to settle the partners’ relationship property dispute
can properly address
a section 15
86 Property (Relationships) Act 1976, s 15.
claim.87 Section 21A agreements are used “for the purpose of
settling any differences” that have arisen between the partners
about their property. It is reasonable to suggest that
such an agreement can
settle differences when one partner claims property from the other as
compensation under section 15.
30.75 Commentators are less certain about whether a contracting out agreement under section 21 can effectively deal with a section 15 claim. An agreement under section 21 is made either before or during the relationship. If the agreement addressed a claim under section 15, the partners would effectively make promises either not to make a claim or in terms of how they will resolve a claim. The difficulty commentators identify is that when an agreement
is drafted, the partners cannot predict how to quantify a section
15 claim.88 That is because it is difficult to assess an agreement’s fairness against any future disparity of income and living standards.89 An agreement that deals pre-emptively with a claim under section 15 is vulnerable to a challenge under section 21J
if the agreement becomes unfair as the partners’ circumstances change
during the relationship.90
30.76 We realise that the uncertainty surrounding section 15 claims may
present a challenge to lawyers and partners who draft contracting
out agreements
under section 21. We are unsure, however, whether any reform to the PRA would
resolve what is likely to be an unavoidable
uncertainty. Our preliminary view is
that the contracting out provisions of the PRA are not in need of substantive
reform to address
contracting out of section 15.
C ONSU LTATION QUESTION
J9 Can and should the contracting out provisions in the PRA be reformed to
achieve greater certainty regarding the reliability of
agreements made under
section 21 that address a claim under section 15?
87 John Priestley “Mine, Mine, Mine – Serious Injustice and the Statutory Right to Contract Out” (paper presented to New Zealand Law Society Family Law Conference, Christchurch, October 2001) and Mark Henaghan “Property Relationship Masterclass” (paper presented to LexisNexis Professional Development, 2006) as cited in Amanda Donovan and Jennie Hawker “Section 21 Agreements – Shades of Grey?” (paper presented to New Zealand Law Society Seminar, June 2015).
KiwiSaver scheme
entitlements
30.77 KiwiSaver providers will not deal with a partner ’s entitlements in a KiwiSaver scheme solely because the partners have agreed in a contracting out agreement to divide the entitlements. This is based on a decision of the Banking Ombudsman.91 A husband
and wife had separated and entered a settlement agreement.92 The
wife agreed to transfer her savings from her KiwiSaver scheme to her
husband’s KiwiSaver scheme. The wife’s KiwiSaver
provider refused
to action the transfer. The provider said it required a court order before it
could make the transfer.
30.78 The Banking Ombudsman agreed with the KiwiSaver provider,93 saying that the KiwiSaver funds could not be released under a section 21 agreement. The Ombudsman reasoned that section
196 of the KiwiSaver Act 2006 (which has since been repealed and re-enacted as section 127) provides that KiwiSaver funds may only be released “if required by the provisions of any enactment (including an order made under section 31 of the Property (Relationships) Act 1976)”. The Ombudsman said the
section therefore required an order under section 31 of the PRA to transfer a
partner ’s KiwiSaver scheme entitlement. A section
21 agreement on its own
was insufficient. The Ombudsman explained that a contract represents a
voluntary agreement between at least
two parties, while a court order is a
proclamation determining the legal relationship between the parties.
30.79 It is probable that a court would take a similar view to the
KiwiSaver provider and the Banking Ombudsman.94 This raises
a question of whether the PRA should provide that partners can implement a
division of a partner ’s KiwiSaver entitlements
by a contracting out
agreement made under the PRA.
91 Banking Ombudsman Scheme “Case – 37858: 2013–2014” <www.bankomb.org.nz>.
93 Banking Ombudsman Scheme “Case – 37858: 2013–2014” <www.bankomb.org.nz>.
in a KiwiSaver scheme, the legislation must expressly provide that the interest can be divested. As ss 101 and 102 of the Insolvency Act 2006 provided in general terms that the property of a bankrupt vested in the Official Assignee, the legislation did not expressly require the vesting of a member ’s interest in a KiwiSaver scheme. Consequently, s 127(1) of the KiwiSaver Act 2006 prevented the bankrupt’s interest in the scheme from vesting in the Assignee and s 127(2) did not apply. In light of this judgment, pt 6 of the PRA is probably insufficient to require a KiwiSaver provider to implement a division of a member ’s entitlements in the scheme because of the absence of any express reference in pt 6 to the vesting of a member ’s interest in a KiwiSaver scheme.
30.80 There are several reasons why the PRA should allow partners
to adjust their KiwiSaver entitlements by a contracting out agreement.95 First, given that KiwiSaver schemes have existed for a relatively short time,96 it is reasonable to assume that interests in KiwiSaver schemes will be an increasingly common asset in relationship property divisions. It may be preferable that, if the actual division of a partner ’s KiwiSaver entitlements is required,97 that can happen without the need to apply to a court for orders,
given the principle that matters under the PRA should be resolved as
inexpensively, simply and speedily as possible.98
30.81 Second, other superannuation schemes may be varied by a partners’ contracting out agreement. Section 92(1) of the Government Superannuation Fund Act 1956 provides that a retirement allowance under the superannuation scheme established under that Act is not assignable. Section 92(2),
however, provides that the prohibition does not prevent “the operation of any agreement entered into under Part 6 of the Property (Relationships) Act 1976”. Instead, the section provides that a contracting out agreement is binding in relation to
the scheme, so long as it does not alter the liabilities of and
contributions to the scheme.
30.82 Third, it should be borne in mind that the partners must go
through a reasonably thorough process to create a valid
contracting out
agreement. Section 21F provides that the agreement must be in writing. Each
partner ’s signature must
be witnessed by a lawyer who has given that
partner advice on the
to transfer rights under certain instruments under s 33(1)–(3) or s 33(6) of the PRA: RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.39]. A credible argument could also be made that the PRA gives partners the ability to implement a division of a superannuation scheme entitlement through a contracting out agreement: s 21D(1)(e) provides that a contracting out agreement may prescribe the method by which the relationship property is to be divided. The second potential issue is that s 31 provides that an order under the section may be conditional on the partners entering “an arrangement or deed of covenant” which ensures each partner receives his or her share of the property. Section 31(2) then provides that the partners’ arrangement or deed may be served
on the superannuation scheme manager. The provision does not refer to the court’s order being served on the scheme manager but only the arrangement or deed. Consequently, on a plain reading of s 31, there does not appear to be any requirement that a scheme manager be given notice of the court’s order.
96 KiwiSaver came into full operation on 1 July 2007: KiwiSaver Act Commencement Order 2006, s 2.
98 Property (Relationships) Act 1976, s 1N(d).
effect and implications of the agreement.99 That lawyer must
then certify that he or she has given the partner the advice.100
These safeguards may arguably ensure that a partner ’s KiwiSaver
entitlements are not affected without the member partner ’s
informed
consent. If the partners deliver a contracting out agreement that complies
with the section 21F requirements to a KiwiSaver
provider, the provider may
have sufficient confidence that the proposed dealing with the partner ’s
entitlement is intended
and authorised.
C ONSU LTATION QUESTION
J10 Should the PRA provide that a contracting out agreement made under the PRA requires a
KiwiSaver provider to implement a division of a partner’s KiwiSaver scheme entitlements?
Other issues
Can contracting out agreements be signed and witnessed through audio-video
communication technologies?
30.83 Audio-video communication technologies have advanced in a
way that was probably not foreseen by the original drafters of the
PRA in the 1970s or by those responsible for the amendments
in 2001. A question often asked is whether a lawyer can witness a client
signing a contracting out agreement via an audio-video communication,
such as
Skype.101
30.84 Section 21F(4) simply provides that the signature of each party to
the agreement must be witnessed by a lawyer. The Relationship
Property
Standing Committee of the New Zealand Law Society Family Law Section has said
that section 21F(4) implies that the
witnessing and certifying lawyer is to
be in the physical presence of the party signing the agreement.102 If
the agreement was witnessed via Skype or similar audio-video communication,
the
99 Property (Relationships) Act 1976, ss 21F(3)–21F(5).
100 Property (Relationships) Act 1976, s 21F(5).
101 Ingrid Squire “Certifying s 21 agreements” (2013) 15 Fam Advocate 26; Amanda Donovan and Jennie Hawker “Section 21
Agreements – Shades of Grey?” (paper presented to New Zealand Law Society Seminar, June 2015) at 24–25; and Nicola
Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR21F.07].
102 Relationship Property Standing Committee of the New Zealand Law Society Family Law Section cited in Nicola Peart (ed)
Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR21F.07].
lawyer would risk the agreement being set aside and the lawyer
being sued if the agreement was voided for lack of compliance with section
21F.
30.85 Squire identifies several issues with a lawyer witnessing a signature
through audio-video communications:103
(a) the lawyer cannot be certain the document the partner signs and the
document the lawyer is to sign are the same agreement;
(b) the lawyer cannot know whether the partner is affected by off-screen
influences;
(c) the lawyer may have difficulties verifying the identity of the person
who signs the document; and
(d) there may be issues with the quality of the audio-
video call which may compromise the quality of advice required by the
PRA.104
30.86 Some commentators say there are methods through which a lawyer can legitimately witness the signature so it meets the requirements of section 21F, even though the lawyer is not physically present when a partner signs. Donovan and Hawker suggest that the client could attend another lawyer ’s office at
the client’s location. The witnessing and certifying lawyer would be
connected via a Skype or audio-video connection to the
meeting. The lawyer
physically present at the office with the client can confirm that the client
is alone (so as not to be subject
to off-screen influences) and has with him or
her, a copy of the agreement the witnessing lawyer has
provided.105
30.87 There are obvious advantages to allowing an agreement to be witnessed via audio-video communication. If a client is overseas or it is otherwise very impractical or expensive for the lawyer
to physically attend when the client signs the agreement, audio-video communication may be useful. We agree there are
real concerns with reliability of the witnessing process but,
as
103 Ingrid Squire “To skype or not to skype: that is the question” The Family Advocate (Wellington, Autumn 2014) at 17.
105 Amanda Donovan and Jennie Hawker “Section 21 agreements – Shades of Grey?” (paper presented to New Zealand Law
Society Seminar, June 2015) at 24–25.
Donovan and Hawker explain, there may be ways to mitigate the
risks.
30.88 To date, no case in New Zealand has decided whether a contracting
out agreement signed and witnessed through audio- video
communication meets the
requirements of section 21F.
C ONSU LTATION QUESTION
J11 Should the PRA allow the signature of a party to the agreement to be
witnessed by a lawyer through audio-video communication?
If so, what safeguards
should be put in place to ensure the reliability of the witnessing
process?
Problems in the prescribed form of agreement under section 21E
30.89 When the PRA was amended in 2001, there was debate about whether the
requirement to obtain independent legal advice under
section 21F would be too
costly.106 The Government and Administration Select Committee kept
the requirement for independent legal advice, reasoning that if it was removed,
there was a risk that more agreements would be challenged. This would increase
costs eventually.
30.90 Instead, the Committee proposed section 21E. It aims to “minimise the legal expenses of people who wish to enter” into a contracting out agreement by providing a model agreement that can be used by the parties. Only one model agreement has been provided under the Property (Relationships) Model Form of Agreement Regulations 2001. Regulation 6 provides that the
agreement has no special effect or status just because it is in the
prescribed form; it must be treated the same way as any other
agreement under
section 21.
30.91 The general view is that the model agreement is inadequate.
Franks identifies these problems:107
(a) the agreement is a pre-nuptial agreement under section
21 of the PRA, not a settlement agreement under section 21A;
107 Stephen Franks “ Yes Member: or why the model contracting out agreement is useless” (2001) 3 BFLJ 281; and Nicola
Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR21E.02].
(b) the agreement does not record the partners’
relationship property;
(c) the agreement does not deal with future property; (d) the agreement does not deal with situations where
separate property can be converted into relationship property under sections
9A, 10 or 15A;
(e) the agreement does not deal with compensation for one partner ’s
contributions to the separate property of the other partner
under sections 17 or
17A;
(f ) the agreement does not deal with economic disparity claims under
section 15;
(g) there is no clause relating to full and final settlement;
(h) there is no clause requiring the partners to disclose to each other all
property; and
(i) the agreement does not deal with wills and testamentary
intentions.
30.92 The authors of New Zealand Forms and Precedents give a very
critical appraisal of the model form agreement:108
The model form is, with respect to the statutory draftsperson, not sufficient in many important aspects (it comprises approximately
8 lines of operative text), and should not be employed (nor certified) by
any practitioner. There is a proper basis to suggest that
certification of the
model form would (absent highly mitigating circumstances (such as an express
instruction that the client wishes
to execute the agreement notwithstanding
competent written advice concerning its inadequacies and risks) found a valid
action in
negligence against the certifying practitioner.
30.93 Because of these criticisms it is unlikely any lawyer would draft or certify a contracting out agreement based on the prescribed model form agreement.109 It therefore fails in its principal objective to minimise legal costs. As the authors of Family Property say:110
[a]prudent lawyer would require a number of amendments to the model form,
with the end result being that it would probably be less
expensive if the lawyer
prepared the agreement from scratch.
108 Karen Harvey-Vallee (ed) New Zealand Forms and Precedents (online ed, LexisNexis) at [3010].
109 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [PR21E.03].
30.94 The criticisms of the model form agreement raise the broader
question of whether a template agreement would ever save legal costs. Usually lawyers will have their own precedent documents they prefer to use, given their familiarity with and confidence
in the documents.111 Any template agreement may need to be adapted to the particular circumstances of each relationship and the agreement the partners have reached. The actual drafting
of an agreement is only a portion of the work the lawyer must undertake. A lawyer must give an informed professional opinion on the effect, implications and wisdom of the transaction. To
do this, the lawyer must have reviewed all information or, at the very least, advised that the information is inadequate and further information is needed. The lawyer must have assessed the partner ’s entitlements under the PRA and compared them to
the partner ’s entitlements under the agreement. Our preliminary view
is that no model agreement will reduce the legal costs
of this
exercise.
C ONSU LTATION QUESTIONS
J12 Do you agree that the model agreement prescribed by the Property (Relationships) Model
Form of Agreement Regulations 2001 is inadequate as a precedent?
J13 If the model form agreement was amended to address its deficiencies, could it save legal
costs for partners wishing to contract out?
Should a court have wider powers to give effect to non-complying
agreements?
30.95 Section 21H, discussed at paragraphs 30.37 to 30.40 above, allows a
court to give effect to a contracting out agreement that
does not comply with
section 21F. The test is aimed at capturing circumstances where the partners
intended to create a legally
binding arrangement but failed to do so under the
requirements of section 21F.112
30.96 We have heard in our preliminary consultations that some partners
who separate will make informal agreements to divide their
property without
observing the formalities under PRA. If this is correct, the question is to
what extent an agreement that violates
section 21F should be given
effect.
111 Stephen Franks “ Yes Member: or why the model contracting out agreement is useless” (2001) 3 BFLJ 281 at 281.
112 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [5.73].
30.97 Section 21H may be improved by providing more guidance on
when a court should give effect to a non-complying agreement. Sometimes the courts have acted to protect a partner who has performed a non-complying agreement to his or her disadvantage. In Yates v Yates,113 for example, the partners orally agreed prior
to their marriage that Ms Yates would provide the equity from her home to purchase a new home jointly in the names of the parties. In return, Mr Yates was to make Ms Yates a director and shareholder of the company through which he conducted
business. Ms Yates implemented her side of the agreement and the proceeds from the sale of her home were used to purchase a new house for the partners. Mr Yates, however, did not appoint Ms Yates a director and shareholder. The Family Court said
that neither partner would be materially prejudiced by the enforcement of
the oral agreement. However, the Court said that to consider
the non-complying
agreement ineffective would cause considerable prejudice to Ms Yates as she had
implemented her side of the agreement
without receiving the benefits promised to
her.114
C ONSU LTATION QUESTIONS
J14 Is the test in section 21H for when a court can give effect to a non-complying agreement
set at the proper threshold?
J15 Would section 21H benefit from additional criteria to guide a court on
when a non- complying agreement should be given effect?
If so, what criteria
should there be?
Should a court have the power to vary or uphold a contracting out agreement
in part?
30.98 Section 21J provides that a court may set an agreement aside
if the agreement would cause a serious injustice. If a court sets the
agreement aside, the PRA has effect as if the contracting out
agreement had
never been made. There is no ability for a court to salvage a contracting out
agreement, either by varying the agreement
or by enforcing only part of it.
Section 21J stands in
113 Yates v Yates [2015] NZFC 1141.
court rejected Ms Hazelwood’s argument and held that she would suffer no material prejudice if the agreement was given effect. The court also noted the unfairness of Mr Marquand’s income being brought into the relationship property net, when Ms Hazelwood’s income was never treated as relationship property: at [194].
contrast to section 21H, as section 21H allows a court to give
effect to a non-complying agreement “wholly or in
part”.115
30.99 If partners have attempted to contract out of the PRA, they have
intended to regulate their own affairs differently from
its provisions. Even if
some aspects of the agreement will cause a serious injustice, there may be
elements to their bargain they
may still like to retain. It may be preferable,
therefore, for a court to preserve those aspects of the partners’
agreement.
Alternatively, the partners’ intentions may be better served if
the court could vary an agreement that would cause serious
injustice.
30.100 If the court was given such powers, the PRA may need to give clear
direction on when the court could exercise them. Partners
and their advisers
would require certainty on when an agreement would be varied or set aside
completely. We are mindful too of
the sentiment behind the 2001 amendments to
raise the threshold in section 21J because of the view that the courts were
setting
aside agreements too readily. Our preliminary view is there would need
to be a high threshold before the court varied or partially
saved an
agreement.
C ONSU LTATION QUESTIONS
J16 When exercising its power under section 21J, should a court have the power to set aside an agreement wholly or in part? Should the court have power to vary an agreement?
J17 In what circumstances should the court exercise its powers?
Protecting children’s interests in contracting out and settlement
agreements
30.101 The contracting out provisions of the PRA do not expressly refer to the interests of children. Section 21D sets out what a contracting out agreement may do. It does not, however, require partners to consider the interests of, or provide for, the children of the relationship. It is, therefore, theoretically possible that an
agreement may fail to recognise or provide for the financial needs of the children of the relationship. An agreement could contain terms that disadvantage children.
30.102 By contrast, if the court decides how the partners’ property is
to be divided, it has jurisdiction to make certain orders
to
protect
115 Property (Relationships) Act 1976, s 21H(1).
the interests of children. Notably, section 26 requires the court to
“have regard” to the interests of any minor or dependent
children in any proceeding under the PRA and if it considers
it just, the court
may make an order settling any property for the benefit of the
children.
30.103 In recent years the Law Commission of England and Wales has explored whether pre-nuptial agreements should be recognised under English and Welsh law. Throughout the review process, the Commission was guided by the principle that parties should not be allowed to contract out of their responsibility for any children and that reforms should not disadvantage children and those
who care for them.116 The Commission ultimately recommended that a qualifying agreement should displace a court’s discretion to award ancillary relief under the Matrimonial Causes Act 1973.117
However an agreement would not be valid if it was detrimental
to the interests of the children of the family.118 We recognise
that in the United Kingdom, a court’s first consideration is the welfare
of minor children.119 New Zealand law differs because the
PRA’s primary focus is the partners’ entitlement to an equal share
of relationship
property.
30.104 We have not come across any information or commentary in
New Zealand on the extent to which children in New Zealand are disadvantaged
through contracting out agreements. This suggests there
may not be a significant
problem. Parents cannot contract out of their basic legal obligations towards
children. For example, a
partner cannot exclude his or her minimum child support
or guardianship obligations through a contracting out agreement under the
PRA.120 We note, however, that children’s interests may
need to be given greater priority in the division of relationship property.
We consider this question in depth in Part I.
C ONSU LTATION QUESTION
116 Law Commission of England and Wales Matrimonial Property Agreements: A Consultation Paper (Consultation Paper No
198, 2010) at [1.7], [1.48] and [3.26].
117 Law Commission of England and Wales Matrimonial Property, Needs and Agreements (LAW COM No 343, 2014) at [5.87].
118 Law Commission of England and Wales Matrimonial Property, Needs and Agreements (LAW COM No 343, 2014) at [5.87].
119 Law Commission of England and Wales Matrimonial Property Agreements: A Consultation Paper (Consultation Paper No
198, 2010) at [1.14] and [1.32].
J18 Should the interests of children be a consideration when partners contract out of the
PRA?
30.105 If there is a material problem with protecting children’s
interests in contracting out agreements, the PRA could be
amended to provide
additional safeguards. We consider two options below.
Option One: Amend section 21D to require partners to have regard to the
interests of their children
30.106 Section 21D could contain an additional provision that requires all
partners who enter a contracting out agreement to “have
regard to”
the interests of their children (similar to the language in section 26), or to
ensure that they have made “adequate
provision” for the needs of
their children. The standard of adequate provision is, however, difficult to
define. Inevitably
it will depend on the circumstances of every family.
30.107 Any duties imposed by section 21D should follow the wider provisions
in the PRA. In Part I of this Issues Paper, we explored
wider options for reform
that could be made to the PRA regarding the interests of children. The precise
nature of any new provision
imposing a duty to provide for the needs of their
children when entering a contracting out agreement should reflect the preferred
option from those we identified in Part I.
Option Two: Amend section 21J(4) to expressly state a court may set aside
a contracting out agreement which harms the children’s
interests
30.108 There is scope for a court to consider the interests of children when faced with an application under section 21J. Section 21J(4) (f ) provides that a court may consider “any other matters that the court considers relevant”, which could include the interests of children. Section 26 provides that in PRA proceedings, a court
must have regard to interests of any minor or dependent children of the marriage, civil union or de facto relationship. Under the current wording of section 21J(4), however, a court must have regard to other competing matters, such as the fact that the parties to the relationship (the children’s parents) wished to
achieve certainty.121
121 Property (Relationships) Act 1976, s 21J(4)(e).
30.109 It is conspicuous that section 21J does not expressly state that a
court is to consider the interests of children who may be affected by that agreement. The matters set out in section 21J(4) can also be contrasted with other sections of the PRA in which, when considering how it will exercise its powers, a court must have regard to the position of children, such as sections 15 (economic
disparity awards), 28A (occupation orders), 28C (furniture orders), and 44C
(compensation for property disposed of to a trust).
There is also the
PRA’s overarching purpose to provide for a just division of relationship
property, while taking account of
the interests of
children.122
30.110 It may be possible for children’s interests to be overlooked when partners enter into a contracting out agreement, especially if they enter a section 21 agreement before any children are born. The agreement is solely between the partners. It will organise their affairs differently from the PRA’s protective provisions. If they take no issue with the agreement, the bargain will not be scrutinised
by third parties such as the court. It may therefore be the case that the
interests of children are severely disadvantaged, but
the agreement is never
questioned. Arguably, a court should have a remedial jurisdiction to set aside
an agreement when it is against
the interests of children, and this should be
emphasised in the wording of section 21J.
C ONSU LTATION QUESTIONS
J19 Should partners be required to have regard to the interests of
children, or make provision for the needs of their children,
when entering into
a contracting out agreement under the PRA?
J20 Should section 21J(4) expressly direct the court to consider the
interests of children when assessing whether giving effect
to a contracting
out agreement would cause serious
injustice?
CONTRACTING OUT
Part K –
Should the PRA affect the rights of creditors?
Chapter 31 – The PRA and
creditors
Introduction
31.1 The focus of this part is how the PRA deals with the rights of creditors. Partners in a relationship will usually carry debt, either individually or jointly. For example, one partner might have purchased a television on hire purchase or the partners
might buy a car through a finance arrangement which is paid off in
instalments. A mortgage over the family home is a common example
of the debt
partners might still have at the end of the relationship.
31.2 The general position taken by the PRA is that the rights of
creditors are not affected by the PRA. There are, however, some
limited
exceptions to this general rule.
31.3 In this Part, we address:
(a) The general rule that the rights of creditors are not affected by
the PRA;
(b) the exceptions to that rule; and
(c) issues with the way the PRA treats creditors’ rights and
possible options for reform.
The rights of creditors under the PRA
The general rule – the rights of creditors are not affected by the
PRA
31.4 Two key sections in the PRA govern the relationship between partners’ relationship property entitlements and the rights of creditors.
31.5 The first provision is section 19, which is fundamental to the
overall scheme of the PRA. It states that, unless the PRA expressly
provides to the contrary, nothing in the PRA:
(a) affects the title of any third person to any property, or the power of
either partner to acquire, deal with, or dispose of
any property, or enter any
legal transaction as if the PRA had not been passed; or
(b) limits or affects the operation of any mortgage, charge, or other
security for the repayment of a debt given by either partner
over the property
he or she owns.
31.6 Section 19 preserves each of the partner ’s rights to deal with their property as if the PRA had not been passed, including incurring debts and using their property as security. As section 19 clarifies, this general rule is subject to the other provisions of the PRA.
The principal limitations of this general rule are the PRA’s rules of division when the relationship ends. The PRA is often called a “deferred” regime, because its rules of property division only apply after the partners have separated. Until that point in time, section
19 preserves the partners’ rights to deal with their property.
Conversely, section 19 protects the rights of the creditors
with whom the
partners deal.
31.7 The second provision is section 20A. Section 20A is in very similar
terms to section 19. It provides that the secured and
unsecured creditors of
a partner have the same rights against that partner as if the PRA had not
been passed.1 Like section 19, section 20A is subject to the other
provisions of the PRA.
31.8 The general effect of section 19 and section 20A is to provide that
creditors suffer no prejudice to their rights unless
the PRA expressly
provides to the contrary.
Exceptions to the general rule
31.9 There are only limited instances where the PRA affects the rights of
creditors. We set out the main provisions below, although
there are other lesser
ways in which creditors’ rights might be
affected.2
Protected Interest in the Family Home – section 20B
31.10 Section 20B(1) provides that every partner has a protected interest
in the family home.3 Section 20B(2) provides that the protected
interest of a partner is not liable for the unsecured debts of the other
partner.4 In other words, if the creditors of one partner claim the
entirety of the family home in satisfaction of that partner ’s debts,
the other partner ’s interest will take priority to the extent of the
protected interest.
31.11 The value of the protected interest is the lesser of either half the
equity in the family home5 or the “specified sum” as set
by regulations under section 53A. The specified sum is currently set at
$103,000.6
31.12 The rationale behind section 20B is clear. The drafters of the PRA saw the family home as the principal family asset that would constitute relationship property under the equal sharing regime.7
It therefore deserved particular attention.8 In a White Paper accompanying the Matrimonial Property Bill 1975 the Minister of Justice explained that the basic philosophy of the protected
interest provision was that matrimonial property should not be
The Court observed that the agreement conferred considerable benefits on the company and therefore its rights should be properly confined by the agreement made under the Property (Relationships) Act 1976.
1976, s 20B(2).
6 Property (Relationships) Specified Sum Order 2002, cl 3.
seized to satisfy the purely personal creditors of the other spouse.
Otherwise, the Minister reasoned, “a husband, for example, by mounting
up excessive debts, could jeopardise not merely what
is his, but what in terms
of the Bill belongs to his wife.”9
31.13 The PRA’s rules relating to a partner ’s protected
interest are based on the Joint Family Homes Act 1964 (JFHA).10 The
JFHA allows married partners to register the ownership of their home in their
joint names.11 The JFHA does not apply to partners in a civil union
or de facto relationship. Once registered, the JFHA gives a spouse’s
interest
in the family home priority over the unsecured creditors of the other
spouse.12 Like the PRA, the JFHA protects a spouse’s interest
in the home to the extent of a “specified sum”.13 The
current specified sum is $103,000.14 The specified sums under the
JFHA and the PRA have been set in tandem.
Notices of Claim – section 42
31.14 Section 42 of the PRA allows a partner with a claim or interest in land under the PRA to register a notice on the title of the land. A notice of claim has been described as a “stop sign” because when registered on the title to land it prevents dealings with the land.15
A notice of claim may affect the rights creditors claim to the land,
particularly if the creditor ’s interest in the land
is unregistered or if
it has been registered after the notice of claim is lodged.
31.15 Section 42(5) provides that a notice can be registered even though
no PRA proceedings are pending or in contemplation.
There may not even be a
dispute between the partners. Section 42 therefore alters the general rules in
sections 19 and 20A that
the claims of a
12 Joint Family Homes Act 1964, s 9(2)(d).
13 Joint Family Homes Act 1964, s 16(5). The specified sum can be set by the Governor-General by Order in Council.
14 As set by cl 3 of the Joint Family Homes (Specified Sum) Order 2002.
creditors.
31.16 Price v Price is a good example of how creditors’ rights
may be affected.16 Mr Price borrowed money from a bank. The loan was
secured by a mortgage over a house owned by Mr Price. Mr and Mrs Price
separated
and Mrs Price lodged a notice of claim against the title to the
house. After the notice was lodged, the bank made further advances
to Mr
Price. When Mr Price defaulted on the mortgage, the bank sold the property
through its mortgagee’s power of sale. The
bank applied to remove the
wife’s notice of claim. The issue before the High Court was what effect
Mrs Price’s notice
of claim had on the bank’s rights. The Court
said that the notice of claim gave Mrs Price priority over the bank regarding
the advances the bank had made after Mrs Price lodged her notice. This meant
that Mrs Price could have her interest in the family
home determined and given
priority over the rights of the bank to recover the unpaid subsequent
advances.17
31.17 Creditors whose rights are registered before a notice of claim is
lodged can exercise their legal rights despite the notice.
The position of
creditors is further protected by section 46. That section provides that
rights conferred on a partner by any
order made under the PRA are subject to
the rights of secured creditors if the security was registered before the
order was made,
or if the rights arise under an instrument executed before the
order was made.
31.18 In M v ASB Bank Limited, one of the partners had mortgaged his
property.18 The mortgage was in his sole name. In PRA proceedings,
the Family Court granted the other partner an occupation order. She registered
a
notice of claim against the property to protect her interest under the
occupation order. The non-occupant partner then ceased
making payments under
the mortgage (which the Court considered led to an arguable case he had
engineered a default under the
mortgage to defeat his former partner
’s rights). The bank exercised its power of mortgagee sale and sought
orders removing
the occupant partner ’s notice of claim so the sale
could proceed.
16 Price v Price [1995] 3 NZLR 249 (HC).
17 Price v Price [1995] 3 NZLR 249 (HC) at 256.
18 M v ASB Bank Limited [2012] NZCA 103, [2012] NZFLR 641.
gave priority to the rights of a secured party under an instrument
executed before an order is made. The bank’s rights took priority over
the partner ’s occupation order.19
Transactions made to defeat a partner’s claim or rights under the
PRA – section 43 and section 44
31.20 Sections 43 and 44 of the PRA apply where a disposition of property is about to be made (section 43) or has been made (section 44) to defeat a partner ’s claim or rights under the PRA. A court has power to restrain the impending disposition under section 43, or order under section 44 that property already disposed of be recovered or compensation for its value paid.
A creditor may be party to a transaction intended to defeat a partner
’s rights under the PRA and, in such circumstances,
the creditor ’s
rights may be denied under sections 43 or 44 of the PRA.
31.21 Sections 44 does, however, protect the position of the person to
whom the disposition of property is made, if the property
is received in good
faith and the recipient has altered his or her position in reliance of having an
indefeasible interest in the
property.20
31.22 In M v ASB Bank Limited, discussed above, the bank sought to sell
a mortgaged property by mortgagee sale even though the property was subject to an occupation order. The occupant partner claimed that the bank was acting with intent to defeat her rights under the PRA and the impending sale should be restrained under sections
43 and 44 of the PRA. The bank argued that its rights under section 46
should take priority. Importantly, section 46 states it
is subject to
sections 42 to 44. The question was whether the bank’s rights under
section 46 were displaced by sections 43
and 44.
31.23 The Court of Appeal said that the bank’s power of mortgagee sale could not be a disposition of property under section 43 because
the bank was not a party to the Family Court proceedings between
the parties.21 Nor had it colluded with the mortgagor
partner
19 M v ASB Bank Limited [2012] NZCA 103, [2012] NZFLR 641 at [20]–[22].
20 Property (Relationships) Act 1976, s 44(4).
could not apply. Likewise, section 44 could not apply because the
Court found that the bank was attempting to sell the mortgaged property to
recover a debt that had fallen due.23 It was not acting with an
intention to defeat the occupant partner ’s rights.
31.24 The Court also said that, because of the bank’s legitimate
rights, the sale of the property could not be subject
to a condition allowing
the occupant partner to reside in the property until the Family Court
proceedings had been determined.24
31.25 Usually creditors will seek to exercise their rights of recovery in a similar manner to the bank in M v ASB Bank Limited. It
may therefore be uncommon that the rights of creditors will be affected by
sections 43 or 44.
Agreements to defeat creditors
31.26 The PRA addresses the situation where partners make an agreement between themselves regarding their property which defeats the rights of creditors. The situation is dealt with by section 47. The courts have said that because the PRA governs all transactions between the partners,25 all other legislation is subject to the PRA.26 The general law of insolvency will not apply in this context.27 Rather, all questions about the validity of an agreement or transaction between the partners must be dealt with by section
47.
31.27 Section 47(1) provides that any agreement, disposition or other transaction between the partners regarding their relationship property and intended to defeat the interests of the creditors
of either partner is void against those creditors and the Official Assignee. This provision is focused on the partners’ intentions and whether the loss to creditors was deliberate. If section 47(1) applies, the entire agreement or transaction is void.
31.28 Section 47(2) focuses on the effects of the transaction rather than
the partners’ intentions. It provides that an
agreement,
22 M v ASB Bank Limited [2012] NZCA 103, [2012] NZFLR 641 at [43]–[44].
23 M v ASB Bank Limited [2012] NZCA 103, [2012] NZFLR 641 at [53]–[54].
24 M v ASB Bank Limited [2012] NZCA 103, [2012] NZFLR 641 at [63].
25 Property (Relationships) Act 1976, s 4.
26 Official Assignee v Williams [1999] NZCA 364; [1999] 3 NZLR 427 (CA).
27 The general law of insolvency is primarily governed by the Insolvency Act 2006 and the Property Law Act 2007.
effect of defeating creditors is void against such creditors and the
Official Assignee “during the period of two years after it is
made”.
31.29 There has been uncertainty about the meaning of the two year period referred to in section 47(2). The Supreme Court considered the issue in Felton v Johnson.28 Mr Johnson, through a company, had entered several franchise agreements for distributing a product. Several franchisees expressed dissatisfaction, although at first no litigation was threatened against Mr Johnson personally. Mr and Mrs Johnson entered a relationship property agreement under Part 6 of the PRA. Under the agreement, Mrs Johnson took
a greater share of the relationship property.29 Four years later
the franchisees commenced litigation against Mr Johnson personally and sought
to set aside the relationship property
agreement.
31.30 The question before the Court was whether the reference to the two year period in section 47(2) prevented the creditors from setting aside Mr and Mrs Johnson’s agreement. The Court considered two possible interpretations of section 47(2). The first was that the two year period was a limitation period, meaning affected creditors had only a two year period after the agreement was made to treat the agreement as void. The second interpretation was that the two year timeframe was a period in which to determine which creditors could treat an agreement
as void. The agreement could only be set aside by a creditor if it became a
creditor during the two year period after the agreement
was made.
31.31 The Supreme Court favoured the first interpretation. The Court
reasoned that an agreement would only be void if a creditor
elected to treat
it as void within two years of the date of the agreement.30 The Court
said that, as none of Mr Johnson’s creditors did anything during the
two year period after Mr and Mrs Johnson
made their agreement, they could not
now seek to challenge the agreement under section
47(2).31
28 Felton v Johnson [2006] NZSC 31, [2006] 3 NZLR 475.
47(2) of the Property (Relationships) Act was to be interpreted the same way: an agreement could only be treated as void if a creditor elected to treat an agreement as void.
31 Felton v Johnson [2006] NZSC 31, [2006] 3 NZLR 475 at [23].
if the agreement moves property between the partners in such
a way as to deplete the resources of one partner available to
creditors.32 If a partner has provided money or other property of
the same value as the property he or she has received from the other partner,
the effect of the agreement will not defeat creditors. The creditors will have
the same total resources of the partner available
to them as they had
before.33
31.33 Section 47(3) provides that when the partners have separated and
entered an agreement under the PRA to settle their rights
to property, the
agreement is “deemed to have been made for valuable
consideration”.34
Issues with the way the PRA treats the rights of creditors
General policy of the PRA
31.34 The general policy of the PRA is that the rights of creditors should remain largely unaffected by the operation of the PRA, except
for limited exceptions. Through our research and preliminary consultation, we
have found little criticism of the general priority
given to creditors under
the PRA.
31.35 There are obvious merits to upholding creditors’ rights. Usually creditors will be independent third parties who have provided goods or services to either or both partners. In return for the value they have provided, creditors will expect payment under the contractual agreement they have entered. Pending payment, creditors will sometimes receive rights to security. It is arguably unfair that, having benefitted one or both partners, the creditor should have his or her rights affected.
31.36 Any amendment to the PRA that alters creditors’ rights could
have significant implications. If the rights of creditors
under the
PRA
32 Neill v Official Assignee [1995] 2 NZLR 318 (CA) at 323 per Richardson J.
33 Neill v Official Assignee [1995] 2 NZLR 318 (CA) at 323 per Richardson J.
that lenders’ credit practices would
change.
31.37 An absolute priority for creditors’ rights may, however, cause unfairness in certain circumstances. M v ASB Bank Ltd (discussed above) exemplifies particular difficulties that may arise.35 There
the Court said the bank’s right to sell the mortgaged property took
priority over the partner ’s right to occupy the
house even though she
had been granted those rights by a Family Court order.
31.38 The PRA attempts to address the potential unfairnesses in some cases by apportioning the debt between the partners through the division of the relationship property, but this may be a hollow remedy. For example, partners may incur personal debts for which both are jointly liable, such as credit cards linked to a joint bank account. Under the PRA’s rules, the bank may hold each partner jointly liable for the credit card debt. In those circumstances, section 20E may apply. It provides that where one partner has
paid a personal debt from relationship property, the court may order that the other partner receive compensation or a greater share of relationship property. This may be an adequate remedy for partners with sufficient relationship and separate property
at their disposal from which to pay compensation. However, for other
partners their property will be insufficient and the only
meaningful remedy a
partner can enjoy is to be relieved of liability to the creditor in respect of
the other partner ’s personal
debts.
31.39 Despite these issues, we know that any changes to the PRA’s
provisions regarding the rights of creditors should
not be made lightly. We
therefore seek submissions on whether the way the PRA treats creditors is
appropriate, or if any specific
problems justify reform.
C ONSU LTATION QUESTION
K1 Is the way the PRA treats creditors appropriate or are there specific problems that justify
reform?
Role of the Joint Family Homes Act 1964
31.40 There is considerable overlap between the PRA and the JFHA. The
PRA classifies the family home as relationship property.36
This
35 M v ASB Bank Limited [2012] NZCA 103, [2012] NZFLR 641.
36 Property (Relationships) Act 1976, s 8(1)(a).
partners. It is a very similar result to registering a home under
the JFHA. Likewise, the PRA adopts the protected interest scheme from the
JFHA.
31.41 The Law Commission reviewed the JFHA in 2001 and recommended that
it be repealed.37 The Commission noted how the overlap with the PRA
had led to the “evaporation” of many of the original benefits under
the JFHA.38 The Commission gave additional reasons for recommending
repeal, including:39
(a) the protection against creditors was of little practical use as most
homes registered under the JFHA were mortgaged and the
rights of secured
creditors remained unaffected;
(b) the fixed specified sum resulted in geographical inequality and often
fell short of providing the equity for a home of
a reasonable minimum
standard;40
(c) the Commission reported a significant decrease in the number of
registrations under the JFHA in the years preceding its report;
(d) it was open for the partners to use other devices to protect the home,
like a trust; and
(e) the JFHA was arguably discriminatory as it did not apply unless the
partners were married.41
31.42 Since the Commission’s report, the removal of gift duty has
also reduced the benefits of settling homes under the
JFHA.42
31.43 The issues with the JFHA continue. In recent years, the rate of
registrations under the JFHA has further decreased (although
some married
partners do continue to register their homes under the
JFHA).43
37 See Law Commission The Future of the Joint Family Homes Act (NZLC PP44, 2001); and Law Commission The Future of the
Joint Family Homes Act (NZLC R77, 2001).
38 Law Commission The Future of the Joint Family Homes Act (NZLC PP44, 2001) at [17].
39 Law Commission The Future of the Joint Family Homes Act (NZLC R77, 2001) at [8] and [15].
40 Law Commission The Future of the Joint Family Homes Act (NZLC R77, 2001) at [9].
41 Law Commission The Future of the Joint Family Homes Act (NZLC R77, 2001) at [12].
42 Gifts made after 1 October 2011 have not attracted gift duty: Taxation (Tax Administration and Remedial Matters) Act
2011, s 245.
43 In 2012, the Joint Family Homes Repeal Bill 2012 (2-1) was introduced to Parliament as a Member ’s Bill. In addition to the reasons given by the Law Commission, the reasons given in the explanatory memorandum of the Bill for repealing the Joint Family Homes Act 1964 included the low rate of registrations. The decrease in registrations suggested little
31.44 In 2012, the Joint Family Homes Repeal Bill 2012 was introduced
to Parliament as a Member ’s Bill. The Bill was not enacted. The Parliamentary select committee that considered the Bill reported that it should not be passed because there needed to be a mechanism of preserving the rights under the approximately
36,000 existing registrations.44
31.45 We recognise that the continued existence of the JFHA is not
critical to our review of the PRA. We nevertheless question
its continued place
in the statute books. The reasons for which the Law Commission previously
recommended the repeal of the JFHA
remain valid.
Should there be a protected interest in the family home?
31.46 The philosophy behind the protected interest in the family home is that one partner ’s share of relationship property should not
be seized to satisfy the purely personal creditors of the other partner.45 Our preliminary view is that the PRA should continue to provide partners with a protected interest in some form. The protected interest recognises that a partner ’s rights and interests under the PRA should prevail against the rights of the other partner ’s unsecured creditors to the extent of that protected
interest. This philosophy is implemented in the PRA by granting a partner priority in the family home to the lesser of half its equity or the specified sum of $103,000.46 Several issues arise in the way
the protected interest attaches to the family
home.
support for the scheme: see Joint Family Homes Repeal Bill 2012 (2-1) (select committee report) at 2. In recent years,
the number of registrations of joint family homes under the Act have been as follows: 2007: 424 registrations; 2008: 354 registrations; 2009: 294 registrations; 2010: 292 registrations; 2011: 187 registrations; 2012: 164 registrations; 2013: 114 registrations; 2014: 127 registrations; 2015: 94 registrations; and 2016: 86 registrations: email from Land Information New Zealand to the Law Commission regarding data on joint family home registrations under the Joint Family Homes Act 1964 (1 May 2017).
of the Joint Family Homes Act (NZLC R77, 2001) at [22].
46 Property (Relationships) Act 1976, s 20B.
Rates of home ownership are decreasing
31.47 The rate of home ownership in New Zealand has been in decline since 1991, when it peaked at 74 per cent.47 In the 2013 census,
64.8 percent of households responded that they owned their home.48
The decline in home ownership over the last 25 years has been
attributable to a range of factors that have seen house prices increase
at a
rate that has outpaced rises in average household income.49
31.48 Sections 11B, 20B(1)(b) and 20B(3) attempt to provide for a protected interest when the partners have no family home.50
Section 11B provides that where there is no family home, or the home is not owned by either partner, the court must award each partner an equal share in the relationship property “as it thinks just to compensate for the absence of the family home”. Section
20B(1)(b) then provides that a partner ’s protected interest applies
to the property shared under section 11B.
31.49 The fundamental difficulty is that section 11B is very unlikely
to apply when creditors claim against the partners’ relationship property. This is for two reasons. First, the court will make a compensatory order under section 11B only when a partner applies for division orders under section 25. If the partners have not separated neither partner would seek an order under section
11B. Second, in the ordinary course of property division, there seems little point in section 11B because all relationship property is divided equally in any event.51 Even if the partners separated and one partner had applied for division under section 25, the court would seldom, if ever, make a compensatory award of
relationship property under section 11B.
47 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 7.
48 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 7.
49 Law Commission Relationships and Families in Contemporary New Zealand: He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 7.
50 Section 20B(1)(a) of the Property (Relationships) Act 1976 also provides that where the family home has been sold, a partner has a protected interest in the sale proceeds. As the proceeds of sale are relatively easy to identify (at least in cases where there has been no intermingling), section 20B(1)(a) is easier to apply than section 20B(1)(b).
51 This observation was made by the Family Court in P v P [2003] NZFLR 925 (FC) at [106]. The provision appears to have endured from the Matrimonial Property Act 1976 prior to its amendment in 2001. The former iteration of the rules
of division prior to 2001 provided that the family home and family chattels were to be divided equally, whereas the remainder of the partners’ relationship property was to be divided in accordance with their contributions: Matrimonial Property Act 1976, s 11. It therefore made sense that the partners were to share equally in an amount of substitute relationship property.
31.50 Nevertheless, section 20B(1)(b) provides that, where section 11B
applies, a partner has a protected interest in “the property shared
under that section”. If the court has not ordered
that property be
shared under section 11B, there would be no property to which the protected
interest will attach.
31.51 As home ownership looks to be decreasing, and because the protected interest is unlikely to apply when the partners have
no family home, its benefits will apply to fewer partners. There is arguably
an anomaly that the PRA confers greater protections
on some partners simply
because their partners have invested in a home rather than other types of
property.
The ‘specified sum’ is inadequate and leads to geographical
inequalities
31.52 The value of a partner ’s protected interest in the family home
under section 20B of the PRA is the lesser of the “specified
sum”
(currently $103,000) or half the equity in the family home.52
31.53 It is not clear on what basis the specified sum is calculated.53 It appears, however, that the specified sum under the PRA should fulfil the same role as the specified sum under the JFHA.54 Case law under the JFHA has established that the purpose of the specified sum is to represent the equity required for a house of a
reasonable minimum standard.55 The specified sum under the PRA
is probably intended to represent the same value.
31.54 The specified sum was set in 2002. It has not been increased even though the equity required for a house of a reasonable minimum standard in New Zealand today has increased markedly since
2002. Since mid-2012 alone, nationwide house prices have risen over 33 per cent (which has been underpinned to a large degree by rapid house price inflation in Auckland and post-earthquake
accommodation shortages in Christchurch).56
52 Property (Relationships) Act 1976, s 20B(3).
55 Official Assignee v Lawford [1984] 2 NZLR 257 (CA) at 265 per Cooke J.
56 Elizabeth Kendall New Zealand house prices: a historical perspective (Reserve Bank of New Zealand, Bulletin 79(1), January
2016) at 3.
31.55 When the Law Commission considered the adequacy of the
specified sum in its review of the JFHA in 2001, the Commission criticised
the specified sum for taking no account of the regional
differences of housing
costs.57 The regional differences in housing costs are likely to be
greater in New Zealand today. The Reserve Bank reported that, between
mid-2012
and January 2016, Auckland house prices increased by 52 per cent, but house
prices in the rest of New Zealand increased
by only 11 per cent.58 By
the end of 2015, house prices in Auckland were roughly double house prices in
the rest of New Zealand (although other urban centres
such as Wellington also
have relatively high house prices).59
31.56 In considering a better approach, the Law Commission concluded that
it would be impossible to devise a specified sum that
was suitable
nationwide.60 The Commission also rejected a submission that the
specified sum be based on the percentage of the net value of a property. The
Commission said it was difficult to justify an arrangement that would
“reward the conspicuous consumption of a crashed commercial
high-flyer
more generously than the modest housing expenditure of a small
tradesman”.61
31.57 In advice to the Parliamentary select committee considering the
2001 amendments, the Ministry of Justice said that the difficulties of basing the specified sum on a percentage may cause partners
to misuse the protections to defeat the interests of creditors.62
The Ministry explained that partners may prioritise building the equity in
the family home to maximise the non-debtor spouse’s
protected interest.
They might for example purchase a home more expensive than they reasonably
need. They may have an incentive
to repay their mortgage at a faster rate or
spend money on improvements to the home at the expense of other
creditors.
31.58 We consider these issues are significant. If the specified sum
should represent the equity required for a house of a reasonable
minimum
standard, there are real questions as to whether this can be achieved,
particularly in way that is fair nationwide.
57 Law Commission The Future of the Joint Family Homes Act (NZLC R77, 2001) at [15].
58 Elizabeth Kendall New Zealand house prices: a historical perspective (Reserve Bank of New Zealand, Bulletin 79(1), January
2016) at 12.
59 Elizabeth Kendall New Zealand house prices: a historical perspective (Reserve Bank of New Zealand, Bulletin 79(1), January
2016) at 11.
60 Law Commission The Future of the Joint Family Homes Act (NZLC R77, 2001) at [15].
61 Law Commission The Future of the Joint Family Homes Act (NZLC R77, 2001) at 8.
62 Ministry of Justice Matrimonial Property Amendment Bill – Departmental Report Clause by Clause Analysis (Ministry of
Justice, MPA/MJ/4, 2 March 1999) at 16–17.
The family home will often be mortgaged
31.59 The protected interest may seldom apply often because it does not take priority over secured creditors. As the Law Commission observed in its review of the JFHA, the effectiveness of the protected interest provided by the JHFA is limited because it only prevails above the claims of unsecured creditors.63 Likewise, the protected interest under section 20B of the PRA only applies against unsecured creditors. It is possible that, where one partner is heavily indebted and facing recovery action from creditors, the family home will already be mortgaged in respect of those debts.
In those circumstances, the protected interest may be of little use. There have been few cases where a partner ’s protected interest
has been an issue for the court to consider. This suggests that the
protected interest is seldom invoked.
Should the approach to classification of relationship property be
changed?
31.60 In Part C we consider whether the PRA’s approach to the classification of relationship property should be amended. We contemplate whether the current approach under which the family home is classified as relationship property (the
“family use” approach) should be changed. Instead, we consider
whether an approach that focused on property that the
partners acquired
during or as a result of the relationship (the “fruits of the
relationship” approach) would be
a better way to classify relationship
property.
31.61 If the PRA’s definition of relationship property was reformed to a “fruits of the relationship” approach, the family home would no longer automatically be designated as relationship property.
Consequently, the protected interest provisions under section 20B
would also need amendment.
Should the protected interest continue to apply to the family
home?
31.62 Despite the problems with attaching a partner ’s protected interest to the family home, for many partners the family home is likely
to continue to be the partners’ principal asset. Similarly,
the
63 Law Commission The Future of the Joint Family Homes Act (NZLC R77, 2001) at [8].
home is likely to be a significant source of property from which
to satisfy creditors’ claims. There may be good reason to single out the family home as an asset deserving special protection,
such as the importance of the home to children.64 Furthermore, it
may be simpler to identify the extent of a partner ’s interest in a home
rather than in a less discernible
global pool of relationship property.
31.63 On the other hand, in light of the problems we have identified with the protected interest attaching to the family home, reform may be required. It may be better that a partner ’s protected interest should apply to all types of relationship property.
That will probably be necessary if the PRA’s approach to the
classification of relationship property is changed. If a partner
’s
protected interest is to apply to relationship property generally, consideration
will need to be given to the appropriate
extent of the protected
interest.
C ONSU LTATION QUESTIONS
K2 Should the PRA continue to provide a partner with a protected interest that takes priority
against the other partner’s unsecured creditors?
K3 If so, should the protected interest apply to the family home or to
relationship property generally?
K4 What should be the extent of the protected interest?
Is the Section 42 Notice of Claim procedure adequate?
31.64 Section 42 is a significant provision. It is one of the major
exceptions to the general rules on which the PRA is built.
In particular, a
partner can register a notice under section 42 at any point during the
relationship, despite the rule that
partners’ rights under the PRA are
deferred until they separate and their property is divided. As a notice under
section
42 can prevent dealings with land, it can affect the rights of
creditors whose claims against the
proceeds on the basis that the home itself would be sold and the sale proceeds divided among the partner and unsecured creditors.
42.65
31.65 We observe in Part D that the notice of claim procedure appears to be widely used, and that, despite the significance of section
42, we have encountered little criticism with the notice of claim
procedure.66 The policy reason for section 42 and the consequences
that notices of claim have for third parties appear, from our research and
preliminary consultation, to be largely accepted.
31.66 Any criticisms focus on the fact that section 42 is another instance where the PRA gives partners’ interests in the family home special protections that are not available in respect of other property.67 As we have commented elsewhere in this Part, the
way the PRA gives special protections to the family home may be arbitrary,
particularly as rates of homeownership in New Zealand
are
decreasing.68
C ONSU LTATION QUESTION
K5 Should the PRA continue to provide partners with the ability to lodge
notices of claim in respect of land in which they claim
in an interest? Why or
why not?
Difficulties in applying section 47(2)
31.67 In Felton v Johnson, the Supreme Court said the reference to
the two year period in section 47(2) should be interpreted as a limitation
period. Creditors must challenge an agreement within
a two year period after
the agreement is made if the agreement
court grants orders dividing the land under the Property (Relationships) Act 1976 (PRA). Consequently, a right under the
PRA was essentially a future interest which could not be used to support a caveat.
67 We note, though, that land is distinct because it is already subject to a registration system under the Land Transfer Act
2017. It is therefore more practical for a partner to register a notice of interest in respect of land than it is in relation to other types of property that are not subject to a registration system.
68 See above at paragraphs [3131.47]–[3131.51].
is to be void against affected creditors. This interpretation raises
several potential issues.
31.68 The first issue is that a two year limitation period may
disadvantage creditors. Many creditors will be unaware that partners
have
entered an agreement until after the period has expired.69 This will
primarily disadvantage unsecured creditors because if partners dealt with
security in a prejudicial way it would breach
the security agreement and
creditors in those cases would have rights under the agreement.
31.69 Creditors may not have been creditors when the relevant agreement was made. Involuntary creditors, as in Felton v Johnson, must first obtain judgment against the partner or partners.70 That may take months, if not years. The partners may also conceal
their agreement. We expect that an agreement that is prejudicial to creditors would often come to light during debt recovery proceedings or after a partner ’s bankruptcy. Consequently, although the agreement has a prejudicial effect when made, the adverse consequences may not manifest until much later.71 The two year limitation period is likely to restrict the effectiveness
of section 47(2) and therefore limit the redress available for
creditors.72
31.70 Section 47(2) is different to the position under general insolvency law. Sections 194 and 195 of the Insolvency Act 2006 provide
that the Official Assignee may cancel transactions that prefer one creditor over others when a debtor is insolvent. The transaction must be made within two years immediately before the person who made the transaction was adjudicated bankrupt. Under these provisions, affected creditors benefit from the cancellation of the transaction without having to bring proceedings within a strict time limit as they do under section 47(2) of the PRA.73 General
insolvency law is arguably more favourable to creditors.
69 This point was raised by Young J in his dissenting judgment in the Court of Appeal decision Johnson v Felton [2006] 3
NZLR 475 (CA) at [67] and [92].
71 Neill v Official Assignee [1995] 2 NZLR 318 (CA) at 322 per Richardson J.
73 Elizabeth Tobeck “Relationship Property and Creditors” [2006] NZLJ 413 at 416.
31.71 The policy basis for why section 47(2) grants creditors lesser
rights than they enjoy under general insolvency law is unclear. The
position taken in section 47(2) contradicts the position taken
in section 20A of
the PRA that creditors of either or both partners continue to enjoy rights as
if the PRA had not been passed.
31.72 There may, however, be good reasons to limit creditors’ rights when it comes to setting aside partners’ agreements. Partners will want confidence that the agreements they reach with one another can be relied upon. A limitation period for setting aside an agreement ensures it cannot be challenged after the period has elapsed. Moreover, there may be situations where a partner ’s rights to relationship property are more deserving than those of unsecured creditors. For example, a partner may have devoted years of service to the relationship by caring for children, maintaining a home, and supporting the other partner in his or
her career. That partner may have a stronger moral claim to items of relationship property than, say, an unpaid supplier in relation to the other partner ’s separate affairs.74 The unpaid supplier could have contracted to take security regarding the debt but may
have chosen not to. The partner may have contributed, in both a tangible and
intangible way, greater value to the property he or
she takes under the
agreement than the supplier.
31.73 The second potential difficulty with section 47(2) concerns
more practical issues. The Supreme Court in Felton v Johnson was uncertain how the limitation period would apply to the Official Assignee.75 The Court held that a creditor could challenge an agreement within the two year limitation period by bringing proceedings under section 47(2) or by seeking to enforce a
court judgment against the property which is the subject of the agreement.76 The Supreme Court said the position of the Official Assignee was a “matter of considerable difficulty”.77 It was unclear whether section 47(2) simply required that the partner be adjudicated bankrupt within the two year period or whether
the Official Assignee must take some other step to invoke section
47(2).78
74 Although we note that the partner will have the protected interest in the family home under s 20B of the Property
(Relationships) Act 1976 which will take priority over the unsecured creditor.
75 Felton v Johnson [2006] NZSC 31, [2006] 3 NZLR 475 at [24].
31.74 It is also uncertain whether and to what extent a claim by the
Official Assignee displaces the claims of individual creditors.79 The High Court partially addressed the issue in Official Assignee of X (Bankrupt) v Y.80 There the Official Assignee sought to set aside an agreement between the partners. The High Court accepted that the partners’ agreement had the effect of defeating creditors and held that section 47(2) applied. The Official Assignee had issued proceedings shortly before the expiry of the two year period so there was no issue as to what steps the Official Assignee needed
to have taken to come within the two year limitation period. Nevertheless, there was an issue as to on whose behalf the
Official Assignee could seek to hold the partners’ agreement void. The Official Assignee sought to recover from the non-bankrupt partner an amount to meet the claims of several of the bankrupt’s creditors, including its own costs. The High Court held that the agreement was only void against creditors with claims within
the two year period. The creditors whose claims arose afterwards could not
be said to have had their interests prejudiced or defeated
by the
partners’ agreement.
31.75 The Supreme Court concluded its judgment in Felton v Johnson by recommending legislative attention to section 47.81 While very few cases have come before the courts, meaning the adequacy
of section 47(2) has not been tested outside Felton v Johnson, we
agree that legislative attention is necessary. We consider options for reform
below.
C ONSU LTATION QUESTION
K6 Should section 47(2) continue to operate as a limitation period so that
creditors must challenge an agreement within a two year
period after the
agreement was made? Why/ why not?
Options for reform of section 47(2)
31.76 There are several forms an amendment to section 47 could take.
Option 1: Remove section 47 from the PRA
31.77 A fairly extreme option is for section 47 to be omitted from the PRA. Instead, the ordinary rules under the general law of insolvency would apply.82 Agreements or transactions made with intent to prejudice creditors could be dealt with under
Subpart 6 of Part 6 of the Property Law Act 2007. Agreements or transactions with the effect of defeating creditors could be dealt with under sections 194 and 195 of the Insolvency Act 2006. By removing section 47 and relying on the general law of insolvency, the law would arguably be brought into line with the PRA’s general position that creditors’ rights continue as if the PRA had not been passed. The uncertainties and difficulties with sections 47(2) and
47(3) would also cease to exist.
31.78 The general law of insolvency, however, gives no additional
protections to partners. There is no recognition of the particular
interest a
partner might have under the PRA in the property which is the subject of an
agreement or transaction between the partners.
For example, consideration would
need to be given as to whether the provisions of the Property Law Act 2007 or
the Insolvency Act
2006 should be subject to the PRA’s protected
interest provisions, and if so, how.
Option 2: Amend section 47(2)
31.79 Section 47 could be retained but several possible amendments to
section 47(2) could be made.
31.80 First, section 47(2) could be amended so that:
(a) the meaning of the two year period is made explicit;
(b) the steps the Official Assignee must take to challenge an agreement
are set out; and
(c) if the Official Assignee intervenes, the effect that would have on the
position of other creditors is clarified.
31.81 Second, section 47(2) could clarify that the period is a limitation period, as determined by the Supreme Court in Felton v
Johnson. Alternatively, section 47(2) could be harmonised with
the Insolvency Act 2006 by providing that an agreement or
82 Elizabeth Tobeck “Relationship Property and Creditors” [2006] NZLJ 413 at 414–416.
transaction could be challenged if it is made within the two year
period prior to a partner ’s bankruptcy.
C ONSU LTATION QUESTION
K7 What is the best option for the reform of section 47(2)? Are there
other preferable options we have not identified?
The effect of section 47(3) is unclear
31.82 Section 47(3) provides that an agreement made for the purpose
of settling the partners’ rights under the PRA83 is “deemed to have been made for valuable consideration” for the purposes of section
47(2). The term “consideration” means the exchange of a right or
benefit in return for what the giver obtains under
the contract.
31.83 Section 47(3) was introduced to the PRA during the 2001 amendments. It was based on a recommendation made by the
New Zealand Law Society to the Parliamentary select committee.84
The Law Society said that creditor ’s interests needed to be balanced against the partners’ PRA rights. It explained that when partners have separated, their PRA rights will have accrued and, in those circumstances, their position against creditors should
be strengthened. Creditors and the Official Assignee should still be able to
challenge the validity of transactions between partners
made for inadequate
consideration. The select committee accepted amendment was required to presume
that a settlement agreement entered
when the partners had separated was made
for consideration.85 It added that the adequacy of the
consideration would still be a matter for a court.86
31.84 The practical effect of section 47(3) is, however, unclear:
(a) First, section 21K already provides that all contracting out
agreements are “taken to have been made for
In contrast to a contracting out agreement [under s 21] which is entered into prior to, or during a relationship, an agreement under s 21A is entered into between the partners after a relationship has ended ... The purpose of a separation agreement [under s 21A] is to record and formalise the division of property at the end of a relationship.
84 Matrimonial Property Amendment Bill 1999 (109-2) at xi–xii.
85 Matrimonial Property Amendment Bill 1999 (109-2) at xii.
86 Matrimonial Property Amendment Bill 1999 (109-2) at xii.
47(3) means something different to section 21K.
If it has the same meaning, section 47(3) may be
redundant.88
(b) Second, regardless of section 47(3), creditors must always show that consideration is inadequate. Section
47(2) is concerned with agreements that deprive partners of property in a way that defeats unsecured creditors. An agreement for adequate consideration will not have that effect because it does not reduce the value of the partner ’s property.89 If section 47(3) was intended to require creditors to prove the inadequacy
of consideration it may be redundant because creditors already bear that
onus under section 47(2).
(c) Third, it is unclear why deeming agreements to be for “valuable consideration” is relevant to section 47(2). Courts have said that the term “valuable consideration” can be less than the actual value of the property
under consideration.90 However, section 47(2) is only concerned with whether an agreement was for adequate consideration. Whether an agreement is made for valuable consideration or not is irrelevant.91
An agreement can be deemed to be for valuable consideration but still defeat
creditors.
Options for the reform of section 47(3)
31.85 Before we consider options for the reform of section 47(3), it is first necessary to ask whether the basis for the provision is sound. Section 47(3) seeks to strengthen the rights of partners who
have separated and negotiated a settlement of their relationship
90 Welch v Official Assignee [1998] NZCA 284; [1998] 2 NZLR 8 (CA) at 12.
creditor ’s interests (see paragraph 31.77). If the partners’ PRA
rights have crystallised because they have separated, to what extent should
those rights rank above those of creditors?
31.86 We briefly set out some considerations for and against the basis for section 47(3). In this context we consider only the unsecured creditors of one partner. Secured creditors should not lose rights to secured property by section 46. Section 47(1) should also remain unaffected. We are only concerned with agreements made in good faith that affect creditors for the purposes of section
47(2).
31.87 If a partner ’s PRA rights are based on the contributions he or she makes to the relationship, it would seem arbitrary to provide partners who have separated with greater rights than those
who have not. Contributions to the relationship exist in either scenario.
Also, any priority given to the rights of partners who
have separated would be
a significant qualification to the rule in section 20A that creditors have the
same rights as if the PRA
had not been enacted.
31.88 An agreement may provide benefits to the partners and their creditors
even if the agreement does not involve an exchange of
property of equal value.
Take these examples, where the partners may agree that:
(a) one partner retains assets which allow him or her to continue a
business without interruption and the other partner takes additional
property in
compensation;
(b) the partner who cares for the children takes a greater share of
property to recognise that he or she is not free to continue
employment and
earn income;
(c) the partner who moves out of the family home and relocates to a
different neighbourhood takes a greater share of property
to compensate for the
inconvenience and upheaval of moving;
(d) the partner who gives up property to which he or she had significant sentimental attachment (such as a
pet, painting or home) receives additional property as compensation;
(e) the partner who takes property that cannot be
accurately valued because the value fluctuates (such as foreign currency or
shares in a publicly listed company) receives additional
property to
compensate for the valuation risk.
31.89 In each scenario one partner is deprived of property which
may affect the rights of his or her creditors. The bargain should, however,
not be lightly overturned because:
(a) the partner may receive many advantages that indirectly benefit creditors, such as allowing a partner to retain business assets so his or her business and income
stream can continue without interruption;
(b) creditors will often benefit from the stability and certainty a
settlement agreement provides as opposed to the costs and
uncertainty of a
dispute; and
(c) a partner may accept significant burdens in order to receive a greater
share of property, such as child care responsibilities.
It is doubly hard on
that partner (and the children) if they are left with the burdens under the
agreement but the benefits are
taken from them to satisfy creditors’
claims.
C ONSU LTATION QUESTIONS
K8 Should a partner’s rights under a settlement agreement take
priority over the rights of unsecured creditors for the purposes
of section
47(2)? If so, why?
K9 Are there any circumstances in which a partner’s rights should or
should not take priority?
Option 1: Remove section 47(3)
31.90 If a partner ’s rights under a section 21A settlement agreement should not take priority over the rights of the other partner ’s unsecured creditors, then the clear option is to remove section
47(3) from the PRA. Currently the provision seems to serve no useful purpose. If section 47(3) was removed, the amendment would be insignificant as it would simply remove a provision with no practical effect.
Option 2: Rely on general insolvency law
31.91 If a partner ’s rights should prevail against creditors, one
option is to replace section 47(3) with the defences
provided under insolvency
law. Under the Insolvency Act 2006, a court must not order recovery from a
person who receives property
if the recipient:92
(a) received the property in good faith from the bankrupt;
(b) did not suspect the person who provided the property was insolvent,
and
(c) gave value for the property or altered his or her position in the
reasonably held belief that the transfer of the property
was valid and would
not be cancelled.
31.92 Such a provision could be brought into section 47 as a defence to
section 47(2). That would mean a partner who provided
value or altered his or
her position could take advantage of the defence even if he or she did not
provide adequate consideration.
31.93 Alternatively, we have considered whether sections 47(1) and
47(2) should be reformed by removing section 47 from the PRA entirely.
Instead, the general irregular transaction provisions of
insolvency law could
apply. If general insolvency law applied then the defence would also
apply.
Option 3: Amend section 47(2) so a court may treat a settlement agreement
as void
31.94 Section 47(2) could be amended so a court may set aside a settlement
agreement (in whole or in part) that has the effect
of defeating creditors. The
purpose of giving a court discretion would be to protect agreements if, for
example:
(a) the agreement conferred benefits on creditors even if those benefits
did not equate to the actual value of the property the
debtor partner
relinquished under the agreement; or
(b) the non-debtor partner (or the partners’ children) would suffer
hardship or injustice if the agreement was defeated.
92 Insolvency Act 2006, s 208.
31.95 Section 47(3) would then be removed because protection for
partners would be exercised through the court’s discretion under
section 47(2).
Option 4: Increase the protected interest when the partners have
separated
31.96 When determining whether an agreement has had the effect of defeating creditors for the purposes of section 47(2), section 20A is important. Section 20A provides that creditors’ rights continue as if the PRA had not been enacted. If a partner transfers his or
her property to the other partner under a settlement agreement, it is no
defence to section 47(2) to say the other partner could have
that property
under the PRA.
31.97 The only exception is a partner ’s protected interest in the
family home.93 The rule in section 20A is subject to the protected
interest. That means that an agreement will not have the effect of defeating
unsecured creditors (and therefore cannot be void) if it transfers only the
value of the other partner ’s protected interest
in the family
home.94 Likewise, if a partner transfers more of his or her property
to the other partner through an agreement, the agreement will only be
void under
section 47(2) in respect of any amount above the other partner ’s
protected interest.95
31.98 One option for reform is to provide partners who have separated with a greater protected interest. This would require amendments to the PRA’s provisions regarding the protected interest and amendments to the Property (Relationships) Specified Sum Order
2002.
C ONSU LTATION QUESTIONS
K10 Which option for reform do you prefer? Why?
K11 Are there viable options for reform that we have not
considered?
93 Property (Relationships) Act 1976, s 20A.
94 See discussion in Neill v Official Assignee [1995] 2 NZLR 318 (CA) at 322–323 per Richardson J.
Part
L –
What should happen
when people or property have a link
to another country?
Chapter 32 – Cross-border issues
and the PRA
Introduction
32.1 In an increasingly globalised world, property matters under the PRA are more likely to be complicated by a “cross-border” element. One partner may have a connection with another country or an item of disputed property may be located overseas. This is a growing phenomenon due to increased international mobility,1 rising numbers of “international couples”2 (where
the partners come from different countries) and globalisation enabling the
ownership of property in other countries.
32.2 Cross-border elements create additional issues that do not arise where the property dispute is confined to New Zealand. To properly resolve such issues, the partners, their lawyers and the courts involved must identify and understand private
international law and the effect of sections 7 and 7A of the PRA.
32.3 This chapter summarises the current law that applies where cross-
border elements are present in property matters under the
PRA. We use two case
studies to illustrate why sections 7 and 7A are problematic and should, in our
preliminary view, be reformed.
We identify three key questions that must be
addressed to effectively deal with PRA matters involving a cross-border
element:
(a) When should the PRA apply?
(b) When will a New Zealand court decide the matter? (c) How and where
can a remedy be enforced?
16 million married couples in the European Union (EU) alone that lived in a country other than their own or owned property in another country: European Commission “Proposal for a Council Decision authorising enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions on the property regimes
of international couples, covering both matters of matrimonial property regimes and the property consequences
of registered partnerships” COM (2016) 108 def. In Eurostat’s annual demography data collection it was found that marriages involving at least one foreigner accounted for 11 per cent of all marriages in the EU: Eurostat People in the EU: Who We Are and How Do We Live? (European Union, 2015) at 91.
(d) Chapter 33 then looks at possible approaches to reform.
32.4 Cross-border issues under the PRA may arise on the death of partner as
well as on separation. We discuss in Part M how the
PRA applies on death. The
discussion in this part focuses on the context of separation but we would
welcome the identification of
any particular cross-border issues that arise on
the death of a partner.
What are cross-border issues in the PRA
context?
32.5 Cross-border issues arise where either one or both partners,
or their property, is located outside New Zealand or where the partners
and property are in New Zealand but the partners have a
strong connection to
another country. The property may be movable (such as money or shares in a
company) or immovable (like land).3
32.6 One example might be a New Zealand couple who returned to New Zealand after their “OE” (overseas experience) but kept their apartment in London as an investment. Another example would be a New Zealand couple owning a holiday apartment or time share in Australia or the Pacific Islands. Similarly an Australian couple may have purchased a holiday house in Queenstown,
or a Dutch couple may have relocated to New Zealand for a few years for work
and bought a house in New Zealand while keeping all
their other property in
the Netherlands. The overseas relocation of formerly New Zealand-based
companies can mean that New Zealanders
who have never even travelled abroad
can find themselves owning assets abroad in shares in an overseas
company.
32.7 As more people travel overseas for work and leisure, the chances of forming a relationship with someone from another country have increased. It is easier to live and work abroad for a short period while still maintaining the family home and chattels
in New Zealand. New Zealand is also an attractive destination for families wanting to immigrate. Partners coming from other countries may have signed an agreement in their country of
origin that sets out what should happen to their property if they
3 See discussion at paragraphs [32.35] to [32.38].
separate. The question of whether or not such an agreement is
valid in New Zealand is one of the many potential cross-border issues that
might arise.
The intersection of private international law and the pra
32.8 Principles of private international law (PIL) are used to resolve
cross-border issues that arise in PRA proceedings. PIL rules
determine which
country has jurisdiction to hear a dispute and which country’s law
applies. The outcome of the proceedings
can be very different depending on the
answer to these two questions, and might be very different to what one or both
partners
reasonably expected would happen if they separated. It may also mean
that the outcome looks nothing like what would happen under
the PRA in a purely
domestic context.
32.9 The policy of the PRA is a just division of property.4 A just division is generally achieved through an equal division of the pool of relationship property. Each partner is entitled to an equal share
of the relationship property as a result of the equal contributions each
makes to the relationship. Cross-border issues can complicate
this
approach.
32.10 An example helps illustrate this. Partner A and partner B are New Zealanders and live in New Zealand. They have separated and are fighting about an apartment in France in the name of partner A. Partner B claims the apartment is relationship property. If the apartment was in New Zealand it would probably be relationship property and partner B would be entitled to half. Under the
rules of PIL, however, a New Zealand court cannot make an order relating to that apartment. This is because the apartment comes within the jurisdiction of France. Making an order about the apartment would be seen to encroach on the sovereign jurisdiction (the right to make its own laws) of France and its
courts.5 To ensure a just division of relationship property it
might
4 See Chapter 3 of this Issues Paper for a discussion of the policy and principles of the Property (Relationships) Act 1976.
347.
be anticipated that the New Zealand court could therefore give
partner B more of the relationship property in New Zealand to compensate for the apartment in France. The Court of Appeal however has rejected the argument that compensation can be
paid from the relationship property pool in recognition of a party’s interest in foreign immovable property because of the concern
that this is effectively an interference with France’s sovereignty.6
This illustrates how the rules of PIL can affect the PRA and, sometimes, take
priority. Layering the rules of PIL over the PRA may
lead to a result that is
not consistent with the PRA’s policy of a just division of relationship
property.
32.11 There is nothing extraordinary in the fact that the PRA must interact with the rules of PIL. This happens in many areas of domestic law. The question in Part L is whether the right balance is struck to ensure the rules of PIL are respected while also giving effect to the policy of the PRA to the greatest extent possible.
As with cross-border issues in all areas of law, there needs to be
accommodation of both PIL and the relevant domestic law.
32.12 Our preliminary view is that the objectives of the legal framework
where cross-border issues arise in the PRA context should
be to:
(a) provide clear answers to the three questions set out at paragraph
332.3;
(b) ensure outcomes are consistent with core New Zealand public policy
(usually unwritten principles that underlie New Zealand’s
laws such as
the equality of men and women); and
(c) reach an outcome in line with partners’ reasonable expectations (that the outcome is either in accordance with the law and policy of the country that has the closest connection to the relationship or in accordance with the partners’ intentions as expressed in a valid written agreement).
32.13 This view is based on our preliminary consultation and research and
is informed by, and consistent with, the policy and principles
of the PRA as discussed in Chapter 3 of this Issues Paper. As they
stand, sections 7 and 7A of the PRA do not properly implement some of these
principles.
What is private international law?
32.14 Before identifying the specific issues that arise when PIL applies to PRA matters, it is important to have an understanding of
what PIL is.7 PIL is the law that deals with problems that
arise because the dispute, transaction or relationship has a connection with
more
than one country. PIL seeks answers to the three key questions that arise
when there is a link with more than one country:
(a) Which country’s law applies to resolve the particular
dispute?
(b) Which court will apply the law and resolve the dispute?
(c) Can the judgment in one country be given effect in another country and,
if so, how?
32.15 PIL comprises a mix of general PIL principles arising from case law (for example the principle that one country won’t make an order about land in another country), specific laws set out in the domestic laws of each country (for example sections 7 and
7A of the PRA) and bilateral and multilateral treaties between countries.
This means that “PIL” as a body of law is
different in every
country.
32.16 PIL helps us answer the three key questions that arise in New
Zealand cross-border disputes dealing with relationship property.
Choice of law: Which country’s law applies to resolve a particular
dispute?
32.17 A New Zealand court may apply the law of another country.
Likewise, a court in another country could in certain circumstances apply the
PRA.
32.18 There is no body of PIL rules that every court in every country will
apply. The laws or rules that help a New Zealand court determine which law it should apply are New Zealand’s laws or rules.
Where there are cross-border issues in disputes over relationship property, the New Zealand courts will look to sections 7 and 7A
of the PRA to determine if it is the PRA or the law of another country that
must be applied to resolve the dispute.
32.19 If a New Zealand court needs to apply the law of the other
country evidentiary issues can lengthen proceedings and increase costs. For
example, the courts may require experts to help them
interpret what the law of
the other country means.
Jurisdiction: Which court(s) decide a dispute?
32.20 The question of which law applies (choice of law) is separate to the question of which court decides a dispute (jurisdiction of the court). The set of PIL rules that determine whether a New Zealand court has jurisdiction are unique to New Zealand. Because each country has its own set of PIL rules there may be proceedings
in the courts of two countries, hearing the same matter
simultaneously.
32.21 Just because a New Zealand court is exercising jurisdiction, it
does not mean the court is applying New Zealand law. As
we discuss throughout
Part L, sometimes, a New Zealand court will apply the law of another
country.
Enforcement of judgments and orders – in New
Zealand and in other countries
32.22 Once a court has given a judgment or made an order, the question then
arises of how and where that judgment or order will
be enforced.8
Judgments and orders made by foreign courts can be brought to New
Zealand to be enforced against New Zealand residents and businesses
and their
New Zealand-based assets.9 A New Zealand court will not impose
sanctions for failing to comply
with an order made by a foreign court.10 Instead someone with a
foreign judgment in their favour can bring an action in the New Zealand courts based on the foreign judgment or by registering the judgment under the Reciprocal Enforcement of Judgments Act 1934.11 We note that “a judgment given by a foreign court
in circumstances in which the New Zealand court would itself exercise
jurisdiction may not be enforced by the New Zealand
court”.12
32.23 The position relating to the enforceability of New Zealand judgments or orders overseas is different in every country. As a general rule, it is not possible to enforce a non-money order from a New Zealand court in another country (for example an order vesting property that is not money in another person), although
the Trans-Tasman Proceedings Act 2010 makes enforcement easier in relation
to Australia.13 Non-money orders from a New Zealand court can be
enforced in Commonwealth countries or in the United States but certain
prerequisites
must be met. New Zealand is not currently party to any
multilateral treaties that relate to the reciprocal enforcement of judgments
in other countries.
32.24 The question of how and where a judgment or order made in
a New Zealand court would be enforced in a foreign country is therefore a
real concern.
13 Under the Trans-Tasman Proceedings Act 2010 “most final judgments of Australian courts and tribunals will be able
to be recognised and enforced in New Zealand”: David Goddard and Campbell McLachlan “Private International Law –
litigating in the trans-Tasman context and beyond” (paper presented to the New Zealand Law Society seminar, August
2012) at 84. While the Act applies to both money and non-money orders, under s 61(2) of the Trans-Tasman Proceedings Act 2010 a New Zealand court must set aside registration of a judgment under the Reciprocal Enforcement of Judgments Act 1934 if the judgment was given on a matter relating to immovable property or was about movable property that was not located in Australia at the time of the judgment.
How does New Zealand law deal with
cross-border issues in relationship property matters?
Historical background
32.25 When recommending, in 1972, a “single, clear and comprehensive statute to regulate matrimonial property in New Zealand”, a committee comprising members of the Ministry of Justice and
the New Zealand Law Society (“Special Committee”) considered
there was a place in such a statute to address matrimonial
property issues with
a cross-border element to them.14 The Special Committee stated that:
15
...there may be value in laying down what might be termed conflict of laws
or jurisdictional rules, in the interests of convenience
of reference, of
avoiding the possibility of their being overlooked, and of removing certain
obscurities and inconsistencies in the
cases...What we have in mind is not a
codification and revision of the rules of private international law on the
subject, but the
more modest aim of defining the applicability of the New
Zealand legislation.
32.26 Section 7 of the Matrimonial Property Act 1976 applied to immovable
property in New Zealand and movable property in New
Zealand or elsewhere if
either spouse was domiciled in New Zealand. It enacted the long standing rule
that: 16
...where proceedings concern land the courts of the country where the land
is situated have exclusive jurisdiction. The underlying
rationale for this rule
is the reality that a court in one country is not in a position to make an
enforceable judgment in respect
of land in another country.
32.27 Whether section 7 should be amended to address immovable property located overseas was considered in the lead up to the
2001 amendments.17 Submissions received by the
Parliamentary
14 Special Committee on Matrimonial Property Matrimonial Property: Report of a Special Committee: Presented to the
Minister of Justice in June 1972 (Department of Justice, June 1972) at [3].
15 Special Committee on Matrimonial Property Matrimonial Property: Report of a Special Committee: Presented to the
Minister of Justice in June 1972 (Department of Justice, June 1972) at [46].
16 Matrimonial Property Amendment Bill 1998 (109-2) (select committee report) at xv.
17 Movable and immovable property are not defined in the Property (Relationships) Act 1976.
select committee suggested that all overseas property should form
part of the property pool capable of division under the
PRA.18
32.28 The Family Law Section of the New Zealand Law Society submitted that
not including foreign immovable property could:19
...cause hardship and injustice. Obviously it presents the New Zealand party with the prospect of being obliged to litigate over immovable property overseas....The result is that parties are faced with two sets of proceedings, or more likely, one set of proceedings and substantial concessions being given in relation to the
property overseas. Basically it becomes uneconomic to pursue it. Clearly
this can be extremely unfair.
32.29 However, while sharing the concerns about problems presented
to spouses when cross-border issues arise, the Family Law Section did not
advocate fundamental change to the legislation at that
time.20
32.30 The Principal Family Court Judge at the time, Judge Mahony,
submitted that “the Court should be given greater or
clearer
jurisdiction to take into account real property owned by the parties out of
the jurisdiction”.21 No doubt aware of the issues related to
extending section 7 to immovable property, the Judge said that “[i]f the
Court has
no power to order a sale of that property there is no reason why the
Court could not take the value of it into account.”22
32.31 The Ministry of Justice was not, however, in favour of amending section 7 to include foreign immovable property, citing the risk of conflicting judgments in different countries over the same property; the potential to impact the undisclosed rights of third parties such as a mortgagee or potential constructive trust claimant; the difficulty of enforcement; and the disharmony between the rules relating to immovable property in different countries.23 Finally the Ministry of Justice noted the ongoing
work between New Zealand and Australian officials in relation to
18 Matrimonial Property Amendment Bill 1998 (109-2) (select committee report) at xvi.
19 “Comments on the Matrimonial Property Act 1976 from the Family Law Section of the New Zealand Law Society” (5 May
1999) at 2.
20 “Comments on the Matrimonial Property Act 1976 from the Family Law Section of the New Zealand Law Society” (5 May
1999) at 2; and Matrimonial Property Amendment Bill 1998 (109-2) (select committee report) at xvi.
21 Principal Judge Mahony “Submission to the Government Administration Select Committee on the Matrimonial Property
Amendment Bill 1998” at [7.7].
22 Principal Judge Mahony “Submission to the Government Administration Select Committee on the Matrimonial Property
Amendment Bill 1998” at [7.7].
23 Ministry of Justice Matrimonial Property Amendment Bill – Foreign Immovables and Māori Land (29 April 1999).
harmonising choice of law PIL rules between Australia and New
Zealand. The Ministry considered that changes to section 7 to include all immovable property risked prejudicing this work and creating future anomalies.24 Also, partners were not precluded
from signing an agreement in writing that New Zealand legislation would
apply to foreign immovable property.25
32.32 The Parliamentary select committee did not recommend any amendment to the immovable rule in section 7.26 In 2001, section
7 was replaced with a new section 7 and section 7A, but these made no
substantive changes to the law. These sections set out the
current law relating
to relationship property disputes that have a cross-border element. As with the
PRA more broadly, partners can
opt out of these rules.27
Section 7
32.33 Section 7 provides:
7 Application to movable or immovable property
(1) This Act applies to immovable property that is situated in
New Zealand.
(2) This Act applies to movable property that is situated in New Zealand or elsewhere, if one of the spouses
or partners is domiciled in New Zealand—
(a) at the date of an application made under this Act; or
(b) at the date of any agreement between the spouses
or partners relating to the division of their property;
or
(c) at the date of his or her death.
(3) Despite subsection (2), if any order under this Act is sought against
a person who is neither domiciled nor resident in New Zealand,
the court may
decline to make an order in
24 Matrimonial Property Amendment Bill 1998 (109-2) (select committee report) at xvi; and Ministry of Justice
Matrimonial Property Amendment Bill – Foreign Immovables and Māori Land (29 April 1999).
March 1999).
27 Pursuant to ss 21 or 7A of the Property (Relationships) Act 1976.
respect of any movable property that is situated outside
New Zealand.
32.34 Under section 7(1), the PRA applies to all immovable property situated in New Zealand regardless of where the partners are domiciled or resident.28 The natural consequence of section 7(1) is that the PRA does not apply to immovable property situated
outside New Zealand.29 Immovable property outside New Zealand will
be dealt with by the law of the country where the property is located.
32.35 Section 7(2) states that the PRA covers all movable property (if it
is in New Zealand or if the movable property is located
overseas but one
partner is domiciled in New Zealand).
32.36 Section 7 refers to “domicile” which is a term used elsewhere in this part. Domicile relates to a person’s permanent home country, which may not be where the person physically resides at a certain point. In section 9 of the Domicile Act 1976 domicile refers to an intention of making New Zealand the person’s permanent home.30
Therefore an individual may live in New Zealand for many years without it
being her or his domicile.
32.37 Where neither partner is domiciled in New Zealand the PRA
will only apply to the partner ’s movable property if the partners
expressly agree in writing.31 Under section 7(3), however, a court
may decline to make an order in respect of any movable
property
28 Property (Relationships) Act 1976 (PRA), s 7(1) subject to s 7A(2). In Howson v Howson HC Hamilton M52/01, 22 August
2002 the parties had been resident in Australia throughout their relationship. Property proceedings were underway
in the Family Court of Australia when the wife issued proceedings in New Zealand under the PRA, relating to the sale and disposition of the proceeds of sale of land owned in New Zealand by the couple as tenants in common in equal shares. The High Court held that it had jurisdiction to hear the question of whether the husband could be reimbursed to compensate for post-separation contributions made to the property by way of maintenance and paying the principal on the loan. The Court did not, however, consider that it could examine the status of a relationship debt (by way of a loan to the husband to buy the property), which the Court considered should be determined by the Australian courts along with other relationship property matters.
30 The domicile that a person has after the commencement of the Act is determined with reference to the Domicile Act
1976, notably s 9 which sets out the rules about acquiring New Zealand
domicile. It provides that:
A person acquires a new domicile in a country at a particular time if, immediately before that time,— (a) he is not domiciled in that country; and
(b) he is capable of having an independent domicile; and
(c) he is in that country; and
(d) he intends to live indefinitely in that country.
Section 5 of the Domicile Act 1976 also abolished the rule that a wife’s domicile depended on that of her husband.
31 Property (Relationships) Act 1976, s 7A(1).
situated outside New Zealand.32 This may happen, for example,
if a court concludes that an order would not be capable of being enforced in
an overseas jurisdiction.
The classification of property as movable or immovable varies in different
countries
32.38 Movable and immovable property is classified differently in different
countries.33 For example, a New Zealand court would accept that a
mortgagee’s interest in land in the United Kingdom is immovable
property,34 although in New Zealand it would be movable
property.35 Under New Zealand law, whether or not something is
movable or immovable is determined with reference to where the property is
situated.36
32.39 Examples of how New Zealand law treats certain property
include:37
(a) A debt is situated in the country where the debtor resides; while a
judgment debt is situated in the country where the judgment
is
recorded.
(b) Negotiable instruments and transferable securities are situated where
the paper representing the security is located.
(c) Shares in a company incorporated in New Zealand are situated in New
Zealand unless registered on a branch register outside
New
Zealand.38
(d) A bank account is at the branch where the account is held.
(e) An interest in trust property is in the country where the trust
property is located; but if the beneficiary has only
32 Property (Relationships) Act 1976, s 7.
33 Lawrence Collins (ed) Dicey, Morris, & Collins on The Conflict of Laws (15th ed, Sweet & Maxwell, London, 2012) at [22-
004].
34 Re Hoyles [1910] UKLawRpCh 124; [1911] 1 Ch 179 (CA).
35 Re O’Neill [1921] NZGazLawRp 233; [1922] NZLR 468 (SC).
38 Re Terry (deceased) [1950] NZGazLawRp 113; [1951] NZLR 30 (SC).
a right of action then the interest is situated where the
action may be brought.
(f ) Patents and trademarks are situated where they can be transferred
according to the law relating to their creation.
32.40 Identifying where the property is situated is more difficult where the property has an intangible quality to it. For example, does a partner ’s interest in a business reside in the country where the firm is based or where the partner is domiciled?39 In Tyson v Tyson the Family Court held that the husband’s Australian pension (which was paid by the Commonwealth of Australia, could not be paid outside Australia, and which under Australian law was not
a property right but simply a series of payments) was immovable under Australian law.40 Because it was immovable property and was not situated in New Zealand, the Matrimonial Property
Act 1976 (as it then was) did not apply. In Fischbach v Bonnar a German state pension based in Germany was considered a superannuation scheme entitlement under section 2 of the PRA, and the Family Court held that the portion accrued during the relationship was relationship property.41 The Court considered
that it had jurisdiction to make an order in relation to the scheme by
virtue of section 7 of the PRA, but also noted that it could
decline to do so
if it wished under section 7(3).42
32.41 If there is no evidence on whether the country where the property is
located would classify the property as movable or immovable
then in New Zealand
the position is assumed to be the same as New Zealand
law.43
39 In Haque v Haque (No 2) [1965] HCA 38; (1965) 114 CLR 98 the partner ’s business was held to reside where the firm was based. In
Sudeley (Lord) v Attorney-General [1896] UKLawRpAC 53; [1897] AC 11 (HL) it was held that a beneficiary’s interest in an unadministered estate is located in the same country as the personal representatives of that estate.
40 Tyson v Tyson [2000] NZFLR 927 (DC).
41 Fischbach v Bonnar [2002] NZHC 331; [2002] NZFLR 705 (FC).
42 Fischbach v Bonnar [2002] NZHC 331; [2002] NZFLR 705 (FC) at [12]
At what date should property be classified as
movable or immovable property?
32.42 The Family Court has found that the date of hearing is the
correct date for classification.44 The date of classification can be
important because property can change between being movable and immovable.
Depending on when
that change occurred there may be consequences for the
division of relationship property. For example in Shepherd v Shepherd
the property in question was the proceeds from the sale of a farm in
Australia that was allegedly bought with relationship property.
The farm was
sold after an application for the division of relationship property was filed
in the Family Court.45 The proceeds from the sale (movable property)
was transferred into the husband’s bank account in New Zealand and were
within
the Court’s jurisdiction under section 7(2).46
Foreign immovable property and the Moçambique
Rule
32.43 As a general rule of PIL, a New Zealand court cannot make a judgment or order relating to foreign immovable property.47
Disputes over foreign immovable property are to be dealt with under the law
in the country in which the property is situated. This
is described as the
Moçambique Rule and it comes from a decision of the United Kingdom
House of Lords in 1893.48 In a recent decision the UK Supreme Court
commented that:49
...much of the underpinning of the Moçambique rule...has been eroded. All that is left of the Moçambique rule...is that there is no jurisdiction in proceedings for infringement of rights in foreign land where the proceedings are “principally concerned with a question of the title, or the right to possession, of that property.”
32.44 The Moçambique Rule continues to apply in New Zealand,
however, two exceptions have been established through case
law.
44 Shepherd v Shepherd [2009] NZFLR 226 (HC) at [61].
45 Shepherd v Shepherd [2009] NZFLR 226 (HC).
46 Shepherd v Shepherd [2009] NZFLR 226 (HC) at [61].
47 Captured in legislation in s 7(1) of the Property (Relationships) Act 1976.
48 British South Africa Co v Compania de Moçambique [1893] UKLawRpAC 53; [1893] AC 602 (HL). In Enright v Fox (1989) 5 NZFLR 455 (HC) the High Court considered that s 7(1) of the Matrimonial Property Act 1976 by implication excludes foreign immovables from the jurisdiction of the New Zealand courts.
49 Lucasfilm Ltd v Ainsworth [2011] UKSC 39, [2012] 1 AC 208 at [105].
The Rule now applies primarily to disputes relating to title or
possession of immovable foreign property.50 The first exception
relates to the administration of a deceased estate.51 The second
exception arises where:52
there exists some personal obligation between the parties arising out of a
fiduciary relationship, implied contract or other conduct
which, in the view of
the Court of equity in this country, would be unconscionable.
32.45 This second exception emphasises the personal obligation of a party rather than the title to or right of possession of the property. The High Court in Birch v Birch said that a New Zealand court has jurisdiction in “cases where one party has inequitably dealt with
a foreign immovable” and that “[i]n determining whether there is
an equity, the Court considers the question against
local and not foreign
law”.53 In that case the High Court found that, where the
wife had contributed to the equity in property in Australia, the second
exception
to the Moçambique Rule applied and the Court determined that
the wife was entitled to half of the sale proceeds.54
32.46 It is unclear to what extent the Moçambique Rule affects
relationship property disputes. Some of the historical reasons
why overseas
immovables are not covered by the PRA are no longer persuasive in our globalised
world.55 We note, however, that the policy behind the rule in PIL
that one country will not exercise jurisdiction over immovable property
in
another country is linked to respect for state sovereignty and this remains an
important concern.
50 Lucasfilm Ltd v Ainsworth [2011] UKSC 39, [2012] 1 AC 208 at [105].
52 Birch v Birch [2001] NZFLR 653 (HC) at [9].
53 Birch v Birch [2001] NZFLR 653 (HC) at [9].
54 Birch v Birch [2001] NZFLR 653 (HC) at [51].
Option for reform: Expressly state in section 7 which exceptions
to the Moçambique Rule apply or do not apply in New
Zealand
32.47 One option for dealing with the question of foreign immovable
property and its exclusion from the pool of relationship property
to be divided
is to state in the PRA there are certain exceptions which mean that foreign
immovable property can be dealt with
in the PRA.
32.48 Some have argued that proceedings to enforce an agreement regarding
immovable relationship property would come within the
exception of actions based
on contract or equity between the parties.56 Proceedings alleging a
constructive trust over foreign immovable property are likewise arguably based
in equity and therefore within
the exception.57 By analogy a claim to
determine an entitlement to relationship property may come with the exception
relating to a claim in contract.
32.49 Clearer statutory guidance could help the courts identify whether
any exceptions to the Moçambique Rule could apply
to what would otherwise
be relationship property to be dealt with under the PRA.
C ONSU LTATION QUESTION
L1 Should there be express statutory reference to exceptions to excluding
foreign immovable property from the PRA in keeping with
the exceptions to the
Moçambique Rule?
Compensating for overseas immovable property
32.50 The majority of the Court of Appeal has rejected the argument that compensation can be paid from the relationship property pool in recognition of one partner ’s interest in foreign immovable property under the PRA. In Samarawickrema v Samarawickrema
the Court of Appeal held that an order that gave the wife a greater share of relationship property in New Zealand if she signed a document forgoing any claim to property in Sri Lanka owned
by the husband was in breach of section 7 as it effectively
made
56 David Goddard “Relationship Property Disputes – the International Dimension” (paper presented to the New Zealand
Law Society Family Law Conference, Auckland, October 2003) at 393.
57 David Goddard “Relationship Property Disputes – the International Dimension” (paper presented to the New Zealand
Law Society Family Law Conference, Auckland, October 2003) at 393.
orders relating to foreign immovable property.58 However, where
relationship property in New Zealand is used post-separation to acquire the foreign immovable, a compensatory order may be made. For example, partner A uses funds from the partners’
joint bank account in New Zealand to buy an apartment in New York after separation but before partner B applies to the court for a division of relationship property under the PRA. Section
18C of the PRA allows a court to compensate partner B from the pool of
relationship property. This is because the partner ’s
rights to the New
Zealand property existed at separation. These rights are unaffected by the
property being transformed into a foreign
immovable.
Option for reform: Make provision for a court to compensate one partner
for foreign immovable property
32.51 It is all too easy for one partner to avoid accounting for what would be relationship property under the PRA because the property is a foreign immovable. The likely increasing number of partners with an international connection suggests such a scenario is likely to arise more often in the future. An option for reform is to retain the statement in section 7 that the PRA
does not apply to foreign immovables but expressly allow a court to
compensate a partner for foreign immovable property in relation
to which the
court cannot make an order.59 Unless the partner in control of the
overseas property provides a personal undertaking to follow a court’s
directions relating
to the property (for which they could then be held
accountable for any breach), compensation could be ordered from the pool of
relationship
property.
32.52 There is an issue whether such a power would be viewed as interfering
with the jurisdiction of another court to make a determination
in relation to
the property. Such a power could also impact on the potential interests of
third parties, and might be of minimal
value if there is little or no
relationship property in New Zealand from which compensation may be
ordered.
32.53 There are strong policy reasons for allowing a court to compensate
one party for foreign immovable property that, had the property been in New Zealand, would be relationship property under
the PRA. Compensation is already a feature of the PRA and an important tool
to ensure the outcome under the PRA is a just division
of property.
32.54 This option would mean that section 7 would not require reform and
would remain in line with general principles of PIL (if that was desirable).
However, as it stands,
excluding foreign immovables in section 7 undermines the
purpose of the PRA to provide a just division of relationship property.
C ONSU LTATION QUESTION
L2 Should provision be made in the PRA to allow a court to order
compensation to take into account foreign immovable property?
32.55 Section 7A applies where the parties have made an agreement on what
law should be applied to their property. It states that:
7A Application where spouses or partners agree
(1) This Act applies in any case where the spouses or partners agree in
writing that it is to apply.
(2) Subject to subsections (1) and (3), this Act does not apply to any
relationship property if—
(a) the spouses or partners have agreed, before or at the time their
marriage, civil union, or de facto relationship began, that
the property law of
a country other than New Zealand is to apply to that property; and
(b) the agreement is in writing or is otherwise valid according to the
law of that country.
(3) Subsection (2) does not apply if the court determines that the
application of the law of the other country under an agreement
to which that
subsection applies would be contrary to justice or public policy.
32.56 Partners can expressly agree that the PRA will apply, even if neither partner is domiciled in New Zealand. If such an election is made this would cover all immovable and movable property over
which the PRA has jurisdiction. Partners may also expressly agree
that the law of another country should be applied. Provided that agreement is valid (see 7A(2)), the law to be applied by the courts will be that of the stated country. This may require a New Zealand court to apply the law of another country. Under section 7A(3)
a New Zealand court can decide not to apply the law of another country if
that would be contrary to justice or public policy.60
32.57 Where partners agree that the law of a country other than New
Zealand may apply, it is important to note that:
(a) Section 7A only relates to agreements made before or at the time their marriage, civil union or de facto relationship began.61 Atkin points out that this “rule reflects the position in a number of European or European former colonies, whereby on marriage parties may opt for an alternative property regime.”62 However, this is out of step with the increased number of de
facto relationships prior to marriage and the entry into property sharing
agreements at that stage of the relationship.
(b) The agreement must specify which law is to apply and not simply that
New Zealand law is not to apply.63
(c) The agreement must refer to the “property law” of another
country under section 7A(2)(a) yet it is possible that
the relevant law of
another country is not “property law” but something else, such as
family law.
61 Property (Relationships) Act 1976, s 7A(1). In Herbst v Herbst [2013] NZHC 3535, [2014] NZFLR 460 the parties entered into an agreement in South Africa after they started living in a de facto relationship but before their marriage. The court stated at [29] that the agreement was therefore outside the scope of s 7A of the Property (Relationships) Act 1976.
62 Bill Atkin “Classifying Relationship Property: A Radical Re-shaping” in Jessica Palmer, Nicola Peart, Margaret Briggs and
Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
(d) The agreement need not be valid according to the law
of the country where it was made but it needs to be in writing.
(e) An unwritten agreement will be valid if it is also valid according to
the law of the country where it was made.
(f ) It is unclear whether there can be an implied agreement. This may arise where, for example, a couple gets married and enters into an agreement in a certain country, implying that it is the law of that country
that applies to the relationship without an express agreement to the
contrary.
(g) The partners may agree to depart from the agreement so that the PRA
becomes applicable under section 7A(1).
(h) It is unclear how the court should determine whether the application of the law of another country would be “contrary to justice or public policy”. Arguably the older the agreement the more willing the court may be to set
it aside if it risks substantially depriving a party of rights to property
which would otherwise be available under the PRA.
(i) A court will not take notice of the effect of foreign law, but will
seek expert evidence on the point.64
(j) An overseas agreement that satisfies Part 6 of the
PRA may be upheld under Part 6. An agreement
that otherwise falls short may still be upheld under section 21H if the
partners have not been materially prejudiced.65
What happens when an agreement does not comply with section 7A(2)?
32.58 An agreement made after a relationship is entered into or that does not state which country’s law is to apply will not comply with section 7A. This means that if one or both partners acquire immovable property in New Zealand then the PRA will apply to that property (although this does not preclude another country
65 Stark v Stark [1996] NZFLR 36 (DC). See also Chapter 30 of this Issues Paper.
finding it also has jurisdiction). If the parties are domiciled in New
Zealand then the PRA will also apply to any movable property.66
If the parties are not domiciled in New Zealand then the PRA will not apply
to any movable property in or outside of New Zealand
nor immovable property
outside New Zealand.
32.59 The concern about agreements that do not comply with section
7A is that partners have organised their affairs in reliance on the
agreement made between them. While an agreement may still be
upheld under
section 21H of the PRA, if this is not possible, then the parties may find
themselves bound by the rules of the PRA
contrary to their intentions.
32.60 Section 7A(3) allows a New Zealand court to determine that applying
the law of another country would be contrary to public
policy or justice. In
such cases section 7A(2) would not apply and the court would disregard the
agreement. There is no statutory
guidance on the threshold for establishing
that the application of the law of another country would be “contrary to
public
policy or justice”.
32.61 Very few cases provide an indication of how section 7A(3) will be interpreted.67 We have found one case where section 7A(3) was applied and in that case the threshold of finding the outcome would be contrary to public policy or justice was high.68 In P v
P the Family Court refused to recognise a South African pre- nuptial agreement because the agreement amounted to unjust enrichment under New Zealand common law.69 In that case the parties entered a pre-nuptial agreement in South Africa that identified the value of assets each party brought into the marriage and provided for subsequent division of matrimonial property. Prior to arriving in New Zealand, the parties established a “frozen fund” from which each party might seek repatriation of funds to New Zealand. All investments, bank accounts and other funds were put into a single fund in the name of the husband. This left
the wife with no property. The Court held that the South
African
66 For a discussion as to “domicile” see paragraph [32.36].
1976]” at [25].
68 P v P [2000] NZFLR 72 (FC).
69 P v P [2000] NZFLR 72 (FC).
agreement was bad for public policy, contrary to justice, unfair
and unreasonable, and the Court would not uphold
it.70
What happens when the current law is applied?
32.62 In this section we discuss what the current law in sections 7 and
7A of the PRA can look like in practice. Below are two case studies which highlight that applying the PRA can result in outcomes
that:
(a) are inconsistent with the policy of the PRA;
(b) would likely see the partners incur significant legal costs;
and
(c) would mean resolution of the dispute would likely take a long
time.
32.63 The outcomes are also unlikely to reflect what the partners would
have reasonably expected to happen.
Case study: Gil and Evelyn
Gil and Evelyn are a New Zealand couple in their 60s who have been married for over 30 years. Things have not been going well between them since they both retired. Recently Gil and Evelyn sold their holiday apartment in Queenstown
and bought a holiday apartment on the Gold Coast in Australia. Soon after
they purchased the apartment on the Gold Coast they ended
their marriage. Gil
and Evelyn disagree over who should keep the Gold Coast apartment and who
should keep their holiday bach
in New Zealand. The two properties are of equal
value.
Likely outcome
32.64 A New Zealand court cannot make an order over the Gold Coast apartment as it is immovable property and within the jurisdiction of the Australian courts. Gil and Evelyn would have to apply to
an Australian court for an order relating to the property. This may mean there could be proceedings in both New Zealand and Australia, which would result in both Gil and Evelyn incurring
additional legal expenses. In neither proceeding could the
court
70 P v P [2000] NZFLR 72 (FC) at [77].
make an order considering the immovable property in the other
country.
Alternative facts and outcome
32.65 Imagine now that Gil and Evelyn had sold the apartment in Queenstown, transferred the money to a bank account in Australia in anticipation of buying an apartment but separated before they purchased any property in Australia. A New Zealand court could apply the PRA to the money in the bank account in
Australia as it is movable property. A money judgment of the New Zealand
court will be recognised and enforced by the Australian
courts.
Are these the outcomes Gil and Evelyn would reasonably have
expected?
32.66 Two aspects of these alternative outcomes are remarkable. First, an Australian court would have jurisdiction to apply Australian law to the apartment on the Gold Coast even though the parties are New Zealanders and the country with which the relationship has its closest connection is New Zealand. Second, whether
the property was held as money in an Australian bank account (movable) or
was the apartment (immovable) changes which country’s
court can hear the
case and what law applies to that property.
Case study: Tania and Henri
Tania and Henri are South African. After living together for five years Tania and Henri married in Johannesburg. Just prior to the marriage they entered a written relationship property agreement (the pre-nuptial agreement). Under South African law couples must enter into an agreement unless they want to have a community of property (meaning they share all property), which is the default regime in South Africa. Tania and Henri did not want a community
of property regime so entered the pre-nuptial agreement. It did not expressly state what law was to apply. The couple lived in a house that Tania had bought prior to their relationship. Henri owned an apartment he rented out and
from which he used the income to help pay the mortgage on the
house.
Ten years later Tania and Henri immigrated to New Zealand. Tania sold the house and Henri sold his apartment. On arriving in New Zealand they followed the
same arrangement. Tania bought a house which the couple lived in together.
Henri bought an investment apartment and used the rent to help pay off the
mortgage. Two years after they arrived in New Zealand
Tania and Henri
separated.
Likely outcome
32.67 Despite having a pre-nuptial agreement, it is likely that the PRA would apply to the house and that the house (as the family home) would be divided equally between Tania and Henri. Under the
PRA Henri’s apartment would be his separate property and not available
for division. All the family chattels would be divided
equally between
them.
32.68 This is because although the parties had an agreement between them it is probably not valid under section 7A(2). First, it was signed after the de facto relationship had started (even though it was prior to the marriage). The agreement must have been
entered into “before or at the time their marriage, civil union, or
de facto relationship began.” Second, there was
no express provision on
what law should apply. On that basis the PRA becomes the default law to be
applied.
Alternative facts and outcome
32.69 Imagine now that having lived in New Zealand for two years, Henri was offered a job back in Johannesburg. Annelotte (Tania and Henri’s daughter) has two years left at high school so Tania and Henri decide that Tania would stay on in New Zealand with Annelotte. Tania and Henri both sell their respective properties. Tania rents an apartment for herself and Annelotte. Tania and Henri both pay the deposit on a house in Johannesburg. However, because only Henri is living in Johannesburg the partners agreed
it would be easier to keep the house in Henri’s name and to keep the
rest of their funds in a South African bank account
in Henri’s name.
Henri pays the mortgage on the house while Tania pays the rent on the
apartment in New Zealand.
32.70 Trying to maintain a long-distance relationship was hard. Tania did
not want to return to South Africa but Henri loved his
job and reconnecting with
friends and family back in Johannesburg. After one year apart Tania and Henri
agree to separate.
32.71 It would be difficult to advise Tania and Henri which country’s law would apply to the division of their property. Both partners
appear to have a different domicile – Tania in New Zealand and
Henri in South Africa. Because Tania is probably domiciled in New
Zealand, the PRA may apply to all movable property including the bank account in South Africa.71 The PRA would not apply to the apartment in Johannesburg (as it is immovable property and
excluded under section 7(1)). Because Henri is probably domiciled in South Africa there could be proceedings in South Africa. As
the partners had signed the pre-nuptial agreement electing not to have a
community of property then both the house and bank account
in Johannesburg
would appear on the face of it to be the separate property of Henri under South
African law. Expert advice would
be needed to determine what the implications
would be under both New Zealand and South African law and proceedings might be
issued
in both countries.
Is the outcome what Tania and Henri would have reasonably
expected?
32.72 Tania and Henri may have reasonably expected that the pre- nuptial agreement they entered into would be upheld. It does not appear rational that the agreement was not valid because it was entered into after the start of the de facto relationship (but before the marriage). Although South African law was not expressly nominated as the relevant law in the pre-nuptial agreement it is arguably implied, given that the agreement was entered into in South Africa, complying with South African law. The possibility
of proceedings in two countries and the costs entailed does not promote an efficient and just resolution of the dispute. In addition, if the New Zealand and South African courts both made orders in relation to the bank account and those orders conflicted, this could be a very difficult situation to resolve. Finally, even if the PRA was found to apply to all movable property (based on Tania’s domicile), Tania may be prevented from receiving a just division of relationship property given that the PRA would not
apply to the house in South Africa, the partners’ key
asset.
Summary of problems when the current law is
applied
32.73 These two case studies illustrate the issues with sections 7 and
7A. In summary, the issues are:
(a) The PRA may not help partners (and lawyers) determine what court will
hear a dispute.
(b) The PRA may not help partners (and lawyers) determine what law will be
applied.
(c) It may be difficult to enforce a judgment or order of a New Zealand
court in a foreign country, frustrating a partner ’s
entitlement under the
PRA.
(d) The outcome is not always consistent with the partners’
reasonable expectations.
(e) The express intentions of partners captured in a written agreement may
not be given effect to due to non- compliance with section
7A, but the
justification for these compliance requirements is unclear.
(f ) Applying sections 7 and 7A may lead to outcomes inconsistent with the
PRA’s policy of a just division of relationship
property.
32.74 If sections 7 and 7A frustrate either a just division of relationship property under the PRA or the right of partners to opt out of the PRA and be confident in their own arrangements, we consider that reform is needed. The implications of not having an accurate understanding of the law can have serious consequences in the cross-border context. This is because it is not just the application of the PRA at issue. The law of another country may apply and
the outcome of applying the law of another country may be
very different. This emphasises the need for clarity and, as far as possible,
simplicity in the law.
32.75 Cross-border issues can be complex. Lawyers may take a long time to identify and understand the issues, as in Calkin v Roland, where the protest to jurisdiction was not lodged until just prior
to the substantive hearing.72 Legal advice at the outset of a
case
may need to be revisited as the cross-border issues are discovered.
These factors contribute to our preliminary view that the law in the PRA
relating to cross-border issues needs reform.
C ONSU LTATION QUESTION
L3 Do you agree that reform of the law is
needed?
only when the dispute was set down for a settlement conference that counsel for the respondent began to think about jurisdictional issues”.
Chapter 33 – Approaches to
reform
33.1 In the New Zealand context, the three key questions that must be
addressed to effectively deal with PRA matters involving
a cross- border element
are:
(a) When should the PRA apply?
(b) When will a New Zealand court decide the matter? (c) How and where can a remedy be enforced?
33.2 This chapter addresses each of these questions, highlighting the issues arising and suggesting options to ensure that outcomes are consistent with the rules of PIL and the policy of the PRA as
well as meeting the reasonable expectations of partners who find themselves
in a relationship property dispute with cross-border issues.
When should the PRA apply?
33.3 Just because a New Zealand court has jurisdiction to hear a dispute between partners over relationship property does not mean that the court will apply the PRA. In this section we identify scenarios where the PRA is not automatically the law the court
will apply.
Agreements that expressly provide for New Zealand law to
apply
Case Study: Anaïs and Louis
Anaïs and Louis are French and have been living together for several years. Anaïs falls pregnant and the couple decide they want to immigrate to New Zealand. Louis has explained to Anaïs that in New Zealand de facto couples are treated like married couples, a situation very different to France. Before their child is born Anaïs and Louis sign a written agreement saying they wish New Zealand law to apply to their property, should they separate. After the baby is born Anaïs, Louis and the baby move to New Zealand to have a trial run of their new home. Just in case things don’t go well they have left
their savings in a French bank account as security. The move to New Zealand
does not go well and shortly after arriving, Anaïs and Louis
separate.
What is the likely outcome under the PRA?
33.4 As a general rule, where there is a written agreement stating that the PRA is to apply, then the PRA will apply. There are no further express requirements set out in section 7A. This is different to the provisions in Part 6 of the PRA allowing partners to contract out
of the PRA. Given that partners are making a conscious choice to contract
into the PRA (rather than out of the PRA) there would
seem to be no logical
reason the same safeguards would apply. The safeguards are implicit in the
rules of the PRA itself because
they represent policy choices as to how the
State considers relationship property should be distributed in New Zealand. In
contrast
when partners contract out of the PRA, the safeguards in Part 6 ensure
that they understand the potential implications of not having
the security of
the default rules in the PRA apply.
33.5 Applying the PRA would mean that Anaïs and Louis would share equally all relationship property. Any order made for division could include any movable property back in France, such as
the bank account. The PRA would not, however, apply to any immovable
property in France.
Two matters for clarification
33.6 Section 7(1) refers to “this Act” (being the PRA) applying when the partners agree in writing it is to apply. It is just as likely
that an agreement could refer to “New Zealand law” rather than
specifically identifying the PRA. We suggest that this
difference should not
upset the validity of an agreement. Reference to New Zealand law is broader
and would encompass any unforeseen
circumstances where a broader application
of New Zealand law might be required to ensure justice.
33.7 Section 7A(2) refers to the agreement being entered into “before or at the time” the partners’ relationship began. There is no such requirement in section 7A(1). Our preliminary view is that this requirement should be removed from section 7A(2) as there seems to be no reason to exclude agreements made at any other time during or even after the relationship.
33.8 A clear indication of the choice of law the parties have made is
likely to help resolve a dispute quickly and in accordance with the wishes of
the partners.
C ONSU LTATION QUESTIONS
L4 Do you agree that section 7A should refer to an agreement to apply “New Zealand law”
rather than the PRA?
L5 Do you agree there should be no timing requirement for agreements
entered into under section 7A(1)?
Agreements that implicitly provide for New
Zealand law to apply
Case Study: Omar and Fatima
Omar and Fatima have immigrated to New Zealand from Turkey. They married shortly before they left Turkey. Just prior to their marriage (knowing they were coming to New Zealand) they signed a written agreement that stated Turkish law was not to apply if they divorced. Despite immigrating to New Zealand, the
couple retained close ties with Turkey including Fatima running an online
business based in Turkey. Five years after arriving in
New Zealand, the couple
separate.
What is the likely outcome under the PRA?
33.9 Without an express agreement about choice of law it is open for one
partner to argue in relation to any movable property that
New Zealand law
should not be applied (for example claiming that the parties remained
domiciled in Turkey). However, without
either partner putting evidence to the
contrary before the court, the court would likely apply New Zealand law as the
default rules.
What should happen?
33.10 This scenario raises the question of whether an implicit choice
of law can be recognised. In this scenario the express rejection of Turkish
law and the fact the parties were resident in New Zealand
strongly favours New
Zealand law being the applicable law. The reasonable expectation of the
partners would be to give effect to
the agreement by applying New Zealand
law.
C ONSU LTATION QUESTIONS
L6 Should the PRA always apply if partners do not say in their agreement which country’s
law should apply?
L7 Should there be recognition of an implicit choice that New Zealand law
is to apply?
Agreements that expressly provide for the law of another country to
apply
Case study: Brian and Taggie
Brian and Taggie are British citizens. Two months before the couple are due
to marry they decide to immigrate to New Zealand. Taggie asks Brian to sign a pre-nuptial agreement that says if they separate, English law is to govern how they organise their affairs. They sign the agreement before they get married. The couple move to New Zealand. Taggie buys a house for the couple to live in. Brian receives a very generous inheritance from a great-aunt just before the couple move to New Zealand. He uses this to pay the couple’s bills and day-
to-day expenses. Taggie runs a successful property development business.
While she runs the business side of things, Brian does most
of the physical
labour involved in renovating the properties before they are on-sold. The
business and the bank accounts are in
Taggie’s name. Six years later the
couple separate. Brian still has a large part of his inheritance and can
continue to live
with the same standard of living as the couple had during the
marriage.
What is the likely outcome under the PRA?
33.11 Provided the parties were not already in a de facto relationship when the agreement was signed then the agreement would likely be upheld. If the parties were in a de facto relationship when
the agreement was entered into then it would not be valid under section 7A.
Assuming the agreement was valid, it would be open to
one or both of the
parties to rely on and prove in court the relevant English law. If this is done
then a New Zealand court would
probably apply English law and make orders
accordingly. Because under English law a financial order would only be made for
financial
need, which on these facts does not exist, Brian might not be
entitled to any business profit or a share of the house.73
33.12 Provided the agreement was otherwise valid, a New Zealand court could, however, elect not to give effect to the agreement
if it determined that applying English law would be contrary
to
73 As per the Matrimonial Causes Act 1973 (UK). This Act and the approach taken in England is discussed in Part A.
justice or public policy. Brian might argue that given his payment
of day to day expenses and his work in Taggie’s business it would be
unjust for him not to share in a division of the house
and the
business.
What should happen?
The requirement that a section 7A(2) agreement be entered into before the
relationship began
33.13 We see no persuasive reason for the validity of an agreement to depend on the time it was entered into. Section 7A(2)
has been interpreted by the High Court as meaning that an agreement made by a couple already in a de facto relationship in contemplation of marriage would not be upheld.74 This interpretation does not fit with the reality today that many
married couples first live together in a de facto relationship. For many couples a de facto relationship will lead to marriage and
at the point of marriage formal arrangements might be put in place, including an agreement under section 7A(2). There may be other reasons an agreement is entered into after the start
of a relationship, such as the birth of a child or the decision to move
overseas. There appears to be no sound basis for excluding
agreements just
because they are made after the relationship began.
33.14 There also seems to be no good reason partners cannot enter into a section 7A(2) agreement at the end of a relationship. There
may be valid reasons why partners living in New Zealand or with property in
New Zealand wish the law of another country to apply to
their property, as
highlighted throughout the case studies in this part.
33.15 Ideally, people should be enabled to make their own arrangements to best meet their own needs. At different points of a relationship, partners may identify that their needs require them to enter
into an agreement that identifies the law of a certain country will apply if the relationship ends. It seems unhelpful to prevent partners from relying on an agreement based on when in the relationship the agreement is entered into. Our preliminary view is that this requirement should be removed from section 7A(2).
C ONSU LTATION QUESTIONS
L8 Do you think that a couple should be able to agree at any point during
their relationship, or even after separation, that a
different law should govern
how they divide their property?
L9 Do you agree that the timing requirement should be removed from section
7A(2)?
L10 Should there be recognition of an implicit choice that the law of another
country should apply?
Is the reference to “the property law of another country”
overly restrictive?
33.16 Section 7A(2) refers to the “property law of another country”.
We consider this phrase is unnecessarily restrictive. In other countries “property law” may not be the relevant law for dealing with the economic consequences when a relationship ends.
This is the case, for example, in England and Wales, where the Matrimonial
Causes Act 1973 (UK) is not directly concerned with distributing
relationship
property. Replacing “property law of another country” with
“law of another country” would
limit the risk of excluding
agreements where the relevant law falls outside of the strict wording of
section 7A(2), potentially
rendering the agreement void.
C ONSU LTATION QUESTION
L11 Would it be sufficient to refer to the law of another country without
stating which body of law should apply (for example property
or family
law)?
When should an agreement not be upheld?
33.17 An implicit principle of the PRA is that partners should be free to make their own agreement regarding the status, ownership and division of their property subject to safeguards.75 Part 6 of the PRA provides a regime whereby partners can contract out of the PRA’s rules of property classification and division. However, an
agreement under section 7A(2) does not have the same safeguards that exist in relation to contracting out agreements under Part
6 of the PRA (notably the requirement for legal advice on the
implications of the agreement). On what grounds should a
court
75 See Chapter 3 of this Issues Paper for a discussion of the principles of the Property (Relationships) Act 1976.
be permitted to set aside an otherwise valid agreement under
section 7A(2)?
33.18 As discussed above, section 7A(3) provides that an agreement will be set aside if a “court determines that the application of the law
of the other country under an agreement to which that subsection applies would be contrary to justice or public policy” (emphasis added). There is little judicial guidance to indicate how section
7(3) will be interpreted in the context of cross-border issues and when an
outcome will be said to be contrary to justice and public
policy. Given the
vast range of potential factual scenarios, a clear test would give a court
greater scope to prevent injustice
and to ensure a just division of
relationship property.
33.19 Potential options for a test for setting aside an otherwise valid
agreement under section 7A(2) include:
(a) Option 1: Adopt a test similar to the test used in section
21J of the PRA allowing a court to set aside a contracting out agreement. This test is whether giving effect to
the contracting out agreement would cause “serious injustice”. This is a high threshold but is justified as the partners have deliberately ordered their own affairs and as long as it meets the procedural requirements, the contracting out agreement and, by extension, the partners’ wishes, should not be easily overturned.
As discussed in Chapter 30 the fact the contracting out agreement would lead to an unequal result for the partners is, of itself, not enough to set aside an agreement under section 21J. Currently a section 7A agreement does not have the same list of procedural
criteria for the agreement to be valid. There is therefore no guarantee, for example, that both partners were informed of and understood the implications of the agreement. As the agreement must be valid according
to the law of the nominated country and every country will have different
tests for validity, it may be that the test for setting
aside a section 7A
agreement should not be as high as for contracting out agreements.
(b) Option 2: add to section 7A(3) a list of factors that a court must consider before upholding an agreement. These could include:
(i) Whether or not the agreement was a device when
it was entered into furthering a goal contrary to the policy of the PRA. For
example, where the agreement sought to escape the obligations
of one
partner.
(ii) Whether there has been significant change of life circumstances of one
or both of the partners that could reasonably require
that the partners revisit
the agreement. This is different to the point of the relationship when the
agreement was entered into,
which would not as a general rule relate to the
justice of the agreement.
(iii) Where there has not been a significant change of life circumstances,
however a significant period of time had passed since
the agreement was
entered into.
(c) Option 3: continue with the current approach under section 7A(3) but
provide a clear statutory test. This option would retain
the current power to
set aside an agreement as contrary to justice or public policy. It might apply,
for example, if the outcome
would not be balanced between the partners. The
statutory test could list the relevant factors that would establish that an
agreement
is contrary to justice or public policy. These factors could include
those listed above at Option 2. Alternatively the test could
be changed to be
whether the agreement could cause serious injustice. The factors listed in
section 21J of the PRA might then
likewise be used in this context in assessing
serious injustice.
C ONSU LTATION QUESTIONS
L12 Do you agree that a clear test for when a court can set aside an agreement under section
7A would be useful?
L13 Which of the options do you prefer and why? Are there any other “relevant factors” you would include? Are there any other options you would like to suggest?
Agreements that implicitly provide for the law of
another country to apply
Case study: Maxima and Robert
Maxima and Robert are Dutch. Before marrying they agree in writing that they
opt out of a community of property regime but do not specify what law is to apply to the agreement. Robert is a school teacher and Maxima is a fashion designer. Several years after they are married, Maxima is offered a role at a top fashion house in Auckland on a two year contract. Although they leave their house and chattels in Amsterdam, Maxima buys an apartment in Auckland and the couple move to New Zealand. Robert does not feel confident speaking English so he
stays at home and writes a novel rather than looking for paid work. After a
year Robert wants to return to the Netherlands and start
work again. Maxima
loves her work and wants to complete her contract in New Zealand. The couple
separate.
What is the likely outcome under the PRA?
33.20 As the agreement entered into at the time of their marriage does not nominate the law of another country to apply, it is likely that the PRA will apply. On this basis Robert will probably be entitled to half of the apartment in Auckland and any family chattels in New Zealand. A New Zealand court will not make an order about the house in Amsterdam but it may make an order relating to the
partners’ chattels in Amsterdam if it found that either partner was
domiciled in New Zealand. There is therefore the potential
for two sets of
proceedings to resolve all property matters – one in New Zealand under the
PRA and one in the Netherlands under
the relevant Dutch law.
What should happen?
33.21 There will be scenarios when it is understandable that an otherwise compliant section 7A(2) agreement is entered into but there is no designation of which country’s law is to apply. This may be because the partners move every few years and they do not know at the outset of their relationship which country’s law will be most relevant on separation. Requiring partners at the start of the relationship to elect the property regime they wish to apply to their property if they are to separate is inflexible and, we consider, unnecessary.
33.22 In Herbst v Herbst the parties entered into an agreement while
living in South Africa and several years before immigrating to New Zealand.76 This agreement was entered into under South African law that requires that when two people marry they must choose whether they will have community of property or not. The agreement stated there was to be no community of property
between the partners but did not state expressly that the property law of South Africa was to apply. The High Court of New Zealand found that the agreement did not comply with section 7A(2) as
it “was one which contracts out of the relevant South African
matrimonial property legislation but does not explicitly state
which
country’s property laws are to apply to any relationship property acquired
in other jurisdictions”.77 While there was no agreement in
writing that the law of South Africa would apply, we consider that it could
be reasonably implied
that the relevant law was that of South Africa.
33.23 One option is to allow an implied agreement or at least implied terms of an agreement in cases such as Herbst v Herbst. The benefit of allowing an implied term or terms to be read into an agreement is that the reasonable expectations of the partners would not be upset by, for example, applying the PRA when the parties did not want this to happen. There would need to be a mechanism to
allow a court to identify which country’s law should be applied. At
paragraphs 32.32 to 32.39 we will discuss shifting the
focus from the relevant
law being determined with reference to the location and nature of the property,
to the relevant law being
determined with reference to the country that has the
closest connection to the relationship.
33.24 A similar approach could deal with agreements that choose which country’s laws are to apply but then only refer to certain items
of property. Having a test that applied the law of the country to which the relationship had its closest connection could permit an implied term that this law applied to property not dealt with under an otherwise valid agreement. The disadvantage to this
approach is that a situation could arise where a New Zealand court had to apply the law of country A to designated property under
the agreement and the law of country B (because the relationship had its closest connection to country B) to the rest of the
property. The alternative approach would be to make New Zealand
76 Herbst v Herbst [2013] NZHC 3535, [2014] NZFLR 460.
77 Herbst v Herbst [2013] NZHC 3535, [2014] NZFLR 460 at [26].
law the default law to be applied to property not covered in an
otherwise valid agreement (that applies the law of country A to designated
property). This is rational because the dispute is being
dealt with in New
Zealand.
C ONSU LTATION QUESTIONS
L14 Do you think a court should be able to read an implied term into an
agreement on which country’s law should be applied?
L15 Do you agree that if an agreement deals with only certain items of
property, New Zealand law should apply to all other property
of the
partners?
Where foreign law is not relied on or proven
Case Study: Mi Na and Tony
Mi Na and Tony immigrated to New Zealand from Korea. They married in Korea and entered into an agreement just before their marriage stating that Korean law was
to be used to resolve any property dispute that arose if they separated. After living in New Zealand for four years, Mi Na and Tony separate. They cannot decide what should happen to the house in New Zealand which is held in Mi Na’s name but
for which Tony pays the mortgage, and ask the Family Court to decide for
them.
What is the likely outcome under the PRA?
33.25 If neither Mi Na nor Tony seek to prove and rely on Korean law
to determine the dispute then New Zealand law will apply. This is the case
even if they still have a very strong connection to Korea,
including owning
property in Korea. A New Zealand court can apply the PRA.78
33.26 The result would be the same even if there was no agreement between
the partners but the relationship had its strongest connection
with another
country.79 Without one partner seeking to prove and rely on evidence
that the law of another country should apply, a New Zealand court will
apply
New Zealand law.
33.27 We have not identified any issues with this outcome. Failing
to prove and rely on the law of another country amounts to
an
78 See obiter comments in Birch v Birch [2001] NZHC 411; [2001] 3 NZLR 413 (HC) at [49].
79 On the basis of the rules set out in ss 7 and 7A of the Property (Relationships) Act 1976 (PRA), which state when the
PRA applies to property.
implied agreement that New Zealand law should apply, which
seems appropriate.
Where the relationship has its closest and most substantial connection with
New Zealand
Case study: Manu and Theo
Manu is Portugese and Theo is Chinese. They have been in a long term de facto relationship. They met in New Zealand while travelling and settled in Tauranga. Manu works as a gardener and Theo is a consultant chef who travels extensively to work for short periods in restaurants throughout the Asia-Pacific region. They
both have jobs in New Zealand and are permanent residents. They live in
Tauranga in a house owned by Manu and they pay the mortgage
with income from
renting out Theo’s apartment in Beijing. The couple own as tenants in
common a small holiday house in Fiji
where they spend five months each year
during winter. They keep a bank account open in Fiji to use when they are
there. Every
year Manu spends a month in Lisbon visiting family. After ten years
together the couple separate. Manu and Theo have entered no form
of property
sharing agreement.
What is likely to happen under the PRA?
33.28 On the face of it Manu and Theo’s relationship (and property) has connections with several countries – Fiji, China, Portugal and New Zealand. This could lead to very complicated, long and costly proceedings in New Zealand and the other countries. The PRA would apply to immovable property in New Zealand and depending on a finding as to domicile of the partners it would
apply to movable property in New Zealand and overseas. The PRA would not
apply to any immovable property overseas. It is unclear
whether the partners
are domiciled in New Zealand given how often they travel and live abroad and
the interests they retain in the
other countries. This can have implications as
to whether the PRA would apply to movable property in other countries.
33.29 The likely outcomes risk being far removed from what Manu and Theo could have reasonably expected to happen. The reasonable expectations of the partners will probably not be met if they must rely on the courts in more than one country to resolve the matter. Nor would they be met if property in New Zealand is subject to equal sharing under the PRA but the property in other countries
is not covered under the PRA and would therefore be distributed according to the law of that country.
What should happen?
33.30 Much of the complexity that arises in this scenario is because the law applied depends on the nature and location of the property. A different approach would be to focus on the country with which the relationship has its closest connection. If this was the focus Manu and Theo probably have their closest connection with
New Zealand. They live the majority of time in New Zealand; they formed, conducted and ended their relationship in New Zealand; while each partner has a connection to another country the partners have a mutual connection to New Zealand and
both partners work in New Zealand (at least sometimes). If this approach were
taken then arguably the PRA applies to all their relationship
property and the
New Zealand court could decide the case on that basis (provided it has
jurisdiction as discussed below).
33.31 Focusing on the country to which the relationship has the
closest connection reflects a move away from the test of habitual residence
used in other areas of the law with cross-border implications
such as
inter-country child abduction80 or tax residency in a
country.81
33.32 Different countries have different rules to deal with which law to apply in relationship property disputes.82 For example, in Ontario, Canada:83
the property rights of spouses arising out of the marital relationship are
governed by the internal law of the place where both spouses
had their last
common habitual residence or, if there is no place where the spouses had a
common habitual residence, by the law of
Ontario.
80 The test of habitual residence is used in the Convention on the Civil Aspects of International Child Abduction 1343
UNTS 89 (opened for signature 25 October 1980, entered into force 1 December 1983).
81 See the recent New Zealand case of G v Chief Executive of the Ministry of Social Development [2015] NZSC 139, [2016]
1 NZLR 261. In that case the Court of Appeal had taken a “common sense approach to making the legislation work in accordance with Parliament’s purpose”: Douglas White “A Personal Perspective on Legislation: Northern Milk Revisited – Soured or Still Fresh?” (2016) 47 VUWLR 699 at 705. The Court of Appeal was looking for a “close and clear connection” between the applicant and New Zealand in order to establish the applicant’s entitlement to New
Zealand superannuation, despite the applicant having lived overseas for 20 years: Chief Executive of the Ministry of Social Development v G [2014] NZCA 611, [2015] 3 NZLR 117 at [32]. The Court took a large number of factors into account in making its findings. This included factors unrelated to residence. This decision was overturned on appeal to the Supreme Court which found that the appellant was not ordinarily resident in New Zealand. The Supreme Court said at [32] that the meaning of the words “ordinarily resident” turned on the particular statutory context in which they were used. In this case the relevant statute was the Social Security Act 1964 and the term “ordinarily resident” “denote[s] a place in which someone resides”: at [36].
83 Family Law Act RSO 1990 c F.3, s 15.
33.33 In New Zealand, the general approach has been to resolve
the conflict by referring to where the partners are domiciled (habitually
reside). The situation immediately becomes more complex,
however, if one
partner is ordinarily resident in another country or where the partners are
domiciled or resident in New Zealand
but want the law of another country to
apply to their dispute.
33.34 Focusing on domicile and habitual residence may fail to capture the true centre of gravity for the relationship. For example, residence at the time of marriage fails to recognise that partners may change residence, and residence at the time of separation
is arbitrary and does not necessarily have any link to the relationship.
Domicile is still used in section 7 of the PRA but fails to capture the
increasing reality that two partners can be domiciled in different
countries.84
33.35 Focusing on the country to which the relationship has its closest
connection can also be used in reverse to deal with couples
whose relationship
has its closest connection with another country but who also have a minor
connection with New Zealand. This could
be done by extending the provision in
section 7(3).
33.36 Take as an example Cynthia and Michael, who are a de facto couple living and working in Singapore. They are Singaporean citizens but spend every holiday in Wanaka where Cynthia owns a holiday home. From the perspective of the time, cost and complexity involved, it is not logical that any dispute over the Wanaka property is dealt with by a New Zealand court. The
outcome under New Zealand law, which generally treats de facto couples like
married couples, could be different to that under Singaporean
law. Such an
outcome could be different to that reasonably expected by Cynthia and Michael.
Focusing on the country to which the
relationship has the closest connection
would address these issues.
33.37 The habitual residence of each partner may be an important factor in determining the country to which the relationship has its closest connection, but it would only be one factor. Other factors could include the time the partners spend apart and together
in a certain location, joint and separate property ownership,
social connections, whether the partners had a permanent home
somewhere, where the relationship ended, where the income
earning activities of the relationship are based, evidence of any property
sharing agreements and where any children of the relationship
live.
C ONSU LTATION QUESTIONS
L16 Do you agree that where a relationship has its closest connection with New Zealand the
PRA should be the law applied to any relationship property dispute?
L17 What factors will be relevant in determining the place a relationship has
its closest connection with?
When will a New Zealand court decide the matter?
33.38 Jurisdiction can be a complicated matter in cross-border proceedings and is often mixed up with questions of choice of law (what law should apply). To bring a matter before a court,
both subject matter jurisdiction and personal jurisdiction must be
established.
Subject matter jurisdiction
33.39 Section 22 of the PRA states that “every application under this
Act must be heard and determined in the Family Court”.85 The
New Zealand Family Court therefore has jurisdiction to hear every matter to which the PRA applies, which includes matters relating to all property that comes within section 7. This is called subject matter jurisdiction.86 If a court has subject matter jurisdiction to deal with a relationship property dispute then the law applied is the PRA.87 A court can make orders in relation to any property covered by the PRA (the question of enforceability of that order will be considered below).
33.40 If the partners have agreed in writing that the law of another
country applies under section 7A(2), then the Family Court
does
85 This is unless a Family Court transfers the matter to the High Court: s 38A.
86 See David Goddard “Relationship Property Disputes – the International Dimension” (paper presented to the New Zealand
Law Society Family Law Conference, Auckland, October 2003) at [2.2].
87 Bill Atkin “Distribution of Property on Divorce” in J Heaton and B Stark (eds) Routledge Handbook of International Family
Law (2017, Routledge, Abingdon, UK) (forthcoming), Ch 6.
not have subject matter jurisdiction. This becomes a matter for
the District Courts or High Court as discussed below.
Personal jurisdiction
33.41 Personal jurisdiction must also be established. Personal
jurisdiction generally requires that there is valid service of
proceedings on
the person against whom the claim is made (the defendant). The PRA only
addresses subject jurisdiction and does
not deal with personal jurisdiction.
This means that in PRA cases personal jurisdiction follows the general rule
that there must
be valid service of proceedings on the defendant.
33.42 Proceedings must be served on the defendant under the rules of the Family Court, the District Court and where relevant the High Court. A defendant can be served at any time he or she is in New Zealand. Service can be difficult where the defendant is overseas.88 The rules for service differ depending on a range of factors including whether there is an agreement between the
partners, whether the defendant has submitted to the jurisdiction of the New Zealand court, whether the claim is under the PRA,
the law of contract, constructive trust law or the law of another country and
whether the defendant is ordinarily domiciled in New
Zealand or
elsewhere.
33.43 In certain circumstances leave of the court will be required for
proceedings to be served.89 When a defendant is served overseas
additional documents need to be provided. Notice must be given to the defendant
informing the
defendant of, amongst other things, the scope of jurisdiction of
the court, the arguments of the plaintiff and the defendant’s
right to
object to the jurisdiction.90
When jurisdiction is not exercised by a court
33.44 Under section 7(3) of the PRA a court can decline to exercise
jurisdiction over foreign movable property, where the defendant
is neither
domiciled nor resident in New Zealand.91
89 District Court Rules 2014, r 6.24; and High Court Rules 2016, r 6.31.
90 District Court Rules 2014, r 6.27; and High Court Rules 2016, r 6.31.
33.45 In addition a defendant served overseas can object to the court
exercising jurisdiction. An objection can be made on three separate
grounds:
(a) There was no arguable case that the grounds for serving proceedings
abroad without leave were satisfied.92 The burden is then on the
applicant to prove there was a good arguable case and there are serious issues
to be tried.
(b) There are no serious issues to be tried.
(c) That New Zealand is forum non conveniens (New Zealand is not the most
appropriate forum for the matter to be heard and decided
and that another
forum would be more appropriate). We discuss this below.
33.46 If the defendant succeeds in establishing one of the above grounds, the applicant must then establish that the New Zealand court should exercise jurisdiction, including showing that
New Zealand is forum conveniens (New Zealand is the most appropriate forum).
A partner seeking to establish that New Zealand is
the most appropriate forum
will have a more persuasive case if there has been consideration of how to
minimise costs and obstacles
such as giving evidence by video link or meeting
the costs of the other party or by conceding certain pieces of overseas
evidence.
33.47 Where proceedings were served on a defendant in New Zealand, the defendant cannot object to jurisdiction because it has already been established. A defendant can, however, request that the court stay the proceedings if he or she can establish that New Zealand is forum non conveniens.93 A key factor in determining whether another country is the appropriate forum is the question
of
enforceability.
92 District Court Rules 2014, r 6.23.
93 District Court Rules 2014, r 15.1; and High Court Rules 2016, r 15.1. See Ghose v Ghose (1997) 16 FRNZ 455 (HC).
The forum conveniens test and the forum non
conveniens test
33.48 The principles of forum conveniens or forum non conveniens are used
by the courts in New Zealand when a party objects to
the New Zealand courts
exercising jurisdiction.94
33.49 A range of factors are considered by a court in identifying the most
appropriate forum. These include:95
(a) cost and convenience of proceedings in each of the potential
jurisdictions;
(b) the location and availability of witnesses;
(c) how litigation has proceeded in these jurisdictions (in other
proceedings);
(d) whether all the parties are subject to New Zealand jurisdiction so
all issues may be resolved in a single hearing;
(e) whether the relevant law is New Zealand law or foreign law (because it
is preferable to apply the law of a country in that
country);
(f ) the existence of any agreement that refers to the appropriateness of
either country to hear the dispute;
(g) the strength of the plaintiff ’s case;
(h) whether the judgment must be enforced;
(i) whether the application is being made to gain a tactical advantage or
whether it is because the defendant truly wants the
hearing to be in another
forum;
(j) any procedural advantage in the particular jurisdiction;
and
(k) whether the other jurisdiction has held it is the most appropriate forum.
33.50 The fact that the PRA is the applicable law is only one factor to
take into account.
94 These principles were reviewed by the House of Lords in Spiliada Maritime Corporation v Cansulex Ltd [1986] UKHL 10; [1987] AC 460 (HL)
and confirmed in New Zealand in Wing Hung Printing Co v Saito Offshore Pty Ltd [2010] NZCA 502; [2011] 1 NZLR 754 (CA) at [43].
33.51 In relationship property cases, the New Zealand courts have been
influenced by where the property in dispute is located and the law that
will be applied to determine the rights of the
partners.96
How have the courts applied these factors?
33.52 In L v L there was disputed property in both New Zealand and the United States.97 The wife was domiciled in New Zealand when she made her application, and the husband was resident in the United States. The husband did not formally object to the New Zealand courts having jurisdiction, did not commence proceedings in
the United States and even expressed the view that the courts in New
Zealand should decide the matter. Having assumed that the
property in the
United States was movable property (given there was no evidence to the
contrary), the New Zealand Family Court did
not exercise the power under section
7(3) to not make an order. Instead it held that the movables in the United
States were relationship
property and therefore subject to division.
33.53 In W v Y the Family Court held that Taiwan was the
appropriate forum.98 The partners married and had their children in
Taiwan. The husband helped settle the wife and some of their children in New
Zealand
but he remained resident and domiciled in Taiwan. The parties entered
into a matrimonial property agreement in Taiwan. The wife
claimed that she was
forced into the agreement and did not understand her rights when she signed
it. The Family Court noted the
following points in finding that New Zealand was
not forum conveniens and that the appropriate court to hear the dispute was in
Taiwan:
(a) the part of the relationship when the partners lived together as a
couple was in Taiwan;
(b) the income earning activities of the relationship were in
Taiwan;
(c) the partners were likely to be more aware of Taiwanese than New Zealand
relationship property law;
(d) neither partner was fluent in English;
96 Gilmore v Gilmore [1993] NZHC 1508; [1993] NZFLR 561 (HC).
97 L v L FC Levin FAM 2003-031-336, 8 December 2005.
98 W v Y FC Manukau FAM 2004-092-1762, 30 March 2007.
(e) the New Zealand courts had no jurisdiction over land in
Taiwan;
(f ) the relevant investments were controlled by the husband in Taiwan;
and
(g) evidence relating to matters surrounding the matrimonial property
agreement was more available in Taiwan.
33.54 In S v S the property was mostly movable property located outside New Zealand.99 The wife was a New Zealand resident and the husband an American citizen residing in Guam. The wife commenced PRA proceedings in New Zealand and the husband commenced proceedings in Guam seeking a divorce and a division of community property. The factors against the New Zealand
court dealing with the matter were that additional fees would be incurred by
the partners and there was an increased evidential burden
as information would
have to be sought from overseas and explained to New Zealand counsel and the
court. Factors in favour of
the dispute being heard in New Zealand were that
the wife might not be able to afford the cost of a lawyer in Guam nor afford the
cost of representing herself in proceedings in Guam. The Family Court did not
decline to exercise jurisdiction but granted leave
to the husband to reapply if
funds were provided to the wife to meet her legal costs in Guam.
What are the issues with the rules relating to jurisdiction?
33.55 There do not seem to be any major issues in relation to the
jurisdiction rules but we consider there is an issue relating
to which New
Zealand court should hear cases where another country’s law is to be
applied. This is due to the complexity
inherent in applying the law of another
country.
33.56 Goddard has noted that “because [section] 7 goes to the
jurisdiction of the Family Court to hear the proceedings, the
Family Court
cannot hear a claim in respect of property to which [section] 7 does not
apply”.100 This may include matters where the relevant law
is not the PRA, and the dispute must be determined
99 S v S FC Christchurch FAM-2006-009-2233, 27 April 2007.
100 David Goddard “Relationship Property Disputes – the International Dimension” (paper presented to the New Zealand
Law Society Family Law Conference, Auckland, October 2003) at 397.
by reference to common law or equity. This may also include
where the law to be applied to the matter is the law of another country. In
such cases, the matter must go to the District Court
or the High
Court.101
33.57 Applying the relationship property law of another country is likely to be complicated and require the advice of experts. In addition, the Family Court will not have subject matter jurisdiction if
the PRA does not apply, for example, if the partners had a valid written agreement that the law of another country applies. Proceedings involving the application of foreign law would need to be transferred to the District Court or the High Court,
depending on the amount and nature of the claim.102 Transfer of
proceedings can be costly in both the money involved and the time it
takes.
33.58 Two options discussed in Chapter 26 are relevant here. First is the option to have concurrent jurisdiction of the High Court and Family Court. Second is the option to allow the High Court to transfer proceedings from the Family Court. If the matter
is complex,103 or it involves the application of foreign law and
requires transfer to a higher court, then the process could be
improved.
C ONSU LTATION QUESTIONS
L18 Do you agree that any dispute involving the potential application of
foreign law should be able to be transferred to the High
Court? If not, why
not?
L19 Is there capacity for the Family Court to exercise originating
jurisdiction, for example, if there is a dispute whether a section
7A(2)
agreement is valid? If this was resolved and a finding that the law of another
country was to be applied, should this then
be transferred to the High
Court?
101 David Goddard “Relationship Property Disputes – the International Dimension” (paper presented to the New Zealand
Law Society Family Law Conference, Auckland, October 2003) at 397.
103 As per the threshold in s 38A of the Property (Relationships) Act 1976.
How and where can a judgment or order
be enforced?
33.59 In Chapter 14 we examined the range of orders a court may make under the PRA. These include vesting, ancillary, postponement and financial orders.104 These orders provide flexibility under the PRA so a court can find a workable solution for the partners in their particular circumstances. When the proceeding has a cross-
border element, the flexibility reduces. This is due to difficulties in
enforcing the remedy overseas.
33.60 Although each country has different rules and approaches, the key point is that another country is unlikely to enforce a judgment from a foreign court over immovable property inside that country.105 This means, in practical terms, that where the property in question is a foreign immovable, a New Zealand court should order relief of a different nature rather than an order purporting
to vest overseas property in the applicant partner. For example, a court in
New Zealand could impose a personal obligation on one
partner to deal with
overseas land as directed. Failure to uphold that obligation can lead to
personal remedies against that
partner, such as a finding that the individual
is in contempt of court.106
What should happen?
Increased range of remedies to be used by a court
33.61 Any reform should focus on ensuring that a range of remedies is available under the PRA. Courts should be encouraged to consider all the facts relating to the partners, their circumstances and
the dispute when deciding relief. For example, a financial order
against a partner may be more appropriate and be more likely
104 Section 33(1) of the Property (Relationships) Act 1976 gives
a court a general power to:
make all such orders and give such directions as may be necessary or expedient to give effect, or better effect, to any order made under any of the provisions of sections 25 to 32.
to be enforced (and failure to comply can lead to appropriate
consequences that can likewise be enforced against the recalcitrant
partner).
33.62 In Part G we discuss the power of a court to make orders concerning
property held on trust that would otherwise be relationship
property.
Similarly, one option for reform in the cross-border context would be to give
the courts greater express powers to consider
relationship property overseas
in order to effect a just division of the pool of relationship
property.
33.63 In Chapter 26 we discuss a court’s inventory function as explored by the High Court in Yeoman v Public Trust Ltd.107 The Court noted that division of relationship property under the PRA includes inventory-taking, ascertaining relationship debts, applying division provisions under Part 4 of the PRA and making orders under Part 7.108 It would seem a natural step for all overseas property (both movable and immovable) to be identified and accounted for as part of an inventory exercise. It would also be
in accordance with the policy that a just division of property
under the PRA requires that all relationship property be identified and
accounted for. Failure of a partner to fully disclose overseas
property could be
subject to penalties, as discussed in Chapter 25. After a full inventory was
taken of both overseas and domestic
property, a court could call on the full
range of remedies available under the PRA such as vesting, ancillary,
postponement and
financial orders and choose and adapt a remedy to best
address the circumstances of the partners.
33.64 There are limitations with this approach, for example, if all the relationship property comprises overseas immovable property. However, a key benefit is that such an approach is more likely to be in keeping with the reasonable expectations of the parties. All relationship property is dealt with together by one court rather than the potential for different proceedings, under different
laws, in different countries. If the law applied was the law of the country with which the relationship has its closest connection, then it would also be more likely that a majority of this property would be in that country. It would be rare for a relationship to have its closest connection with New Zealand but for all the
relationship property to be overseas.
107 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC).
108 Yeoman v Public Trust Ltd [2011] NZHC 1869; [2011] NZFLR 753 (HC) at [33].
C ONSU LTATION QUESTIONS
L20 Do you agree that a court should have to take into account all overseas
property when making an inventory of all relationship
property?
L21 Do you have suggestions for expanding the range of remedial measures?
Part M –
What should happen
when one partner dies?
Chapter 34 – Dividing
relationship property when one partner dies
Introduction
34.1 Many relationships will end with the death of one partner.1
The PRA makes provision for relationships that end on death, as well as
relationships ending on separation. The provisions that
apply when one
partner dies are set out in Part 8 of the PRA, and were introduced in
2001.
34.2 In this part we explore how the PRA applies when one partner dies. We discuss the tensions between the PRA’s provisions that apply on death and succession law, which provides the rules for what happens to a person’s property when they die. The fundamental question in this part is whether the PRA
can reconcile the competing interests of all those potentially affected by the death of a partner, given the PRA’s focus on the just division of property between partners.2 We express our preliminary view that a separate statute dealing with relationship property rights on death, together with the types of claims currently contemplated by the Family Protection Act 1955 and
the Law Reform (Testamentary Promises) Act 1949, is desirable because it
would allow a comprehensive approach to the question of
how to balance competing
interests in a deceased’s estate.
34.3 One important issue which we do not explore in this part is how the
PRA’s provisions that apply on death affect succession
in tikanga
Māori. The Law Commission undertook some preliminary
2 There has been relatively little academic commentary on the application of the Property (Relationships) Act 1976
(PRA) on the death of one partner, compared with other aspects of the PRA, particularly in comparison to commentary on other reforms made by the 2001 amendments, such as the economic disparity provisions (ss 15–15A), and other aspects of succession law such as the Family Protection Act 1955. A small number of authors have critically examined the operation of the PRA on death: see Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Relationship Property on Death (Brookers, Wellington, 2004); Nicola Peart “New Zealand’s Succession Law: Subverting Reasonable Expectations” (2008) 37 Common Law World Review 356; and Nicola Peart “Family Finances on Death of a Spouse or Partner” in
Jessica Palmer, Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
work in this area as part of its review of the law of succession
in the 1990s.3 Careful consideration needs to be given to how
relationship property rights should interact with succession in a Māori
context.4
34.4 In this chapter we briefly explain succession law and set out
the history of the PRA’s provisions that apply on death. We then
describe what may happen to property when a person dies
and is survived by a
partner. The rest of Part M is arranged as follows:
(a) In Chapter 35 we consider the issues that have emerged since the PRA
was extended to apply to relationships ending on death
in 2001 and options to
address these issues by reform of Part 8.
(b) In Chapter 36 we consider the option of having a separate statute which deals with relationship property division on death as well as claims against the estate currently contemplated by the Family Protection Act
1955 and the Law Reform (Testamentary Promises) Act
1949.
34.5 Throughout Part M we use the terms “deceased partner” (the spouse, civil union or de facto partner who has died) and “surviving partner” (the spouse, civil union or de facto partner who has survived his or her partner). We also refer to the
“personal representative” of the deceased, being the person who
is responsible for administering the deceased’s
estate.
Overview of succession law
34.6 Succession law determines what happens to people’s property when
they die. Given that approximately 30,000 deaths are
registered in New Zealand
each year, many people will be affected by succession law.5 It is
important that the law in this area is clear
of Te Ao Maori in Relation to Reform of the Law of Succession (NZLC MP6, February 1996). The Commission also addressed succession issues in its Study Paper: Māori Custom and Values in New Zealand Law (NZLC SP9, March 2001).
4 In Part C of this Issues Paper we explore the exclusion of Māori land and taonga from the Property (Relationships) Act
1976. These exclusions apply when relationships end on death as well as on separation. For a discussion of possible issues that arise for Māori on the death of one partner see Jacinta Ruru “Implications for Māori: Contemporary Legislation” in Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Relationship Property on Death (Brookers, Wellington, 2004) 445 at 487–490.
5 The number of deaths registered in New Zealand totalled 31,179 in 2016; 31,608 in 2015; and 31,062 in 2014: see
Statistics New Zealand “Deaths by age and sex (Annual-Dec)” (May 2017) <www.stats.govt.nz>. In 2016, the High Court
and accessible so that people understand both their rights and
duties as a will maker and their rights in respect of a deceased’s
estate.
34.7 Succession law in New Zealand is found in both statute law and common
law.6 The main statutes dealing with succession law are the Wills
Act 2007, the Administration Act 1969, the PRA, the Family Protection
Act 1955
and the Law Reform (Testamentary Promises) Act 1949 (TPA). For our discussion in
Part M, the PRA, the Family Protection
Act 1955 and the TPA are the most
relevant.
34.8 Leaving aside the PRA for the moment, a deceased’s estate may be
dealt with in three ways:
(a) in accordance with the deceased’s will, where he or she sets out
what should happen to his or her property on death
in a valid
will;7
(b) under the rules of intestacy, which apply when there is no valid will,
set out in section 77 of the Administration Act 1969;
or
(c) under the rules of survivorship, where the deceased
co-owned property with others as joint tenants, which means that the
surviving joint tenant or tenants automatically receive the
deceased’s
share of the property.8
34.9 The distribution of property under a will or the intestacy rules is
sometimes affected by third party claims. There are two
statutory avenues for a
third party to seek an adjustment to the distribution of
property.9
34.10 First, the Family Protection Act allows a claim where the deceased has failed to discharge an obligation to provide “proper maintenance and support” for family members in his or her will
or under the rules of intestacy.10 Family members entitled to make
granted probate (i.e. where there is a will) 14,832 times and letters of administration (i.e. where there is no will) 1058 times: data provided by email from the Ministry of Justice to the Law Commission (13 June 2017).
7 The requirements for a valid will are set out in the Wills Act 2007.
9 A dissatisfied individual can also make a claim for a constructive trust over the deceased’s estate but these claims are
less common. See C v C [2016] NZHC 583 for an example of such a claim. It is not necessary for us to discuss such claims further to highlight the general point that third party interests may result in the adjustment of the division of property. The use of constructive trust claims may occur because the Family Protection Act 1955 is not considered adequate and this question falls outside our Terms of Reference.
10 Family Protection Act 1955, s 4(1).
a claim include any partner,11 child, grandchild, stepchild who was
being maintained at the time of death, or parent of the deceased.12
Proper maintenance and support goes beyond simply providing for a
person’s needs and requires “recognition of belonging
to the
family and of having been an important part of the overall life of the
deceased”.13
34.11 Second, the TPA allows a claim where the deceased promised to provide for a person, including a surviving partner, in a will in return for services that the person provided to the deceased
during the deceased’s lifetime. A surviving partner or third party
may have an interest in the deceased’s estate that
the deceased failed to
recognise and account for in his or her will.14
34.12 A surviving partner can make a claim under the TPA
where:15
(a) the deceased promised to provide for the surviving partner from his or
her estate;
(b) the surviving partner provided services to the deceased during the
deceased’s lifetime that went beyond “the
normal incidents of the
relationship”;
(c) the provision promised was a reward for the services provided by the
surviving partner; and
(d) the deceased failed to keep that promise.
34.13 Given the difficulty of establishing these elements, surviving
partners rarely make claims under the TPA and are more likely
to make a claim
under the Family Protection Act.16
34.14 The Family Protection Act and the TPA seek to address different
rights or needs. The Family Protection Act relates to
claims for maintenance
and support of family members out of the deceased’s estate. The TPA is
about enforcing promises made
by the deceased in return for services by the
party making the claim and is not
13 Williams v Aucutt [2000] NZCA 289; [2000] 2 NZLR 479 (CA) at [52].
15 Set out in Nicola Peart “Other Claims Against the Estate” in Nicola Peart, Margaret Briggs and Mark Henaghan (eds)
Relationship Property on Death (Brookers, Wellington, 2004) 419 at 428.
16 Nicola Peart “Other Claims Against the Estate” in Nicola Peart, Margaret Briggs and Mark Henaghan (eds) Relationship
Property on Death (Brookers, Wellington, 2004) 419 at 428.
limited to family members. Unless there is a very large estate it
may be difficult to satisfy claims under these Acts.
34.15 Under the PRA, however, the surviving partner can elect to
make an application for the division of the partners’ relationship
property instead of relying on succession law.17 The personal
representative of the deceased may also, in some circumstances, be able to apply
for a division of relationship property
under the PRA.18 What
happens when an application for the division of relationship property is made
following the death of one partner is discussed
below.
History of Part 8 of the PRA
34.16 Before the enactment of Part 8 of the PRA in 2001, a surviving spouse could make an application under the Matrimonial Property Act 1963 for an order against the deceased spouse’s estate for an award based on contributions made by the surviving spouse to
the property of the deceased spouse.19 That Act gave the personal representative of the deceased an equivalent right to apply
for orders in relation to the division of property, and this was commonly used to recover assets for beneficiaries of the estate or to enable the estate to meet claims under the Family Protection Act.20 The Matrimonial Property Act 1963 did not address the relationship between matrimonial property orders and rights
to provision from the deceased’s estate, and this resulted in confusion as to how the Act was to operate on death.21 In Re Mora, the Court of Appeal clarified that while an order under the Act could take into account any provision made for the spouse under succession law, it was possible for the surviving spouse to retain the entitlement under succession law as well as the matrimonial
property award.22
17 Property (Relationships) Act 1976, s 61.
18 Property (Relationships) Act 1976, s 88.
21 Nicola Peart “Family Finances on Death of a Spouse or Partner” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark
Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
22 Re Mora [1988] NZCA 24; (1988) 4 NZFLR 609 (CA) at 614.
34.17 The Matrimonial Property Act 1976 did not apply on the death
of a spouse.23 In a White Paper published on the introduction of the Matrimonial Property Bill 1975 to Parliament, the Minister
of Justice said, however, that “the rights of a widow (or widower) should not be inferior in any way to those of a divorced or separated spouse”.24 Consideration of how this was to be achieved was deferred.25 This meant that the Matrimonial Property Act
1963 continued to apply on the death of a spouse. There was no presumption
of equal sharing and the surviving spouse had to prove
contributions to the
property to justify receiving property, besides any inheritance he or she may
have received.
34.18 The position was considered again by the Working Group established in 1988 to review the Matrimonial Property Act
1976,26 and by the Law Commission in its review of succession law
in the 1990s.27 Both identified as an anomaly the failure of the
Matrimonial Property Act 1976 to apply when one spouse died.28 As
the law stood, the situation could arise where a spouse was given less property
on the death of one spouse under the Matrimonial
Property Act 1963 than he or
she would have been entitled to had the spouses separated and the equal sharing
regime applied.
34.19 The Working Group recommended that when a marriage ended on death the surviving spouse should have a choice between dividing the spouses’ matrimonial property under the Matrimonial
Property Act 1976 or taking whatever entitlement was provided under the deceased’s will.29 The Law Commission made a similar
proposal.30 Both emphasised the principle that the
surviving
[a] number of submissions [to the Statutes Revision committee] advocated that the principles in the [1975] Bill should be extended to operate after the death of one spouse. There was general agreement with that proposition – however the Bill itself could not be so extended. . . . In the meantime the 1963 Act must continue in force for the limited purpose of enabling matrimonial property proceedings to be instituted after the death of one party; this is an interim situation which all would regard as unsatisfactory but unavoidable.
28 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 40; and
Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at [4] and [15].
29 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 44.
30 Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at C36.
spouse should be no worse off than one whose marriage had
broken down during the joint lives of the spouses.31 The Working
Group was careful to distinguish between matrimonial property law and
inheritance law, observing that:32
The function of matrimonial property law is to ensure that a marriage
partner whose marriage has come to an end receives what is rightfully
his or her
own property. It should go no further than that. If a deceased has failed to
make proper provision for the survivor out
of the deceased’s share of
matrimonial property or separate property, the survivor should apply for an
appropriate award under
inheritance law.
34.20 The Working Group did not, however, consider that the estate should
have a right to bring proceedings against the surviving
spouse.33
Noting that the broad object was to ensure that the surviving spouse
was no worse off than one whose marriage had broken down,
the Working Group
felt that:34
It does not follow that the estate should be able to sue the survivor to ensure that the survivor is left with no more than his or her share of matrimonial property. Where one spouse has died the contest is no longer between two partners who take their share
and then go their different ways. It is between the survivor of a marriage
and the beneficiaries under a will or on an intestacy,
or potential family
protection claimants. There is also the obvious point that the deceased may have
wished the survivor to take
the deceased’s share of matrimonial
property.
34.21 The Law Commission came to a different conclusion. In its Preliminary Paper on succession law it took the position that “a property division may be initiated either by the surviving
spouse or else by the will-maker ’s administrator”.35 In theory, the Commission said, “if property is held unequally between husband and wife, either should be able to reclaim their own property.
It does not matter who dies first.”36 This was in
accordance the
33 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 46.
34 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 46.
The Working Group noted at 46–47 that the Ontario Law Reform Commission reached the same conclusion, and this conclusion was reflected in the resulting legislation. Among reasons given by the Ontario Law Reform Commission were that (a) to permit such claims would in many cases result in property returning in due course to the survivor, and (b) a survivor with children should not have his or her assets diminished by such claims.
35 Law Commission Succession Law: Testamentary Claims (NZLC PP24, 1996) at [106].
36 Law Commission Succession Law: Testamentary Claims (NZLC PP24, 1996) at [107].
Commission’s view that property division on death should “be
governed by the principles of the law of matrimonial property, as they apply to spouses whose marriage ends by divorce.”37
These views were reflected in the Commission’s Final Report.38
The Commission noted, however, that the survivor should be able to advance a “support claim” if the administrator of the deceased spouse’s estate initiates the recovery of the estate’s share of the matrimonial property.39 A support claim would permit
the surviving spouse to maintain a reasonable, independent standard of
living but only until he or she could reasonably be expected
to become
self-supporting, having regard to the financial consequences of the
partnership.40 The Commission said:41
In practice, it may not be worthwhile for the administrator to bring
property division proceedings during the survivor’s lifetime.
The claim is
likely to be met by the survivor’s claim for support. But on the
survivor’s death, the equalisation of estates
may well be desirable, for
example, to secure provision for the children from the previous marriage of the
partner who dies first.
34.22 Both the Working Group and the Law Commission also made recommendations in relation to the Family Protection Act and the TPA. The Working Group proposed that the provisions covering division of matrimonial property on death should be included in the Matrimonial Property Act 1976, while the Family Protection Act and TPA provisions should be combined in a new statute.42
The Law Commission recommended that rules relating to the division of matrimonial property on the death of a spouse, support claims and contribution claims all come under a new statute, to be called the Succession (Adjustment) Act, and that the Family Protection Act and the TPA be repealed.43 The purpose of the proposed Succession (Adjustment) Act was to align claims against estates with claims that could be made against the
deceased during his or her lifetime.44 Neither of the new
statutes
37 Law Commission Succession Law: Testamentary Claims (NZLC PP24, 1996) at [99].
38 Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at [C31] and [C35].
39 Law Commission Succession Law: Testamentary Claims (NZLC PP24, 1996) at [107].
40 Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at [52]–[55] and [C3]–[C5]. This
was consistent with “spousal support rules for when a marriage ends on dissolution of marriage during spouses’ joint lifetime” in s 64 of the Family Proceedings Act 1955 (Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at 80).
41 Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at [C35].
42 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 40 and
63. Having noted that not allowing the estate to make a claim could give rise to issues where children from a previous relationship are not provided for, the Working Group commented that a new Inheritance Act could be created allowing step-children to sue step-parents (at 47).
43 Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at vii.
44 Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at [C4]
proposed by the Working Group or the Law Commission has been
implemented.
34.23 Instead, the 2001 amendments introduced Part 8 into the PRA,
extending the equal sharing regime to relationships ending
on death.45
The amendments were intended to address the “major anomaly”
that the Matrimonial Property Act 1963 applied on a spouse’s
death
rather than the equal sharing regime.46
What happens to a partner ’s property when they die?
34.24 We set out below how succession law and the PRA can apply when a
person dies, leaving behind a partner and other potential
beneficiaries.
The surviving partner ’s choice under the PRA
34.25 When one partner dies, there is a risk that his or her will does not make adequate provision for the surviving partner ’s relationship property entitlement under the PRA. For example, if most of
the partners’ property was in the deceased’s sole name, and the
deceased leaves his or her property to the partners’
children, the
surviving partner is worse off than if the partners had separated before
death.47
34.26 To protect against this risk, and the risk that the rules of
intestacy might apply, section 61 of the PRA gives a surviving
partner the
choice to:
(a) apply for a division of relationship property under the
PRA (option A); or
(b) receive an entitlement provided under the deceased’s will, or if
the deceased dies without a will, under the intestacy
rules (known as option
B).
45 Property (Relationships) Amendment Act 2001, pt 8.
46 Matrimonial Property Amendment Bill 1998 (109-1) (explanatory note) at i.
34.27 If the surviving partner does not make a choice of option A
or option B in the required manner and within the required timeframe, he or
she is treated as having chosen option B.48
34.28 Once the surviving partner chooses option A or option B, he
or she cannot withdraw that choice.49 A court can set aside the
choice, however, but only if it is satisfied that
either:50
(a) the decision was not freely made;
(b) the surviving partner did not fully understand the effect of the
choice;
(c) the surviving partner has received relevant information since the
choice was made; or
(d) someone other than the surviving partner has made an application under
the Family Protection Act or the TPA in relation to the
deceased partner
’s estate; and
(e) in all the circumstances it would be unjust to enforce the
choice.
The personal representative’s choice under the PRA
34.29 The surviving partner is not the only person who can apply for a
division of relationship property under the PRA.51 Sometimes the
personal representative of the deceased will want a court to determine the
deceased’s interest under the PRA.
This situation will usually arise
because the personal representative wants to ensure that some of the
deceased’s estate
is available for other beneficiaries under the will or
for potential claimants under the Family Protection Act or the TPA.
34.30 A personal representative may only apply for a division of relationship property if a court grants leave to do so.52 A court can only grant leave if it is satisfied that failing to do so would cause “serious injustice”.53 In Public Trust v W, for example, leave
was granted because the court was satisfied that the deceased
had
49 Property (Relationships) Act 1976, s 67.
50 Property (Relationships) Act 1976, s 69.
51 Property (Relationships) Act 1976, s 88.
52 Property (Relationships) Act 1976, s 88(2).
53 Property (Relationships) Act 1976, s 88(2).
structured his affairs in order to avoid fulfilling his moral duty to
provide for the minor children of a former
relationship.54
Option A – dividing the relationship property under the PRA
34.31 If option A is chosen the surviving partner ’s relationship
property entitlement under the PRA has priority over claims
under the Family
Protection Act or the TPA, as well as priority over any beneficial interest
under a will or the rules of intestacy.55
34.32 If a surviving partner chooses option A, or a court grants the
deceased’s personal representative leave to apply for
a division of
relationship property, the PRA’s general rules of classification and
division of relationship property (discussed
in Part C and Part D of this
Issues Paper) apply, with some modifications.56
34.33 There are several important modifications to the PRA’s rules of
classification and division that apply only on death:
(a) First, section 81 presumes that all of the deceased’s property
is relationship property.57 Any person who asserts otherwise must
prove the disputed property is not relationship property.58 This is
subject to the provisions of the PRA relating to contracting out agreements,
discussed below.59
(b) Second, section 83 provides that property that would have otherwise passed to the surviving partner by the rule of survivorship (that is, any property owned as
joint tenants) is not automatically the separate property of the surviving partner. The status of that property as relationship property or separate property is determined according to the status it would have had if the
deceased partner had not died, unless a court decides
otherwise.60 The High Court has clarified that section 83
54 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA) at [50]–[51].
55 Property (Relationships) Act 1976, s 78.
56 Property (Relationships) Act 1976, s 75(b).
59 Property (Relationships) Act 1976, s 81(3).
only applies where the surviving partner chooses option
A.61 It cannot be relied on when the deceased’s personal
representative applies for a division of relationship
property.62
(c) Third, the rules of division for short-term relationships that end on death are different to the rules for short- term relationships that end on separation.63 If a short- term marriage or civil union ends on death, the PRA treats the relationship as if it was not of short duration, unless the result would be “unjust”.64 If, however, a
short-term de facto relationship ends on death, the same rules apply as for
short-term relationships ending on separation, and a court
cannot make an order
for a division of relationship property unless either:65
(i) there was a child of the relationship; or
(ii) the surviving partner made a substantial contribution to the
relationship;66 and
(iii) not making the order would cause serious injustice.
34.34 In practice, when option A is chosen, the surviving partner and the personal representative of the deceased will usually agree on the classification and division of the partners’ property, in the same way separating partners negotiate a property division under the PRA. Any agreement reached should be formalised
in accordance with section 21B of the PRA. If agreement is not reached, the surviving partner can apply to a court for division of
relationship property.
just to do so. The Court found that the survivorship rule should apply and the widow was allowed to retain the holiday home. The Court relied on the purposes and principles of the Act as stated in ss 1M and 1N. The Court also considered factors at [61]–[62] such as the sentimental value of the holiday home to the surviving spouse and the deceased’s intention that the surviving partner would acquire the asset by survivorship. Other factors that were not expressly mentioned in the judgment were that the bulk of the deceased’s estate was separate property that was left to a friend, and that there were no competing claims as the deceased had no children: Nicola Peart (ed) Brookers Family Law – Family Property at [PR83.04]. This decision was criticised in Brookers Family Law – Family Property at [PR83.03] because the Court should have classified the assets as the widow’s separate property rather than holding that the survivorship rule should apply. Classification would have achieved the same result in the case.
61 Thompson v Public Trust [2014] NZHC 1374, [2014] NZFLR 902 at [88].
62 Thompson v Public Trust [2014] NZHC 1374, [2014] NZFLR 902 at [88].
63 Property (Relationships) Act 1976, s 85.
66 What constitutes a “substantial contribution” was considered in the case of H v H [2013] NZHC 443, [2013] NZFLR 387.
The High Court settled on stating that it was a contribution “over and above” what would usually be expected in the normal course of a relationship at [53]–[56].
34.35 When a partner chooses option A, he or she foregoes any gifts
under the will, unless the will-maker has expressed a contrary intention in
the will.67 The will is then interpreted as if the surviving partner
has died before the deceased.68
34.36 A court may make an order under section 77 that the surviving partner should receive a gift under the will if it is necessary to avoid injustice.69 In addition, section 57 of the PRA preserves
the right of a surviving partner to make a claim under the Family Protection Act or the TPA. An example of the courts exercising discretion under section 77 is in B v A, where the surviving partner would have been left little of the deceased’s estate, which was principally a large farm that was the deceased’s separate
property, regardless of whether option A or option B was chosen.70
The court ordered that the surviving partner was to receive gifts provided
for under the will of the deceased.71
Option B – relying on succession law
34.37 If the surviving partner chooses option B and the deceased
partner left a will, the estate will be administered according to the terms
of that will, subject to any claims brought under
the Family Protection Act
1955 or the TPA, as discussed below.72
34.38 If the surviving partner chooses option B and the deceased partner died intestate, the surviving partner receives all of the deceased’s personal chattels, a prescribed amount of money which is set by regulation,73 and a certain portion of the remainder of
the estate depending on whether there were other surviving family members.74 If the deceased left behind children, the surviving partner receives one-third of the residue of the estate and the children receive two-thirds.75 If the deceased left behind no children but one or both parents are still alive, the surviving
partner receives two-thirds and the parent or parents receive
one
67 Property (Relationships) Act 1976, s 76.
68 Property (Relationships) Act 1976, s 76(3).
69 Property (Relationships) Act 1976, s 77.
70 B v A (2005) 25 FRNZ 778 (FC).
71 B v A (2005) 25 FRNZ 778 (FC).
72 Or under common law or equity.
74 Administration Act 1969, s 77.
75 Administration Act 1969, s 77.
third of the estate. If there are no children and no parents, the
surviving partner receives the entire estate.
Case study: Robin’s estate
Robin and Ataahua have been married since their early 20s. They have two children. They own two properties; their family home and a holiday house. All significant property they own was acquired during their relationship. Any money they have been gifted or inherited, or owned before they married,
has been intermingled with property obtained during the relationship. Both the family home and the holiday house are held in Robin’s name. Robin dies (aged 70), leaving Ataahua (aged 67) and the two children (both in their mid
30s). Robin leaves a will in which he leaves the family home and all family
chattels to Ataahua. He leaves the holiday home and
everything else that is
left over after the express gifts (known as the residue) to his children
jointly.
Ataahua has two options. She can choose option A, and apply for a division of relationship property. This would give her a half share in all the property, including both the property left to her in the will (the family home and chattels) and the property left to the children in the will (the holiday home and any residue). Alternatively, she can elect option B and take what she has been left under the
will. If she elects option A, she will lose any gifts under the will that
are not her share of relationship property because there
was no contrary
intention expressed. These gifts are Robin’s half of the home and the
family chattels. They would become
part of the residue of the estate and go to
the children in half shares.
Third party claims
34.39 The rights available to the surviving partner can affect the interests of third parties. As discussed at paragraph 34.31, if a surviving partner chooses option A, his or her relationship
property entitlement under the PRA takes priority over the will or the
intestacy rules, any duties and fees payable by the estate,
and any orders
made under the Family Protection Act or TPA.76
34.40 In addition to electing option A or option B, a surviving partner is also able to bring a claim under the Family Protection Act or TPA.77 This might occur where a large portion of the deceased’s estate is separate property left to a third party under the will, so little property is available to the surviving partner under either option A or option B. For example in B v A, discussed at paragraph
34.36, the court made an award under the Family Protection Act
77 Property (Relationships) Act 1976, s 57. See also Family Protection Act 1955, s 4; and Law Reform (Testamentary
Promises) Act 1949, s 3.
in circumstances where the surviving partner would have been
left little of the deceased’s estate (principally a large farm that
was his separate property) regardless of whether option
A or option B was
chosen.78
34.41 Claims brought by third parties as beneficiaries under the will
or the rules of intestacy, or under the Family Protection Act and
TPA, can affect the rights of the surviving partner. If option B is
chosen,79 the surviving partner ’s share of the estate may be
reduced. The personal representative of the deceased may also seek leave
to
apply for a division of property under the PRA, as discussed at paragraphs
34.29 and 34.30.
34.42 The PRA prioritises applications for the division of relationship
property over other claims on the deceased’s estate.80 As we
discuss in Chapter 36, the PRA, with its focus on the partners’
interests, is arguably not well-equipped to address
the tension between the
interests of surviving partners and third parties, nor the appropriate role of
the personal representative.
34.43 The rights of creditors under the Insolvency Act 2006 and
Administration Act 1969 are, however, preserved as if the PRA
did not
exist.81 This means that the rights of the deceased’s
creditors against the estate are unaffected by a surviving partner ’s
rights under the PRA. This is very similar in effect to section 20A of the PRA
which provides that the rights of creditors continue
as if the PRA had not
been enacted.
Contracting out agreements and death
34.44 An implicit principle of the PRA is that, subject to safeguards, partners should have the freedom to organise their property
affairs in a manner of their choosing.82 This includes deciding
how property should be divided on the death of one partner.
34.45 Section 21 of the PRA provides that partners can make an agreement
before or during a relationship, relating to the “status,
ownership and
division of their property (including future
78 B v A (2005) 25 FRNZ 778 (FC).
79 Or if option A is chosen and the surviving partner also receives property under the will: see discussion at paragraph
34.35.
80 Property (Relationships) Act 1976, s 78.
81 Property (Relationships) Act 1976, s 58. See discussion in Part K.
82 This implicit principle is discussed in Chapter 3. In Chapter 30 we discuss contracting out agreements in more detail.
property)”, when one partner dies.83 This means that if the
partners had a contracting out agreement under section 21 which provided for
how property was to be classified or divided on the
death of a partner, that
agreement would apply instead of the rules of the PRA.84 In order to
rely on a section 21 agreement, the surviving partner must elect option
A.
34.46 Section 21B provides that when one partner has died, the
deceased’s personal representative and the surviving partner
may make an
agreement to settle any claim with respect to the partners’ property. If
the surviving partner is also the personal
representative of the deceased then
section 21B(3) requires the agreement to be approved by a court under section
21C.
34.47 Contracting out agreements under section 21 and section 21B must
comply with the procedural requirements in section 21F.
If these requirements
are not satisfied then the agreement is void, subject to section
21H.85
34.48 Even if a valid contracting out agreement is made, the court retains
a power to set aside the agreement if it would cause
a serious
injustice.86 Section 87 provides for a surviving partner to
challenge a section 21 agreement before or after option A is
chosen.87
84 Property (Relationships) Act 1976, s 81(3).
86 Property (Relationships) Act 1976, s 21J.
Chapter 35 – Specific issues with
Part 8
Issue 1: Public understanding of the application of the PRA on
death
35.1 From our research and preliminary consultation we understand that many will-makers and surviving partners are not aware of the choice a surviving partner can make between option A and option B, or the implications of making a choice.88 This may be due in part to a lack of debate and public promotion of the 2001
amendments extending the PRA to relationships ending on death when they
were introduced.89 It may also reflect an assumption by the public
that, because a relationship ending on death is different to a relationship
ending
on separation, different rules apply.
35.2 Lawyers and other professional advisers may tell a will-maker about option A and option B but what these options mean
for the will-maker can be difficult to explain in simple terms. Complex legal advice on the likely outcome of a future division of relationship property under the PRA might be necessary, requiring an assessment of the will-maker ’s assets and the circumstances that could lead to those assets being classified as relationship property or separate property. Any legal advice would likely be qualified to acknowledge possible changes in circumstances between the time of drafting of the will and the will-maker ’s
death. Such changes could affect classification of property, the division of relationship property or the will-maker ’s vulnerability to a claim under either the Family Protection Act or the TPA.90
35.3 Exploring the potential PRA implications of making a will may be
time-consuming and costly. It may increase costs so much
that
88 Nicola Peart “New Zealand’s Succession Law: Subverting Reasonable Expectations” (2008) 37 Common Law World Review
356 at 372.
89 Nicola Peart “New Zealand’s Succession Law: Subverting Reasonable Expectations” (2008) 37 Common Law World Review
356 at 368.
the will-maker cannot or will not seek professional advice. The
set fee option lawyers may offer for preparing a will is unlikely
to allow for the additional time required to fully address the PRA
implications.
35.4 The lack of public awareness of the PRA’s application to
relationships ending on the death of one partner has several
consequences:
(a) First, people make wills without realising that their will may not
apply if the surviving partner elects option A. If will-makers
knew this, they
might make different estate plans.
(b) Second, by not knowing they can elect option A, surviving partners may
be missing out on property rights under the PRA that
would be financially
beneficial to them.91
(c) Third, surviving partners who do choose option A may do so without full knowledge of its consequences. We have heard anecdotal evidence of surviving partners choosing option A without knowing the extent of
the estate and being unaware that property owned in their name (that they
assumed was their own separate property) is also subject
to division.
(d) Fourth, there is insufficient consideration of contracting out of the
PRA.
35.5 Greater awareness among both professional advisers and the general
public of the implications of the PRA for relationships
ending on death seems
desirable. We are interested in suggestions as to how this could be
achieved.
C ONSU LTATION QUESTION
M1 Are the options available to the surviving partner under the PRA, and
the implications of those options, well known and understood
by will-makers,
surviving partners and professional advisers? If not, what could be done to
better inform people?
Issue 2: The different treatment of short-
term relationships on Death
35.6 Two issues arise with the rules for short-term relationships that end
on death.
Should short-term marriages and civil unions be treated the same as
qualifying relationships?
35.7 The minimum duration requirements that apply when partners separate
do not normally apply to marriages and civil unions ended
by death.92
Section 85 provides that the general rule of equal sharing will apply
to short-term marriages and civil unions that end on the
death of one partner
unless a court, having regard to all the circumstances, considers that would
be unjust.93 If the court does consider that would be unjust, the
rules of property division set out in section 14 for short-term marriages and
civil unions ending on separation will apply.
35.8 The PRA does not define “unjust” and its meaning in this
context has not often been considered by the courts.
In S v S, the
Family Court found that the threshold of “unjust” was not met,
despite stating that “the marriage could
well be described as one of
convenience for both parties”.94 In that case the Court found
that equal sharing was not unjust because both parties benefited from the
marriage.95 Had the deceased partner remained alive, there was no
reason to think the marriage would not have passed the three-year
threshold.96
35.9 The approach set out in section 85 reflects the recommendations of the Working Group in 1988.97 The Working Group said
that the surviving partner could suffer hardship if the same rules that applied to short-term relationships that ended on separation applied to those that ended on the death of one
partner, in essence because the relationship had not ended
by
92 Property (Relationships) Act 1976, ss 2E and 85(1).
93 Property (Relationships) Act 1976, s 85(2).
94 S v S FC Invercargill FAM-2007-025-750, 7 March 2008 at [31].
95 S v S FC Invercargill FAM-2007-025-750, 7 March 2008 at [34]–[35].
96 S v S FC Invercargill FAM-2007-025-750, 7 March 2008 at [38].
97 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988).
choice.98 Short-term relationships ended by death may share
some characteristics with short-term relationships ended by
separation.99 Such relationships may be transient or not have
developed the commitment that often comes with time. The difference, however,
is
that when the partners have separated there is clear evidence that a
relationship is, for example, transient or lacking commitment.
Our preliminary
view is that, without evidence to the contrary, it is appropriate for the PRA to
assume that, but for the death
of one partner, the relationship would have
continued.
Should short-term de facto relationships ending on death be treated
differently?
35.10 The PRA does not generally apply to short-term de facto relationships that end on the death of one partner. The court
can only order the division of property if the short-term de facto
relationship passes the two-stage test that applies to short-term
de facto
relationships that end on separation (see paragraph (c)).100 If that
test is met, a court may order division of the relationship property in
accordance with the contributions of each partner.101 If that test
is not met, the surviving partner has no rights under the PRA.
35.11 The different treatment of short-term de facto relationships on separation under section 14A is discussed in Part E of this Issues Paper, and is probably the basis for the different treatment of
short-term de facto relationships on death. However, if the reason for treating short-term marriages and civil unions ending on
death differently from those ending on separation is that death is not a voluntary ending to the marriage or civil union, it is unclear why the same reasoning does not apply to short-term de facto relationships ended by death. The perception that people are
more likely to “drift” into de facto relationships and that de facto relationships involve a lesser commitment than marriages and
civil unions may be part of the
justification.102
98 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 43.
99 Department of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 43.
100 Property (Relationships) Act 1976, s 85(3).
101 Property (Relationships) Act 1976, s 85(4).
102 These views are discussed further in Part E of this Issues Paper.
35.12 The current approach ensures that a de facto partner in a short-
term relationship is not worse off if their partner dies, compared to if they separate. A surviving de facto partner can still make
a claim under both the Family Protection Act and the TPA, independent of any claim under the PRA. If the law was to be changed to allow all surviving de facto partners (regardless
of the length of the relationship) to make a claim under the PRA, careful consideration would be needed as to how to guard against undesirable results. For example, if short-term de facto relationships that ended on death were treated as a qualifying relationship, some surviving de facto partners would be better off than if the relationship ended by separation (because they would be entitled to an equal share of relationship property regardless of their contribution to the relationship or the existence of a child
of the relationship). A provision similar to section 85(2), which permits the
court to apply the rules for short-term marriages and
civil unions that end on
separation if it would be unjust to apply the general rule of equal sharing,
could address this risk.
103
35.13 In Part E we propose options for reforming the rules that apply when short-term relationships end on separation. One option is to adopt the same rules of division for all short-term marriages,
civil unions and de facto relationships that end on separation. Any proposal
to reform the rules that apply to short-term relationships
ending on death
must be considered alongside those options.
C ONSU LTATION QUESTIONS
M2 On the death of a partner, should short-term marriages and civil unions
continue to be treated the same way as qualifying relationships?
M3 On the death of a de facto partner, should short term de facto
relationships continue to be treated differently to short-term
marriages and
civil unions?
Issue 3: Problems with option A and option B
35.14 Various problems arise with the way option A and option B
operate in practice.
103 See the discussion in Chapter 3 as to potential human rights implications that arise in the scope of this review.
35.15 First, until a surviving partner chooses option A or option B, no
one can be sure whether the deceased’s will is going to apply or not.
The surviving partner has six months from the grant of
administration of the
estate to make his or her choice.104 This uncertainty affects the
will-maker while he or she is alive, the beneficiaries of the deceased’s
estate and even the surviving
partner. It may also affect professional advisers
and the deceased’s personal representative. While a surviving partner is
deliberating which option to elect, an estate is unlikely to be distributed in
accordance with the deceased’s will.
35.16 Second, in most cases the surviving partner must choose to either wholly accept (option B) or wholly forfeit (option A) the benefits he or she has under the will. If, in contrast, the partners had separated and there was a relationship property division before one partner died, the surviving spouse does not lose the right
to take gifts under the deceased partner ’s will.105 The
separated partner could therefore be better off than a partner whose
relationship ended on death.
35.17 Peart suggests that this approach confuses the boundary between a partner ’s entitlements under the PRA and under succession law.106 When partners elect a division of the partners’ relationship property under the PRA, they are rightfully claiming their
own property. When partners receive an inheritance, they are receiving the
deceased’s property as a gift. It is arguably unfair
that surviving
partners must forfeit the gifts the other partner chooses to give them if they
are to claim what is in any event
their property.
35.18 Although a will-maker can expressly provide in the will that any gifts to a surviving partner are to have effect even if the partner elects option A, we understand that wills seldom contain such
a provision.107 This may be due to a lack of understanding of the need to make such express provision, rather than a deliberate
step to deprive a surviving partner of gifts under the will or a
104 Property (Relationships) Act 1976, s 62, with the possibility of an extension granted by the court.
107 Property (Relationships) Act 1976, s 76(1).
public consensus that the “all or nothing” approach in the PRA is
the right one. Partners who anticipate that the surviving partner would
receive a half share of relationship property together with
gifts under the
will may be disappointed.
35.19 Third, the requirement that a surviving partner must choose option A or option B may impose costs and delay on both the surviving partner and the deceased’s personal representative. A surviving partner must give written notice of his or her choice of option A or option B in the prescribed form.108 The surviving partner ’s lawyer must certify that he or she has explained the
effect and implications of the notice.109 Both exercises take
time for which the lawyer will be entitled to charge.
35.20 Fourth, we understand that there can be uncertainty about how a
contracting out agreement entered into under section 21
affects the surviving
partner ’s choice of option A or option B, because of the way in which
some agreements are drafted.
35.21 If the surviving partner makes no election, he or she will be
treated as having chosen option B.110 We understand that usually
option B is automatically engaged and that a formal election under section 61
is uncommon.111
Option for reform: Should the PRA presume election of option A (division of
relationship property under the PRA)?
35.22 If the potential problems we have identified above are material
issues, a possible option for reform is to remove the requirement
that a
surviving partner must choose option A or option B. Instead, the PRA could
provide that:
(a) A surviving partner has a minimum entitlement to an equal share of the
partners’ relationship property regardless of
the provisions of the
deceased partner ’s will. That is, all cases would proceed as if the
surviving partner had elected
option A.
108 Property (Relationships) Forms Regulations 2001, sch 2.
109 Property (Relationships) Act 1976, s 65(2)(b).
110 Property (Relationships) Act 1976, s 68(1).
111 See fn 91 above.
(b) The surviving partner is also entitled to any gifts
under the deceased’s will, assuming that gift is not already accounted for in the division of the partners’ relationship property. There would be no need for
the will-maker to make his or her intentions clear in accordance the current
requirement in section 76.
35.23 This approach would give the will-maker more certainty about what will happen to his or her property on death. There would no longer be a need for the deceased’s personal representative to apply for a division of relationship property under the PRA,
as that would become the default position. Administration of an estate would not have to wait until the surviving partner makes an election. Any Family Protection Act and TPA claims would be dealt with after the pool of relationship property is identified and divided. Such claims would be limited to the deceased’s share of
relationship property, and any other separate property that makes up the
deceased’s estate.
35.24 This approach would also avoid problems that arise from people being
uninformed about the application of the PRA on the death
of one partner.
Surviving partners would not be disadvantaged by being unsure of their rights,
and will-makers would, with proper
advice, know that they could not deal with
relationship property as if it was entirely their own. This should assist
professional
advisers and will-makers in estate planning.
35.25 Reform of the intestacy rules under the Administration Act 1969 would
be required under this option to reflect the surviving
partner ’s minimum
entitlement. One way to deal with this would be to give the surviving partner
their portion of relationship
property, and any additional property from the
deceased’s estate up to the surviving partner ’s entitlement on
intestacy.112
112 Under s 77 of the Administration Act 1969 the surviving partner ’s entitlement is the family chattels, a statutory sum
of (currently) $155,000, and a portion of the remainder of the estate that changes in size depending on whether there are surviving children or parents of the deceased. When the Law Commission reviewed New Zealand’s succession
laws in the 1990s, a review of the Administration Act was initially part of the reference. In its report on wills, the Law
Commission noted it was conducting research on “the conceptual basis of the system of intestate succession” and that the current intestacy rules failed to give effect to either the duties or the assumed wishes of the deceased: Law Commission Succession Law: A Succession (Wills) Act (NZLC R41, 1997) at v. Although there were no further publications on this matter, law reform bodies in other jurisdictions have conducted reviews of the division of property on intestacy, for example, New South Wales , where the rules were changed to provide the surviving partner with all the property in the estate unless there were children of a previous relationship: Succession Act 2006 (NSW), ss 110–113; and New South Wales Law Reform Commission Uniform succession laws: intestacy (NSWLRC R116, 2007) at xiii–xiv. This reform reflected the view, as stated by the Commission, that these rules better reflected the presumed intentions of the deceased person and the rules which provided otherwise did not “reflect the current demographic makeup of early 21st century Australia, community expectations ... and other factors”: New South Wales Law Reform Commission Uniform succession laws: intestacy (NSWLRC R116, 2007) at 8 and 35.
35.26 This option would also need to be considered in light of the
rule of survivorship (that any property owned as joint tenants automatically passes to the surviving tenants on death). Section
83 provides that the survivorship rule does not apply under
option A. Instead, any jointly owned property must be assessed as
relationship property or separate property in accordance with
the PRA’s
classification rules. This option for reform would therefore mean that the
partners’ intentions, demonstrated
by their joint ownership of property,
have little effect on how that property is divided under the PRA. This might,
however,
be seen as desirable, as the deceased’s share of the jointly
held property would remain part of his or her estate and would
be available for
distribution under the will or intestacy rules, subject to any Family
Protection Act or TPA claims.
35.27 Finally, careful consideration is needed as to how to balance the
competing interests of all those potentially affected by
the death of a
partner, including:
(a) the deceased’s freedom to deal with property under a will as he
or she chooses and the deceased’s rights under
the PRA;
(b) the surviving partner ’s rights under succession law and the
PRA;
(c) the rights of the deceased and the surviving partner to hold property
in joint ownership or to enter a contracting out agreement
under section 21 of
the PRA; and
(d) the rights of third parties who may benefit under succession
law.
35.28 Often competing claims to the deceased’s estate will arise.
Consideration is needed as to which claims ought to be given priority. This
policy question goes to the heart of what is a fair
distribution of a
deceased’s estate on death. It must therefore be considered in the
broader context of succession law, rather
than the PRA, which is primarily
about the property rights of partners. We address this policy question further
in Chapter 36.
35.29 This option may be perceived as a big change. Many New Zealanders make wills assuming they have complete testamentary freedom to deal with property to which they hold legal title. Consequently, many people may see a legal requirement to
provide a partner half the relationship property as an unwelcome
change in New Zealand’s succession law. Given that testamentary
freedom is in fact constrained in a number of ways, this perception
may simply
be misplaced.
C ONSU LTATION QUESTIONS
M4 Should the application of the PRA on death continue to be based on an election by the
surviving partner?
M5 If not, should the PRA presume an election of option A? If not, what
would you change?
Issue 4: The deceased’s personal representative does not have the same
rights as the surviving partner
35.30 The Matrimonial Property Amendment Bill 1998 as introduced to Parliament adopted the Working Group’s recommendation that only the surviving partner should have the right to elect a division of the partners’ relationship property under the PRA.113 The Parliamentary select committee, however, amended the Bill by providing for the personal representative of the deceased to apply for a division of relationship property with leave of the court.114
No explanation was given in the select committee report for the amendment although it was likely related to a desire to give some
protection to other beneficiaries to the deceased’s
estate.115
of Justice Report of the Working Group on Matrimonial Property and Family Protection (October 1988) at 46. When the Law Commission considered the question in 1997, it took a different view to the Working Group. The Law Commission recommended that the personal representatives of the deceased’s estate have a right to initiate a division of the partners’ relationship property. The Law Commission’s reasons were that the estate had a right under the Matrimonial Property
Act 1963 to apply for a division. The Commission also noted that the estate may wish to seek a division in order to secure provision for the children of a former marriage, although the Commission accepted that it may be desirable that the division be sought after the death of the surviving partner. See Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997) at 58–59.
[I]t is acknowledged that there may be cases where preventing the estate applying for a division could cause injustice. For example, where the surviving spouse owns a substantial amount of the matrimonial property, the inability of the estate to
35.31 This late-stage change to the Bill has likely contributed to the
range of issues that arise when a personal representative seeks to apply
for a division of relationship property under the PRA.
Section 88 of the PRA
35.32 Section 88(1) of the PRA gives a surviving partner the right to apply to a court for a division of relationship property. Section
88(2) provides that the personal representative of the deceased may only
apply for an order dividing relationship property with
the leave of a court. A
court may grant leave only if it is satisfied that refusing leave would cause
“serious injustice”.116 We discuss the “serious
injustice” test below.
35.33 The leave of a court is not, however, required for the personal representative to apply for any other order under the PRA, including a declaration or order in relation to a specific item of property under section 25(3). The reason for this distinction is unclear. It might have odd outcomes. For example, a personal representative could rely on section 25(3) to seek a declaration as to ownership of individual items of property rather than seeking the leave of the court under section 25(1)(a). This could
effectively undermine the leave requirement in relation to section
25(1)(a). However, in this scenario the court might be inclined to exercise
its discretion against making such an order, on the
basis that it undermines
the intent of section 88(2).
Should a personal representative need leave of the court to apply for a
division under the PRA?
35.34 If the choice to elect option A or option B remains in the PRA, another option for reform is to grant the same rights to apply for a division of relationship property under the PRA to the deceased’s personal representative. Peart has argued that the deceased’s personal representative should be able to apply for a division of relationship property under the PRA as of right, in the same way
a surviving partner can, because the deceased partner should
have an equal right to distribute his or her share of
relationship
have its share divested from the survivor may be unfair to the other beneficiaries under the deceased’s will. It is therefore proposed that the Court have a discretion to allow the estate to make an application for a division where the inability to do so would cause serious injustice. This would provide a mechanism for deserving cases to be addressed, while not opening up the regime to significant increases in litigation.
116 Property Relationships Act 1976, s 88(2).
property on death.117 She argues that providing both the surviving
partner and the deceased’s estate with an unqualified right to their respective share of the relationship property would be a more consistent approach that does not favour either party. The division would be governed by the PRA. Succession law would only be relevant after division of the relationship property.118 This is potentially undermined if the surviving partner takes most
of the relationship property by survivorship, or has legal title to most of
the relationship property, and elects option B. In those
situations, the
deceased partner ’s share of relationship property would not be part of
his or her estate, unless the deceased’s
personal representative obtained
a division of relationship property under the PRA.
35.35 A review of the cases decided under section 88(2) identifies that a
personal representative will generally apply for leave
to divide the
partners’ relationship property under the PRA when:
(a) the deceased partner ’s property has passed to the surviving
partner by the rules of survivorship rather than coming
within the estate;
and
(b) a third party wishes to claim against the estate under the Family
Protection Act or the TPA.119
35.36 Cases where the personal representative seeks leave to apply for a division of relationship property under the PRA tend to involve a will that does not provide adequately for the children of the deceased, who therefore wish to bring a claim under the
Family Protection Act.120 In some cases it might be unfair to allow a deceased partner to ignore the obligations he or she owes to others.121 In Public Trust v W, the deceased structured his affairs
so all property passed to the surviving partner by
survivorship.122
117 Nicola Peart “Family Finances on Death of a Spouse or Partner” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark
Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
118 Nicola Peart “Family Finances on Death of a Spouse or Partner” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark
Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
121 Nicola Peart “Family Finances on Death of a Spouse or Partner” in Jessica Palmer, Nicola Peart, Margaret Briggs and Mark
Henaghan (eds) Modern Family Finances – Legal Perspectives (2017, Intersentia, Cambridge) (forthcoming).
122 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA).
The deceased’s two minor children were left with no provision.
In those circumstances, the Court of Appeal appointed the Public Trust as the deceased’s personal representative and observed that it would have very reasonable prospects of obtaining leave under section 88(2) to commence proceedings under the PRA.123 This raises a broader question of policy. That is, which claims against
a deceased’s estate ought to be given priority? As discussed at
paragraph 35.28 above, this policy question goes to the heart
of what is a fair
distribution of a deceased’s estate on death. It must therefore be
considered in the broader context of
succession law, rather than the PRA, which
is primarily about the property rights of partners. We address this policy
question
further in Chapter 36.
35.37 In seeking a division of relationship property under the PRA a personal representative is effectively acting for the benefit of
third parties.124 Consequently, the justification for why a personal representative should be granted leave will reflect the merits
of the third party claim. This is not an inquiry with which the PRA is primarily concerned, and uses the PRA as a mechanism to enhance rights under the Family Protection Act and the TPA. A third party making such a claim has no ability to access
property that has passed by survivorship to anyone other than the surviving
partner.
35.38 It might be argued, however, that the differences between a
relationship ending on separation and a relationship ending
on death justify a
difference in rights between the surviving partner and the personal
representative (who is typically acting
in the interests of third parties). If
there is a will, it might be said that this reflects the deceased’s
wishes and those
wishes should be respected.
35.39 This issue demonstrates the tension that arises between the provisions of the PRA that apply on death and succession law. As we discuss in Chapter 36, our preliminary view is that a
separate statute would better allow the development of a coherent
approach to claims made against a deceased’s
estate.
123 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA) at [51].
Brookers Family Law — Family Property (online looseleaf ed, Thomson Reuters) at [FP4.05] citing Re McCarthy [1919] NZLR
807 (SC); Irvine v Public Trustee [1988] NZCA 161; [1989] 1 NZLR 67 (CA); and Re Schroeder ’s Will Trusts [2004] 1 NZLR 695 (HC).
Is the “serious injustice” threshold in section 88(2)
appropriate?
35.40 If the personal representative should continue to be required to obtain leave from the court to apply for a division of relationship property under PRA, it is necessary to consider whether the test
in section 88(2) (refusing leave would cause “serious in
justice”) is appropriate.
35.41 The PRA does not explain what is meant by “serious
injustice” for the purposes of section 88(2) but a series of
cases have
considered its meaning.125
35.42 The Courts initially took a strict approach to the meaning of “serious injustice”. In K v W, the High Court stated that the injustice had to be “intolerable”.126 There, the partners held
almost all their property as joint tenants. When one partner died, property valued at $820,000 passed to the surviving partner by survivorship. Only $8,000 was left in the deceased’s estate, and the will gifted the $8,000 to the surviving partner. An adult child from the deceased’s first marriage was left with no provision.
An application was brought by the personal representative of the deceased under section 88(2). If successful, this would have meant that the deceased’s share of any relationship property would form part of the deceased’s estate, rather than going to the surviving partner by survivorship, and would be available to
satisfy any successful claim brought by the adult child under the Family
Protection Act. In that case, however, the High Court said
that the
circumstances did not amount to a serious injustice as required under section
88(2).
35.43 In Public Trust v W the Court of Appeal disagreed with this approach, stating that no gloss should be placed on the words of section 88(2) and indicating that it would have granted leave in the circumstances of K v W.127 In Public Trust v W, the deceased died without a will. Three properties which the deceased held as a joint tenant passed to the surviving partner by survivorship.
The deceased’s minor children from a previous relationship stood to inherit nothing from the estate. The surviving partner and
the Public Trust applied for administration of the estate under
125 K v W [2004] 2 NZLR 132 (HC) at [48]; Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA); Tod v Tod [2015] NZHC 528, [2015] 3
NZLR 397; C v C [2016] NZHC 583; and Kennedy v Kennedy [2017] NZHC 168, [2017] NZFLR 149.
126 K v W [2004] 2 NZLR 132 (HC).
127 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA).
intestacy rules. Public Trust did so on the basis that it would seek
the court’s leave under section 88(2) to apply for a division of relationship property in order to restore funds to the estate to meet the Family Protection Act claims of the deceased’s children. The Court of Appeal observed that the primary reason for allowing applications for a division of relationship property by a personal representative was, presumably, to address situations of the
type presented by that case and K v W and granted Public
Trust’s application to be appointed administrator.128 The Court
added that it thought Public Trust would have reasonable prospects of
satisfying the test under section 88(2) in the Family
Court.129
C ONSU LTATION QUESTIONS
M6 If the choice to elect option A or option B remains in the PRA, should
the personal representative have an automatic right to
apply for a division of
relationship property, or should the requirement to seek leave of the court
remain?
M7 If the requirement to seek the leave of the court remains, is the threshold in section 88(2)
the right one and if not what should it be?
Other issues in relation to Part 8
35.44 Additional points arise from the personal representative’s power to apply for a division of relationship property under section
88(2). First, sections 75 to 78 (discussed in Chapter 34) set out
consequences if the surviving partner elects option A. It is not
clear, however,
if these provisions apply when the personal representative seeks a division of
relationship property.
35.45 Second, section 87 is silent on the rights, if any, of the personal
representative to challenge a section 21 agreement.
Peart argues there is no
“plausible justification for preventing the personal representative from
mounting such a challenge”.130 The case law is conflicting on
this issue.131 In C v C, the most recent decision, the High
Court said that if a personal representative can apply for a division of
relationship property
due to serious injustice (the
test
128 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA) at [48].
131 S v P [2009] NZFC 259; [2010] NZFLR 230 (FC); Tod v Tod [2015] NZHC 528, [2015] 3 NZLR 397; and C v C [2016] NZHC 583.
under section 88(2)), he or she should also be able to apply to set
aside a section 21 agreement.132 It said that section
88(2):133
provided an avenue for a personal representative to override the surviving
spouse’s election not to seek a divison under s 25(1)
where serious
injustice would otherwise arise. It is consistent with that decision to also
permit the Court to set aside a s[ection]
21 agreement which likewise may give
rise to serious injustice.
35.46 Third, if a surviving partner elects option B, section 95 provides
that the estate must be administered in accordance with
the deceased’s
will. Section 95 is silent on the right of the personal representative to seek
leave to apply for a division
of relationship property under section 88(2) if
the surviving partner has already elected option B. The Court of Appeal
considered
section 95 in Public Trust v W.134 It observed
that the language of section 95 was awkward and presented difficulties when
an estate wished to apply for division.135 The Court said, however,
that it must have been Parliament’s intention that a surviving partner
’s election of option
B should not preclude the personal
representative’s ability to seek leave under section 88(2), otherwise
there would be no
point to the provision.136
35.47 Fourth, an issue may also arise as to the effect of section 95 where
there is a section 21 agreement. The provisions of the
PRA that deal with
contracting out agreements are not included in the list of provisions specified
in section 95 as still applying
if option B is chosen. This leaves uncertain the
enforceability of any section 21 agreement and the impact of non-compliance
with
section 21F when option B is chosen.
35.48 Fifth, orders to postpone the vesting of property under section
26A can only be made for the benefit of the surviving partner. Section 26A allows for postponement if immediate vesting of property: 137
...would cause undue hardship for a spouse or partner who is the principal
provider of ongoing daily care for 1 or more minor or dependent
children....
132 C v C [2016] NZHC 583 at [72]–[86]. The court considered that the provisions in s 87 and s 88 are complementary: at
[79].
133 C v C [2016] NZHC 583 at [85].
134 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA).
135 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA) at [38] and [41].
136 Public Trust v W [2004] NZCA 327; [2005] 2 NZLR 696 (CA) at [38] to [41].
137 Property (Relationships) Act 1976, s 26A.
35.49 The postponement of sharing might also be appropriate where
the surviving partner is not the primary caregiver. For example,
if a third party or parties, such as the deceased’s parents, care for the children after the death of a partner, immediate vesting might require the home where the children are living to be sold, against their interests and the interests of their primary caregivers. The PRA does not provide for this scenario. Providing for situations where someone other than the surviving partner is the primary caregiver may be complex, for example, where the interests of
the surviving partner conflict with those of the children of the
relationship or where there are other children involved, such as
children of
the deceased’s previous relationship. This complexity does not, however,
seem to justify excluding the possibility
of orders for the benefit of
caregivers other than the surviving partner on death.
35.50 Sixth, third parties have no right to apply directly for a division
of relationship property under the PRA. In the case
of a personal representative
who is unwilling to make an application under section 88(2), the third party
must first apply to the
court to replace the personal
representative.138
35.51 If the choice to elect option A or option B remains in the PRA, another option could be to allow third parties to apply for leave
to seek a division of relationship property. The advantages of this approach
are that:
(a) the personal representative could remain neutral as
is generally required in proceedings under the Family
Protection Act;139
(b) if a personal representative refused to seek leave, the third party
would not need to take the additional step of applying
to the High Court to
replace the personal representative; and
(c) often the court may want to consider the leave application
contemporaneously with the substantive Family Protection Act application
and the
third party claimant will already be before the
court.
138 This was recently the case in C v C [2016] NZHC 583; and Kennedy v Kennedy [2017] NZHC 186, [2017] NZFLR 149.
139 See fn 124 above.
Option for reform: clarifications and amendments
to existing provisions in Part 8
35.52 Our preliminary view, set out in Chapter 36, is that a separate statute would better allow the development of a coherent approach to claims made against a deceased’s estate. Earlier in this chapter we set out an alternative option whereby option
A becomes the default position and the surviving spouse has a minimum
entitlement of a half share in the partners’ relationship
property. That
would avoid the need for a personal representative of the deceased (or a third
party) to apply for a division of
relationship property under the PRA.
35.53 If neither of those options are preferred, a third alternative
option is to retain Part 8 of the PRA with the following
clarifications and
amendments:
(a) First, a personal representative’s ability to seek the court’s leave should be transferred from section 88(2) to a specific provision early on in Part 8 so it stands
alongside section 61. This would send a clear signal that the right of the personal representative to apply for division is not related to the circumstances in section
88.140
(b) Second, the “serious injustice” test could be clarified.
Section 88(2) could be amended so the court must have regard to listed
matters when assessing serious injustice. These matters could
include whether
the deceased had failed to make adequate provision for people able to claim
under the Family Protection Act or the
TPA.141
(c) Third, various provisions in Part 8 could be reworked so to clarify the
consequences that follow when a personal representative
seeks a division of
property under the PRA. We suggest these provisions require
attention:
88(2) confuses s 88. We therefore favour removing the personal representatives’ right to seek leave from s 88.
141 It is outside our terms of reference to consider the adequacy or otherwise of the Family Protection Act 1955 or Law
Reform (Testamentary Promises) Act 1949.
(i) section 75 – an equivalent provision for applications
brought by the personal representative;
(ii) section 76 – the effect on the will when a personal
representative seeks division under the PRA;
(iii) section 87 – whether a personal representative can challenge a
section 21 agreement under Part 6 of the PRA;
(iv) section 95 – whether a surviving partner ’s election of
option B precludes a personal representative’s right
to seek leave to
apply for a division of property under the PRA.
35.54 Third parties with claims against the estate could have a direct
right to seek leave to divide the relationship property
of the surviving partner
and the deceased partner.
C ONSU LTATION QUESTIONS
M8 Do you have any further suggestions for reform of the rights of the personal representative or third parties to apply for a division of property under the PRA on death of a partner?
Chapter 36 – Resolving the
tensions between the PRA and succession law: the case for a separate statute
36.1 In this chapter we discuss the tensions that arise when the rules
of the PRA, which were originally devised solely for relationships ending on
separation, are applied on death. We express our preliminary
view that these
tensions would be best managed by having a separate statute to deal with
division of relationship property on the
death of a partner, along with the
claims presently allowed for under the Family Protection Act and the
TPA.
The different contexts of relationships ending on death and on
separation
36.2 The context for dividing property on the death of a partner is
different to the context for dividing property when a relationship
ends by
separation. Key differences include:
(a) A relationship that ends on death is not one ended by choice. Without
contrary evidence it can reasonably be assumed that,
if the partner did not
die, the relationship would have continued.
(b) There is no conflict between the partners to be resolved.
Any dispute, if one arises, will not be between the partners to the
relationship but between the surviving partner and the personal
representative
of the estate and/or third parties who claim an interest in the estate. These
disputes are of a different nature.
(c) The deceased partner has no future need for his or her property but may have expressed wishes about what should happen to it on death (through a will or a contracting out agreement).
(d) There is an expectation that a deceased partner will
provide for the surviving partner to enable him or her to continue to enjoy
the same lifestyle shared by the partners during the
relationship.142
The expectations that arise on separation are different, and are canvassed
throughout this Issues Paper.
(e) The rights of and obligations owed to third parties become relevant
on death in a way that does not occur when a relationship
ends on separation,
and is not provided for in the PRA. Third parties may feel that they have a
legitimate interest in the deceased’s
estate.
36.3 There may be tension between the competing interests of all those
potentially affected by the death of a partner, including:
(a) the deceased’s freedom to deal with property under a will as he
or she chooses and the deceased’s rights under
the PRA;
(b) the rights of a surviving partner under the deceased’s will, the
rules of intestacy, the PRA, the Family Protection Act
and/or the TPA;
(c) the rights of the deceased and the surviving partner to hold property
in joint ownership or to have entered a contracting out
agreement under section
21 of the PRA;
(d) the rights of third parties who may benefit under the will or the
rules of intestacy, or who may have a claim under the
Family Protection Act or
the TPA.
36.4 Key policy questions that arise in respect of the division of property on the death of a partner are the priority to be given to a surviving partner relative to the rights of third parties, and in relation to what property. The competing interests of the
surviving partner and third parties are particularly evident where the deceased had a previous relationship and children from that relationship.143 Data suggests that the numbers of people re- partnering after separation is increasing.144 In those cases, there
may be tensions between the deceased wishing to give most of
144 Law Commission Relationships and Families in Contemporary New Zealand – He hononga tangata, he hononga whānau i
Aotearoa o nāianei (NZLC SP22, 2017) at Chapter 4.
their property to the children of a prior relationship while the
PRA gives the surviving partner half the partners’ relationship property. Or the deceased may have made a will, arranged for all property to be held jointly or entered into a contracting out
agreement with the result that the surviving partner receives all or the
vast majority of property on the deceased partner ’s
death. There may be a
particular sense of injustice on the part of children where the
partners’ relationship property was
largely acquired before the
relationship began, especially if this includes the family home and family
chattels.145
36.5 In M v L, the Family Court summarised these tensions in this
way:146
[28] Where there is a second marriage it is difficult for adult children
from a first marriage to appreciate the commitment their
parent has made to a
new partner. Adult children tend to regard themselves as prior claimants as they
have known their parent for
all their lives and were already adults when he
re-partnered. They have a sentimental attachment to belongings that were part of
their life together and to which their father had an attachment. In most cases,
if their parents had remained married and their father
had died first, they
would not have expected to inherit personal items until after their mother had
died. Where there is a second
marriage they can no longer assume that the new
partner will leave property to them in her will or whether she will consider she
has more compelling obligations to others such as her own children.
[29] On the other hand, the surviving widow feels that her primary
relationship was with her husband and his with her. They are likely
to have
spent a great deal more time together than he has spent with his adult children.
His history as well as the period of time
they were together has personal
significance for her. She expected that they would share their resources for
their lifetimes.
v Thurston [2014] NZHC 2267; Thrasher v Allard [2013] NZFC 5260; Gera v Moir [2016] NZHC 613, [2016] NZFLR 875);
N v N [2013] NZFC 2695; Re Estate of H [2012] NZFC 2869; H v H [2012] NZFC 1303; S v G FC Auckland FAM-2007-004-
3009, 26 February 2010; Mulder v Mulder [2009] NZFLR 727 (FC); Slatter v Estate of Sydney Ernest Slatter FC Christchurch FAM-2003-009-4322, 10 August 2005; and M v L [2005] NZFLR 281 (FC). Note though that in Re W Deceased HC Tauranga M75/88, 23 October 1990 the High Court said that life interests were now unusual in a will and “redolent of the patronising parsimony of former generations” cited in M v L [2005] NZFLR 281 (FC) at [40].
146 M v L [2005] NZFLR 281 (FC) at [28]–[30].
[30] These issues fall to be sorted out at a time when
everyone in the family is grieving. Any dispute about the distribution of
the property is an extra assault on the sensibilities of
the individual family
members.
36.6 These competing interests emphasise the need to clarify the policy basis of the law. By way of an example, we understand
from our preliminary consultation that a practice is developing of lodging a notice of claim under section 42 of the PRA on behalf
of children of a person who has a claim to an interest, typically children of a deceased partner where the surviving partner is from a subsequent relationship. The claim is made on the basis that the child or children is entitled to lodge a section 42 notice because
of special circumstances supporting a derivative claim (in equity)
on behalf of the estate for division of property under the PRA.147
The division of property is typically sought in order to make assets
available to the estate to meet a Family Protection Act
claim.148
36.7 The policy of the PRA is the just division of property. Its main focus, as a result of original design and legislative intention, is on dividing property between partners who separate. In our view, the problems discussed above have arisen primarily because relationships that end on death are fundamentally different to relationships that end on separation. The framework of the PRA
cannot easily accommodate both. It was designed to provide a just division of property on separation, and is inadequate to inform
the division of property on death.149 The competing interests
that arise on the death of one partner discussed above need to be considered and
resolved as matters of policy.
36.8 Our preliminary view is that a separate statute is required. For relationship property claims, that statute could have the same broad policy as the PRA, that is, a just division of property. This means a surviving partner would be able to seek an equal division of relationship property as an alternative to taking an entitlement under a will (unless the option for reform discussed in Chapter
35 is preferred, in which case the PRA will presume an election of
option A). The property rights that the PRA bestows on partners in
qualifying relationships should not be lost when one partner dies. Nor
should those rights be defeated by the unilateral decision
of one partner as
reflected in his or her will or the use of provisions of the Family Protection
Act or the TPA by third parties.
36.9 We agree with Peart’s point that:150
There is currently a real tension in succession law between testamentary freedom and family obligations, which makes it difficult for property owners to make reliable arrangements for the disposal of their property after death. Little wonder that property owners have sought refuge in the law of trusts. Through trusts
they are able to control the destiny of their property and know that by
and large their arrangements are safe from challenge, certainly
from claims
under the Family Protection Act.
36.10 The questions as to how to balance the various interests go to the
heart of what is a fair distribution of a deceased’s
estate on death.
They must be considered in the broader context of succession law.
Preferred approach: a separate statute for succession law
36.11 The Law Commission has previously recommended that a single, separate statute (the proposed Succession (Adjustment) Act)
was needed to deal comprehensively with relationship property claims, testamentary promises claims and family protection claims on death.151
36.12 We are attracted in principle to this proposal, although any such
legislation would fall outside the scope of the PRA
review.152
150 Nicola Peart “Property Rights on Death: Policies in Conflict” (Ethel Benjamin Address 2017, 11 September 2017) at 18.
Peart cites the case of Penson v Forbes [2014] NZHC 2160.
151 Law Commission Succession Law: A Succession (Adjustment) Act (NZLC R39, 1997).
Reform is needed to provide certainty and predictability. In my view that
is best achieved by accepting that death is different from
separation. Property
rights on death are best regulated through succession law, covering both the
property entitlements of spouses
and partners, based on the principle of
equality, and the deceased’s support obligations to family members based
either on
need or contribution to the deceased.
As a first step, I hope that the Law Commission recommends that the Property (Relationships) Act be left to deal with the property rights on separation, while relationship property rights on death are dealt with in a separate statute to which at a later stage support obligations could be added. In my view that would provide a more coherent approach to property rights on death, and remove at least some of the current conflict in policies governing relationship property and succession law.
36.13 We suggest that such a separate statute would make the law
more accessible and efficient.153 It would also allow proper
consideration of the interests of surviving partners, deceased partners,
beneficiaries under a will or
the rules of intestacy and potential claimants
against the estate. It would likely also assist those advising on estate
planning
and those administering estates.
36.14 The mere proposal of a separate statute would raise public awareness
about what may happen to property on death. Debating
and enacting a separate
statute would raise public awareness even further.
C ONSU LTATION QUESTION
M9 Do you agree there should be a separate statute? If not, why
not?
153 See Nawisielski v Nawisielski [2014] NZHC 2039, [2014] NZFLR 973. At [9] and [10] the court commented on the
“stamina” required to deal with the multiple proceedings required in different courts at different times.
Appendix A – Terms of Reference
The Property (Relationships) Act 1976 (“the Act”) created a code
which governs the division of property held by married
couples, civil union
couples and couples who have lived in a de facto relationship when they
separate or one of them dies.
The Act was amended in 2001 and 2005 to extend its application to civil
unions and de facto partnerships but has not been comprehensively
reviewed
since its inception. Over time the Act affects almost every New Zealander,
both adults and children, and as such it
should be reviewed to ensure that
it is operating appropriately and effectively.
The Law Commission’s review of the Act will include (but not be
limited to) the following matters:
10. The relationship between and application of the Act and section 182 of the Family Proceedings Act 1980;
11. The provisions relating to contracting out and settlement
agreements;
12. The provisions relating to division of property on death;
13. The requirements for disclosure of information in relationship property
matters and the consequences for failing to disclose;
14. The jurisdiction of the courts over relationship property matters and
the range of orders the courts can make;
15. Whether the Act adequately deals with cross-border issues;
16. Whether the Act facilitates the resolution of relationship property
matters in accordance with the reasonable expectations of
the parties.
The Law Commission will consult with experts, stakeholders, and the general public over 2016 and 2017. The Commission will report to the Minister with its recommendations by November 2018.
Appendix B – Consultation
The Law Commission consulted with the following people and organisations
during the preparation of this Paper:
Asian Leaders Network Professor Bill Atkin Associate Professor Nicola Atwool
Professor Anne Barlow Judge Andrew Becroft David Boyle
Professor Margaret Briggs
Richard Broad
Dr Andrew Butler
Charlotte Butruille-Cardew
Natalia Cabaj
Professor Paul Callister Lady Deborah Chambers QC
Anita Chan QC Eva Chen
Nelly Choy Spencer Clarke Thomas Cleary Lloyd Collins Peter Cordtz Jenny Corry
Vivienne Crawshaw Robert Didham Shamubeel Eaqub Andrew Easterbrook Associate Professor Vivienne Elizabeth Chris Ellis
Penelope England
Denise Evans Nick Fagerland Robert Fisher QC Michael Fletcher Jane Forrest
Dr Megan Gollop David Goddard QC Dr Gaye Greenwood Bharat Guha
Frances Gush Dr David Hall John Hancock
The Honourable Rodney Hansen CNZM
QC Deborah Hart
Eva Hartshorn-Sanders
Anna Heenan
Professor Mark Henghan
Andrew Hubbard Simon Jefferson QC Jeremy Johnson Mark Jones
Lynda Kearns
Greg Kelly Vasantha Krishnan
Professor Tahu Kukutai
Daria Kwon Jade Lattimore Karinia Lee Carolyn Luey Kai Luey
Jan McCartney
Anna McDowell Wendy McGowan
Sir Jim McLay KNZM QSO Jan McLean
Judith
McMillan Leona McWilliam Lisa Mellville Joanna Miles Associate Professor Susan
Morton
Kent Newman
Julie Nind
Dr Kathryn O’Sullivan
Gill Palmer Associate Professor Jessica Palmer
Professor Patrick
Parkinson
Professor Nicola Peart
Hazel Phillips John Porter Richard Power
Hon John Priestley Dr Jan Pryor
Nazmeen Rasheed
Professor Charles Rickett Dr Jeremy Robertson Professor
Carol Rogerson Professor Jacinta Ruru Judge Laurence Ryan Caroline
Sawyer
Dr Jens Scherpe Cushla Schofield Fern Seto
Renika Siciliano Hayley
Sinclair Praveen Singh
Judge Anna Skellern
Rachel Smith
Sija Spaak
Associate Professor
Susan St John John Stephenson Kirsty Swadling Kiriana
Tan Associate Professor Nicola Taylor
Jessica Temm
Professor Rollie Thompson Stephen Van Bohemen Holly Walker
Professor
Margaret
Wilson DCNZM
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