Media Release from the New Zealand Law Society

30 January 2002

Property (Relationships) Act 1976

New property division law extends to de facto, same sex relationships and wills

Far-reaching changes to the laws governing property division when couples separate or one partner dies take effect from 1 February 2002.

Many members of the public will be unclear about how the changes might affect them, which is all the more reason for them to take proper legal advice on property issues and to consider drawing up a contract setting out their wishes in the event of separation or death.

The new Property (Relationships) Act 1976 extends matrimonial property laws to de facto couples, including same sex couples. It applies to all those who have been in a relationship for at least three years – or fewer if there are children of the relationship. Perhaps the most significant change is that the new property division laws also apply after the death of one party, as the surviving spouse can elect to have the property divided under the provisions of the Act rather than in accordance with any will.

The Act sets out a regime whereby property is generally divided equally. However, the new law also provides for unequal division of property in some cases to balance the financial position of each partner when the relationship ends. For example, one partner who may have sacrificed career advancement to care for children and a home during the marriage may receive more than a half share on break up.

The partner having primary care of the children following separation may also retain all or part of the other partner’s half share of the property for a period of time if immediate division of the property would mean the carer and the children would suffer undue hardship.

The legislation has allowed de facto and married couples to enter into a contracting out agreement since 1 August 2001 so that the provisions of the Act do not apply to them. All such agreements must be in writing and both parties must have independent legal advice before signing.

New Zealand Law Society Property Law spokesperson Lindsay Lloyd says the extension of property relationship laws to cover the situation after death is particularly significant.

"That could affect what people may consider their absolute right to leave their property to whomever they like in their will," he says.

"Additionally there has always been an issue about whether property should be owned as joint tenants or tenants in common. That is especially important in second marriages where special provision is made under the will for children and usually a life interest to the spouse. Now people may find that their attempts to keep property separate will not be successful without a proper contracting out agreement."

Search the web for a lawyer

Members of the public can now select and contact property and family lawyers through the web.

The new property lawyer website at www.propertylawyers.org.nz has information about property transactions and the work that lawyers do, and allows the public to locate a property lawyer in their area, using the site’s search technology.

Another site - www.familylaw.org.nz - provides access to around 700 lawyers who do family law. If you are looking for a family lawyer who specialises in an area such as matrimonial or "relationship" property, the website provides a quick and convenient means to contact someone in your area.

De facto couples should seek advice on new property law

The Property (Relationships) Act 1976 comes fully into force on 1 February, introducing significant changes to the way property is divided when relationships end. Couples who might not have expected themselves to be covered need to be aware of the changes brought by the new legislation, says the Family Law Section of the New Zealand Law Society.

Because the Act applies automatically to all couples, those who do not want to be covered need to contract out to ensure their intentions with regard to their property are not defeated by the legislation, says Family Law Section Chair Anita Chan.

"This is particularly relevant for de facto couples who may have chosen not to marry because they did not want to be covered by matrimonial property legislation."

Agreements to contract out need to be in writing and each party must be independently advised by a lawyer who will certify that they have given their client a full explanation of the Act’s effects.

Anyone who is in a relationship now or who enters a new relationship should give the Act careful thought, just as if they were making a new will or buying a house together. This is particularly important where people have entered second marriages and want to preserve their separate property for children.

Some important effects of the new Act are:

• Relationship property will be divided equally following the end of a relationship that has lasted more than three years, unless extraordinary circumstances make equal sharing repugnant to justice.
• The court will have greater powers to postpone property sharing where it is necessary to avoid undue hardship to children.
• Partners in a relationship may still have separate property but where a person’s separate property increases in value, in some circumstances the separate property may be treated as relationship property.
• The court can order lump sum payments or the transfer of property if a partner would otherwise be disadvantaged.
• The court will be able to take into account any property that has been disposed of during the relationship to a family trust and may require an appropriate adjustment to be made.
• If a partner dies, the surviving partner can choose to receive property either under any will or under the terms of this Act.

Anita Chan says the Act will have as much effect on couples with modest assets as it will on wealthy couples.

"It is important for all couples to get legal advice and give careful consideration to how the Act will affect them. To do nothing may be to court disaster a few years on."

New property division laws - is your will affected?

People should seek advice about how the new Property (Relationships) Act 1976, which comes into effect from 1 February 2002, will affect the wishes expressed in their wills, according to the Chair of the New Zealand Law Society’s Property Law Section, Lindsay Lloyd.

Until now, being able to decide who should inherit your property when you die, has been a given - subject to the limited provisions of other legislation such as the Family Protection Act, where the courts can intervene to prevent an injustice.

"This all changes under the new law, which effectively abrogates your right, if you are or have been in a relationship, to decide who will inherit your property when you die," Mr Lloyd says.

The new legislation extends the effects of matrimonial property laws to de facto, including same sex relationships, when a relationship breaks up. But an even more significant change from previous laws is that the Act also applies when dealing with division of property on the death of a married spouse or a de facto partner.

"What it means in practice is that all property on death is presumed to be relationship property and the surviving partner - or partners, where there are multiple relationships - will have the right to share this property on the same basis as if the relationship had ended during their lifetime.

"This means that the surviving spouse can elect either to make application under the Act for a division of the relationship property or inherit under the will or through intestacy provisions if there is no will. If there are multiple partners, for instance where an additional person can show that they had a personal relationship with the deceased, the surviving partners can elect either option."

Mr Lloyd says people should consider relationship agreements, not only before they begin a relationship but also during a relationship. This is particularly important in the case of second and subsequent marriages, where children from previous relationships have to be considered.

"People should talk to their lawyers about the legislation and how it might affect them."

Property sharing regime a ‘time-bomb’

The new property sharing regime, introduced from 1 February, provides new and uncertain challenges for lawyers to manage the risks and deliver the best outcome for their clients, says Wellington property lawyer John Greenwood.

Mr Greenwood said the new legislation – which applies to de facto, including same sex, couples - overrides existing presumptions of common law and equity and will apply to all transactions between couples.

"The general public will now seriously need to reconsider their personal relationships as a type of commercial transaction. The new law will also likely have a big impact on the already overburdened Family Court which as a result could lose its principal focus on the need to protect children."

Mr Greenwood says there are many uncertainties about how the law will be interpreted and many areas remain unclear.

"The legislation imposes a code on the broad community. That suggests most people will need to reconsider their personal circumstances, including any future situation they or their children might find themselves in. This legislation will touch anyone with any tangible property, whether on relationship break-up or death."

Mr Greenwood says even where there is no existing relationship, people will need to be alert to the impact of entering into a personal relationship later on. "Innocent relationships may well be time-bombs waiting to happen."

Trust busting features, income disparity rules – where the courts will have the power to consider the economic disparity of the parties at the point of property division and award a greater than equal share to one party – and the factors determining when a personal relationship commences are going to present big challenges for the public and the lawyers who advise them, he says.

"Perhaps the biggest shock for most people will be the impact the legislation will have on their property at death. To date there has been surprisingly little public comment on this very significant issue."

The new legislation creates a presumption that all property on death is relationship property. On the death of one partner a surviving partner has two options. The first is to elect within 12 months of a partner’s death to apply under the Act for a division of that property, which will effectively revoke the will of the deceased. The second option is not to make an application under the Act but take as a beneficiary under the will or receive a beneficial interest under intestacy. If the first option is taken every gift in a will to the surviving partner will be revoked unless the will makes it clear that the deceased intended the other partner to take gifts even if an application under the Act occurs.

"The Act will demand that most de facto partners and those in second or subsequent marriages will need a contracting out ‘property sharing agreement’."

Mr Greenwood predicts the impact of the legislation will be huge for the legal profession as well as the public.

Property (Relationships) Act – questions and answers

This material has been prepared by the Family Law Section of the New Zealand Law Society to assist public understanding of the new legislation. However, it is not intended to take the place of legal advice in individual cases.

Who does the Act apply to?
The new Property (Relationships) Act will apply to anyone who is married or who is living in a de facto relationship, including couples of the same sex. If the partners split up after they have been living together for at least three years, then the property built up during the relationship will usually be shared equally between them. If partners do not wish that to apply, they can enter into an agreement to contract out of the provisions of the Act.

When does a de facto relationship begin?
A de facto relationship begins when both parties are over 18 years and they are living together as a couple. In determining whether two people live together as a couple, a number of factors are taken into account. These may include: the duration of the relationship; whether they live in the same house; whether they have a sexual relationship; the degree of financial dependence or interdependence; the ownership, use and acquisition of property; the degree of mutual commitment to a shared life; the care and support of children; the performance of household duties; the reputation and public aspects of the relationship.

It is therefore possible that two persons could live together for a period of time before their relationship would be deemed to be a de facto relationship in terms of the Act. It is also possible that a couple could maintain two separate residences yet because of their financial interdependence, the presence of children and the way they hold themselves out as a couple, they could be regarded as being in a de facto relationship. The issue of whether a relationship is a de facto relationship in terms of the Act and the date that it began will be questions of fact for a court.

If I don’t want to share everything equally, what can I do?
You can ask your partner to enter into a contracting-out agreement. The agreement must be certified and witnessed by a separate lawyer for each partner before it is valid.

How much will an agreement cost?
To prepare a simple short agreement is likely to cost between $500 and $600 plus the other partner would need to pay for independent legal advice before signing. The cost will vary according to the time spent with the lawyer and in drafting the agreement. Differing provisions for different types of property and differing specifications for differing circumstances will add to the cost. The more specialised your agreement is to cater for your particular circumstances, the more time your lawyer will spend on drafting it, and the more it will cost.

What should I put in such an agreement?
You can specify the property you want to be excluded from the relationship pool and the property you want included in the relationship pool. You can provide for different results according to the number of years the relationship lasts, and whether you have children. You could specify very briefly that there will be no sharing of any property and that you would each retain your separate property. However, if the agreement is too one-sided, it may be subject to review by the court.

If I get a contracting-out agreement, will my property always be safe?
Agreements under the new Act are likely to be more difficult to upset than agreements under the Matrimonial Property Act. Under the new Act, an agreement does not have to be merely "unjust": it has to result in a "serious injustice". Where agreements do provide for the sharing of property created during the partnership, but allow each partner to retain property owned before the partnership began or property they inherit, then it is likely to be very difficult to overturn the agreement. Where, however, a contracting-out agreement is very one-sided and does not allow a partner to share in property produced during the relationship, then the court may set the agreement aside, depending on what has happened since the agreement was signed.

If I am already in a de facto relationship, how can I protect my property?
The only way to prevent the Act from applying to your situation is to enter into a contracting-out agreement (or to end the relationship). From 1 February that agreement must be made in terms of the new Act, and can be set aside if the circumstances as set out in the new Act warrant this. However, if you entered into an agreement before 1 August 2001, the courts will have to uphold that agreement unless there has been duress or mistake or some other ground that would normally invalidate a contract.

Can my partner get a share of my future earnings?
No, not under the Property (Relationships) Act. In cases where there will be an economic disparity between the partners after separation, which is caused by the division of functions during the relationship, the court can divide the existing property other than 50/50. But that bigger share comes out of the property accumulated during the relationship, not out of future earnings.

Under the Family Proceedings Act, one ex-partner can ask for maintenance from the other, but only if that person cannot support him/herself because of the effect of division of functions during the relationship; caring for children after separation; standard of living while they lived together; or undertaking education to increase earning capacity.

What does division of functions during the relationship mean?
This refers to the way people organise their lives. For example one person may stay home to look after children while the other works or one may support the other during a course of study.

I earn $30,000 a year – my partner earns $150,000. If we split up, is that economic disparity that will give me more than half the property?
Not necessarily. The reason for the lower income has to be the division of functions during the relationship, eg, broken career to look after children, or to follow your partner to a job overseas. The mere fact that the job each partner does is paid differently is not sufficient reason on its own for a compensatory ruling.

I can’t afford the mortgage payments, so I can’t stay in the house. If we sell, then my half-share is not enough to buy a place for my children and me. Will the new law help me?
Under the new Act, the partner who is the principal provider of care for the children can retain all or part of the other partner’s half share for a period of time necessary to prevent undue hardship. So it may be possible for the house to be sold and all the proceeds made available to the partner with the children until a fixed date in the future, such as when the youngest child starts school or turns 14. When that date arrives, the half share would then have to be paid to the other partner.

My 19-year-old son is setting up a flat with his girlfriend. Does the Act affect them?
If they are more than just flatmates, the answer is "yes". Their assets and their "relationship debts" will be divided equally if they split up after three years. The only way to avoid that is for them to have an agreement to contract out of the Act. At this stage in their lives, the agreement could be very simple, merely providing that they will each keep their own assets and debts.

My son only has the stuff we’ve given him, so he’ll be all right, won’t he?
Parents would be wise to lend their son’s bed to him, or the $500 Ford Escort Mum used to drive, rather than give it to him. That way, it does not become his property and is not subject to sharing. Another way to protect property you want someone else to have is to set up a trust – the trust owns the property and only those named as beneficiaries have a right to it.

Do I have to share my superannuation?
If you contributed to the scheme after your relationship began, or you were entitled to a scheme because of your employment since your relationship began, then the value added during the relationship is shared as part of the relationship property. This is different from the Matrimonial Property Act, which required the whole value of the fund to be shared, including any value built up before the relationship began.

If my partner has transferred property to a trust, have I lost any claim to that property?
Property transferred to a trust by one or other (or both) partner during the relationship can be taken into account if it is considered that the transfer has the effect of defeating the sharing of relationship property. The property can’t be transferred back out of the trust but compensation for it can be made to the disadvantaged partner out of the relationship property, the separate property of the other partner or the income from the trust.

What property is not shared?
Generally, property owned before the relationship began and inherited property (in both cases, except for home and furniture and car) are not shared – but there are exceptions to this. If a person really wants to protect such property, it is better to have an agreement.

I know my property has to be shared – what about my debts?
Relationship debts are shared. Relationship debts are those incurred jointly (eg, a joint HP agreement); those incurred in the course of a common enterprise (eg, a business both partners work in – they don’t both have to be legal owners); debts to acquire, improve or maintain relationship property (eg, a bank loan to extend or start a business); those incurred to manage the affairs of the household (eg, purchases of food, furniture, etc).

What property rights do I have if my partner dies?
If the partner who has died has made a will leaving property to their partner, then that surviving partner can inherit the property under the will as has always been the case. However, instead of inheriting under the will, the surviving partner can choose to make a claim under the Property (Relationships) Act for their share of the relationship property.

A surviving partner can also claim under the Family Protection Act and/or under the Law Reform (Testamentary Promises) Act. Under the Family Protection Act, a court can order proper maintenance and support for close family members, including spouses and de facto partners, out of a person’s estate, if that is not provided in the will or on intestacy. Under the Law Reform (Testamentary Promises) Act, a promise to leave property to one person after death can be enforced by a court.