Financial Matters

Settling Relationship Property

The Process

Financial matters can be settled by agreement or through the Family Court.

Agreement

Settling financial matters by agreement means the Family Court is not involved. Instead, parties come to an agreement themselves – usually with assistance from their lawyers. This process typically takes between three to six months.Settling by agreement is far more effective in terms of time and money than the Court process. For these reasons we strongly encourage our clients to use this method.An outline of the agreement process:

Information gathering

One party instructs their lawyer to write to the other party, notifying that they wish to separate and resolve issues such as relationship property or spousal maintenance. Both parties gather financial information. Experts and valuations may be used.

Letter of advice

Both of the parties’ lawyers will provide a letter of advice to their client, which summarises the facts of their case, the strengths and weaknesses of their claims, the options available, and the likely outcomes.

Negotiation

Parties negotiate directly or through their lawyers. This can be done at meetings or through email. Parties may also wish to have mediation, which means a mediator will facilitate the meeting.

Draft agreement

A draft agreement is reached.

Agreement

The final agreement is signed and certified by the parties’ lawyers. It is now binding.

Family Court

Parties can choose to go to the Family Court right from the start or if they are unable to reach an agreement through negotiation.The process takes 12 months on average.

An Outline of the Family Court Process

Information gathering

File an application and affidavit

One or more parties file an application to the Family Court to start proceedings. This will include an affidavit of their financial situation. The court processes the documents which then need to be served on the other party.

Issues conference

This is a meeting of around 15 minutes between the parties, their lawyers and a Judge, to narrow down the issues. This meeting may highlight the need for expert witnesses.

Negotiations

The parties and their lawyers continue negotiations.

Round table conference

The parties, their lawyers and a mediator meet to see if a resolution can be obtained.

Settlement conference

The parties and their lawyers meet with a Judge, who will encourage them to come to an agreement.

Defended hearing

If the parties do not reach an agreement at the settlement conference, a date is set for a defended hearing. It may be six months before a defended hearing is held. The parties and their lawyers will present arguments to the Court for a Judge to make the final ruling.

Judge’s decision

If the case is straightforward, the Judge will make a ruling soon after. However, if it is a complex case, the Judge may take a further few months to make a decision.

Economic Disparity

The Default Position

The Property (Relationships) Act 1976 (“PRA”) states that in the event of separation or death the relationship property will be divided equally between the parties – so essentially a 50/50 split. Relationship property includes the family home, family chattels and any other relationship property.

Exception to the default position

The equal division of relationship property can be rebutted in particular circumstances – one of those circumstances being economic disparity.The Court can make such an order if satisfied that after the relationship ends, the income and living standards of one party are likely to be significantly higher than the other party because of the effects of the division of functions within the relationship. A classic example is where the wife sacrifices her career and instead devotes herself to supporting her husband and caring for the children while the husband’s career blossoms.Criteria that must be met:

There is a significant disparity between the parties’ likely future incomes and/or the living standards of the parties;
There is a causal nexus between the disparity and the division of functions in the relationship; and • It would be just for the party claiming economic disparity to receive a greater than 50% share in the relationship property.

Court’s discretion

The Court has discretion whether an order should be made.The Court may consider:

The likely earning capacity of each party;
The responsibilities of each party for the ongoing daily care of any children; and
Any other relevant circumstances.

The amount of compensation will vary depending on the individual facts of each case.

Child Support

What is child support?

Child support is financial support paid by parents who don’t live with their children or who share care of their children with another person. Depending on the care arrangements and respective incomes of both parents, one parent will often receive payments from the other which go toward the upbringing of the child(ren).Parties can agree on the amount that will be paid in child support, this is called a private agreement. If they can’t agree, the New Zealand Child Support Act governs the amount that will be paid.

Payment under the Child Support Act 1991

Qualifying child

A child must be a ‘qualifying child’ to be eligible for child support.This means the child must be:

Under 19 years old;
A New Zealand citizen or ordinarily resident in New Zealand;
Not married, in a civil union or de facto relationship; and
Not financially independent or receiving a benefit or student allowance.

Liable parent

If a person is the child’s legal parent, they are a New Zealand citizen or live in New Zealand or Australia, and do not care for the child more than 65% of the time, they may be liable to pay child support.

Receiving carer

A parent may receive child support payments if they provide day-to-day care for a minimum of 35% of the time.

Formula assessment

The formula assessment uses the adjusted taxable income of both parents and subtracts standard amounts for personal living costs and the parent’s other children. The care each parent provides for the children and the costs of raising them are also taken into account.The formula works out the parent’s annual financial obligation and from there monthly amounts are worked out. The IRD collects payments from the liable parent and passes the payments on to the receiving carer or the government if the receiving carer is getting a sole parent or unsupported child’s benefit.It is important you let the IRD know if the care you have of your children changes, as this may affect the child support you pay.From 1 April 2015 changes in the child support formula meant there is more recognition of a parent’s ongoing daily care of their child.Parents and non-parent carers, e.g. grandparents, can receive child support when they provide ongoing daily care for a child (or children) for at least 35% of the time.

Private Agreements

If parents can agree on an amount of child support, they can make their own private agreement. Private agreements provide certainty, represent an amount that both parties consider fair, and require both parents to agree to any changes to the amount payable.The IRD will not be involved in private agreements.The agreements can be verbal or written.Verbal agreements allow for flexibility but may not be enforceable in court.Written agreements provide protection as they are enforceable. However, they need to be carefully worded to avoid rigidity. Further, if written, it will be important for there to be good review provisions which will allow your child support to be reviewed should your financial circumstances change.It is important to factor in expenses such as school fees, extra-curricular activities and medical and dental expenses. Consider whether these expenses will be inclusive in the child support payments or whether you will pay for these expenses on top of your monthly child support payments.

Voluntary Agreements

If parents make their own agreement but would like the IRD to be involved, they can register a voluntary agreement with the IRD. This allows the IRD to collect the child support and pass it on at a rate agreed by both parents. It also means any missed payments will be chased up by the IRD.

To be enforceable, voluntary agreements must be:

In writing;
Made between the liable parent and the receiving carer;
Signed by the liable parent and the receiving carer;
For payment for a qualifying child; and
For regular payments of at least $10 a week or $520 a year.

A voluntary agreement ceases when:

The agreement expires;
Either parent applies for a formula assessment;
The agreement no longer meets the criteria;
The receiving carer terminates the agreement; or
The child is no longer a qualifying child.

Example

Here is an example of the monthly child support figures that some clients (non-primary caregivers, earning a high salary) are paying relative to their income. The figures vary considerably.IncomeNumber of childrenMonthly child support (* = includes spousal maintenance)$250,0003$7,500*$220,0002$3,800*$200,0002$2,400$150,0002$4,800*$150,0002$5,000$130,0002$4,000

Child Support Act 1991

Under s 29 of the Child Support Act (‘CSA’), child support is assessed using a formula based on a liable parent’s taxable income for the most recent tax year. The maximum income figure used to calculate child support is two and a half times the average New Zealand wage and is adjusted each year.The liable or custodian parent can request an administrative review of a child support assessment if he or she believes that the assessment should be altered on certain specified grounds. One is where the child support assessment does not take into account the income, earning capacity, property or financial resources of either parent of the child.Section 105(2) of the CSA includes a ground of departure:“(c) that by virtue of special circumstances, ...[a] formula assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of -(i) the income, earning capacity, property, and financial resources of either parent or the child;...” This section provides scope for matters other than ‘income’ to be taken into account when assessing a liable parent’s child support obligations.The words ‘special circumstances’ in section 105(2)(c) include where it is apparent that unfair, or appropriate ways have been used to reduce liability including the means of company, Trust and other structures.One 1 April 2015, there were changes to child support that had a material impact on the amount of child support payable in New Zealand. A wider definition of income from 1 April 2006 would broaden the ability of people who have Trust income to be liable for further child support.This is an area where lawyers can make a real difference to assist both paying and receiving parents.

How lawyers can help

Lawyers are able to help you behind the scenes to ensure you are paying the right level of child support.We can assist you with drafting your application or response for an administrative review, advising on what financial information you need to request or provide.We will also advise on your likelihood of success.

Court Order

A parent may apply to the court for an order in relation to child support.There may be a number of reasons for this, including:

Disagreement with a child support assessment or decision;
Disagreement between parents on the children’s care arrangements;
You want to apply for child support from a parent who is not a New Zealand citizen or ordinarily resident in New Zealand or Australia;
You want to receive or pay child support as a lump sum; or
You have applied for child support but the child is in need of urgent financial assistance.

The court orders available include a departure order, an appeal, a parenting order, a suspension order, a lump sum order and an urgent maintenance order.A liable parent should continue to make child support payments despite the court application. The only exception is if a suspension order is granted. You should speak to your lawyer if you want to apply for a suspension order.

Spousal Maintenance

Spousal maintenance is the provision of financial support from one partner to the other when a relationship ends.Spousal maintenance assists the other partner in meeting their reasonable needs where they are unable to do so due to certain circumstances.

Criteria

One or more of these circumstances must be present for spousal maintenance to be awarded:

The partner’s ability to become self-supporting having regard to the effects of the division of functions within the relationship (e.g. primary earner vs. stay at home mum), the likely earning capacity of each partner and any other relevant circumstances;
The responsibilities of each partner for the ongoing daily care of any minor or dependent children of the relationship;
The standard of living of the partners while they lived together;
Any physical or mental disability;
Any inability to obtain work that is reasonable in the circumstances and is adequate to provide for that party; and
Any undertaking of education or training designed to increase one party’s earning capacity or reduce or eliminate the need for maintenance.

Determining the amount of maintenance

The Court takes a number of factors into account:

The reasonable needs of each partner – this is assessed by looking at the individual circumstances of each partner;
The potential earning capacity of each partner;
The financial responsibilities of each partner;
Assets from any relationship property division;
Whether a partner is supporting another person; and
Any other circumstances that make one partner liable to maintain the other.

How maintenance is paid

Payments are made either as periodic payments or as a lump sum (single payment or in installments). But in general, the Court prefers periodic payments.

Length of payments

Spousal maintenance is temporary, to enable one party to get back on their feet. It is expected that after a reasonable amount of time both parties will be responsible for meeting their own needs.Generally, a payment of 6-18 months is common. However, this will be at the lesser end if the relationship property is settled.

Interim spousal maintenance

The Court can order interim maintenance for up to six months until an application for maintenance can be determined. The Court has wide discretion to award interim maintenance; the test is what the Judge thinks is reasonable.Payment can only be made by periodic payments and not a lump sum.

Lump Sum Payments and Urgent Matters

Lump sum payments

Spousal maintenance and child support can be paid periodically or by a lump sum. Generally, both are paid periodically. However, parties may agree to a lump sum payment depending on their particular circumstances. The Court may also order a lump sum payment in the event that either parent has applied for such an order. Whether payments are made periodically or by a lump sum will depend on the particular facts of each case and the parties’ desires and financial ability.When a lump sum payment is made for a number of claims, e.g. child support, spousal maintenance or economic disparity, this is sometimes called ‘the global approach’.

The advantages of paying a lump sum are:

Closure – you will have no continuing maintenance or child support obligations;
The amount will be reduced to reflect the time-value of paying a lump sum as opposed to periodic payments;
Reduces the risk of default on payments;
The party receiving the lump sum will have immediate financial stability.

The disadvantages of paying a lump sum are:

You need the financial ability to pay a significant amount;
There are tax implications if a lump sum is part of a relationship property settlement;
The former spouse has no guaranteed income in the future.

Urgent Matters

Sometimes agreements need to be reassessed, particularly when circumstances change. We can assist you to reach new agreements with your former spouse in an amicable and cost effective way.

Revisiting Old Agreements

In some situations you may need to apply to the Family Court for an urgent application seeking interim spousal maintenance or urgent financial assistance for your children. In some cases you can apply without notice for these orders. A without notice application means that the other person will respond to what is being asked for after an Order is made. We can assist you with these cases; we can help you fill out the appropriate forms, file the application and represent you throughout the proceedings.

Protecting Your Assets Before Settlement

Protection through the court system

Steps may have to be taken to preserve property urgently, including injunctions, freezing orders or issuing a caveat. We have expertise in arranging these High Court actions at short notice.

Injunctions

The court may grant an injunction, which prevents a party from dealing with assets including removing them from New Zealand. This will ensure that any assets from the property pool aren’t disposed of or reduced in value until settlement of the relationship property. However, the court will usually require the party seeking the injunction to give an undertaking to the court to be responsible for any damages that may arise as a consequence of that injunction being enforced.

Freezing order

A freezing order also ensures assets are not disposed of by preventing a party from dealing with their assets. The objective of a freezing order is to preserve the status quo until settlement of the relationship property. For example, the bank may be able to freeze your joint account to prevent the other party from withdrawing all the money in the account. A party can apply to the Court for a freezing order without notice, which means the other party will not be aware of the order until after the Court has heard the application.

Caveat

Issuing a caveat means you are claiming an interest in a property and it is noted on the title to the property to protect that interest. This means the other party cannot sell the property without the removal of the caveat by way of an order from the High Court or your consent (the caveator). Issuing a caveat over property ensures your interest in the property is protected until settlement of the relationship property.

Protecting yourself

If you’re separating, we recommend you update your will and set up new bank accounts. Ensure you are the only person who has access to them. Change passwords and PIN numbers on any of your accounts that the other party may have had access to.Gather financial information that will be used in settlement negotiations e.g. records of income, assets and liabilities. The relationship property questionnaire on our website outlines what you will need.

Know Your Rights

Every situation is unique so it is a good idea to understand your rights and options before making any big decisions.

One-off consultation

Jeremy Sutton offers a one-off consultation, where we advise you on a range of issues such as separation, asset division, child or spousal support costs and child visitation. Clients find it useful to visit us before they take any action so they have clarity about their legal rights and obligations. The cost for this appointment is $350 including GST.

Leaving the family home

One of the most common questions clients ask us is should they leave the family home.One party leaving the family home may be a temporary solution, however, the main problem is temporary situations have a habit of becoming permanent arrangements. This can affect matters such as child custody, possession of the family home and control of relationship property. In addition, leaving the family home has emotional, financial and legal implications on both you and your children.We recommend both parties stay in the family home until agreement has been reached on key issues such as the division of relationship property and child-care arrangements. However should there be a risk of danger, please contact a lawyer immediately for advice, or in urgent situations dial 111 for emergency services. Protection of yourself and children is always your first priority.