We live longer, but our partnerships are often shorter, and we form them later in life. We also bring more wealth into relationships now. It does seem time to change the rules of property division, as the Law Commission suggests in its PRA (Property Relationships Act) action paper. New Zealanders were extensively consulted on it. The previous Act took, essentially, a ‘one size fits all’ approach – a 50/50 splits of assets when couples separate.
The main points here are:
Keeping the property you own going into the relationship
Property purchased prior to a relationship can mean messy separations. If you marry later, you will probably have more wealth when you meet someone you want to live with. And parents assist children more now in getting onto the property ladder. Parents are lending deposit money to their own sons and daughters, not to someone they haven’t met and don’t know. This should be recognised more easily in settlements, especially when mum & dad put up their own home as collateral for a child’s mortgage.
Yes, the family home should no longer always be shared 50-50. It is fair that if one partner owned the home before the relationship, only the increase in value during the relationship should be shared. Homes acquired during a relationship will still be shared equally. This will remove a significant source of – often unspoken – stress in relationships. But as well as the headlines on this, there is more from the Commission.
Family Income Sharing Arrangements (FISA)
These are to replace spousal support maintenance and S15 economic disparity claims. Under Section 15, these awards have become increasingly unpredictable and conservative, and the cost of applying for one is high. Because of this, an S15 application is only worthwhile when there is a significant relationship property pool.
What is proposed is that couples with children, who have been together for 10 years or more, or who have built or sacrificed careers because of the relationship, should be eligible for Family Income Sharing Arrangements or “FISA”s. Under a FISA, partners would be required to share their combined incomes for a defined time period after they separate, to ensure both financial advantages and disadvantages from their being together are shared more fairly. There will be a statutory formula that equalises their incomes (for approximately half the relationship’s duration) up to a maximum of 5 years. This change would not be welcomed by everyone, as you can imagine – especially not by the higher-earning partner; but it is a simple solution to what is often a sad and complicated situation.
Separations can be complex emotionally; trusts can be just as complex legally.
When a trust holds family assets like a home or business, these may be ‘relationship property’, but because of the trust they cannot be equally shared between the parties. This is because when assets are held in trust, they are not ‘beneficially owned’ by either party; they cannot be considered ‘property’, let alone relationship property.
The main sections addressing trusts in the PRA are 44 and 44C. They often fail to provide an effective remedy. There is a so-called ‘trust busting’ provision in section 182 of the Family Proceedings Act and it can provide some relief to couples. But (and this is a big but), it is only available to married couples and does not aim to share property equally like the PRA.
The review says that a court should have greater powers to share trust property when a trust holds property that was produced, preserved or enhanced by the relationship. This is welcome, but more information is needed to see how this will operate and what penalties there might be for non-compliance in providing essential information.
Over the years, the family court has adopted a more child-centred approach. However, this has not been the case in relationship property disputes. Children can be a significant financial consideration in cases where one party takes primary care of children post-separation. In countries like the UK and Australia, the welfare of minor children is paramount. It should be in New Zealand, too.
The review states that children’s best interests should be given greater priority under the PRA. This includes giving the primary caregiver of children a default right to stay in the family home in the period immediately following separation. Again, that solution has simplicity on its side. The entire fairness of it will now be debated.
What changes will work and make a difference?
The current Act is outdated. It is hoped that these sorts of new, enlightened amendments will result in more fairness and clarity. The devil is always in the detail. There needs to be more money to help separated families access lawyers and the family court system if that is needed. The Law Commission’s approach is admirable, though.
Breaking up is hard to do; the rules around it need not be.
Divorce Lawyer, Bastion chambers
021 369 488