It is an uncomfortable but necessary task to consider what will happen to your property after you die. The law of succession determines how your property will be distributed. Most people assume that property is divided under the deceased’s will (if they have one), but this is not always the case.
In New Zealand, succession law is fractured across different statutes. Since the rules are not in one place, they can be challenging to apply. The Law Commission has recognised the issues that have arisen and announced a review of the law of succession.
The laws of succession that apply to relationship property on the death of a person are in desperate need of reform. This will be one of the main focuses of the review.
At the end of a relationship, a couple must divide their property. It is common knowledge that there are rules which settle how their property is to be divided. These rules can be found in the Property (Relationships) Act 1976. However, it is less well known that these rules can also apply if a spouse or partner dies.
Part 8 of the Act contains the rules which deal with the division of the couple’s property when one of them dies. When a person in a qualifying relationship dies, the surviving partner must choose to divide their property under Option A or Option B. This choice must be made within six months of probate being granted.
- If Option A is elected, the surviving spouse can make an application to the court to divide relationship property according to the rules of the PRA;
- If Option B is chosen, the PRA does not apply. Instead, the property is divided according to the will of the deceased or the rules of intestacy.
Where Option A is chosen, any gift provided for the surviving partner in the deceased’s will is revoked unless the will says otherwise. However, they can ask the Court for an order that the gifts be reinstated.
These rules were designed to ensure that a person whose partner died was not left worse off than if they had separated. Unfortunately, the rules are difficult to understand and for people to use. They also can create tension between children from previous relationships and new partners who do not feel that the will provides fairly for them.
Option A vs Option B – an example
Jack and Jill have been married for 20 years. When Jack dies, Jill must choose between Option A and Option B. If she does not decide within six months, then Option B will apply by default.
If Jack has left all or most of his estate to Jill, then Jill is best to select Option B and take what she receives under his will.
However, if Jack had children from a previous relationship, he may have left a significant proportion of his property to them. If Jack left more than 50% of his estate to these children, Jill might be better off to choose option A and make a claim under the PRA for a division of relationship property. Jack’s children will still be entitled to a share of his estate, but this will not include Jill’s share of the relationship property.
Contracting Out Agreements
To further complicate things, a couple may “contract out” of the PRA rules. This is commonly known as a “prenup”. At any time during their relationship (often before marriage), the couple can make an agreement which will determine how to divide their property if the relationship ends. For this agreement to be valid, both parties need to get independent legal advice.
A lawyer must explain the consequences of the agreement to the party seeking advice. This will include an explanation of what happens if one of them dies. The complicated nature of the current rules makes this explanation very difficult.
Most parties agreeing to a prenup will want the agreement to be valid if one of them dies. To do this, it will usually contain a clause which makes it compulsory for the surviving partner to choose Option A.
If you are entering into a prenup agreement, it is incredibly important to update your will at the same time. This ensures your wishes will be respected after your death.
Need for reform?
These rules are complicated and in need of review.
The Law Commission is now seeking input from practitioners and those who have a prior understanding of succession law. They have produced a survey to define the issues that arise under New Zealand’s succession law. Responses are due by 31 May 2020.
The Commission will open submissions to the wider public at a later date. If you would like to contribute to the discussion, visit here – https://www.lawcom.govt.nz/our-projects/review-succession-law