Changes in the Division of Relationship Property

The Law Commission has recently released a report proposing a number of changes to the current relationship property regime.  This is long overdue (the current law has been in place for over 40 years).  Relationships and society have changed dramatically since 1976 and the law has struggled to keep up. 

A number of changes have been proposed, including the manner in which property owned by trusts could be dealt with and adjustments to compensate non-income earning partners at the end of a relationship.  The general consensus of the report is that the long established “equal sharing” principle is no longer fair or appropriate in a number of circumstances.

The reality, however, is that the Law Commission’s initial report will now be the subject to submissions and only then start to work its way through the legislation process.  It could be many years (even up to a decade) before the current law is changed. 

In the meantime, however, the Courts have already taken steps to significantly challenge the principle of equal sharing in a number of cases.  

Economic disparity – seismic shift in the way relationship property is divided

2018 has seen a massive (but not widely reported) change in the way relationship property is divided upon the breakdown of relationships.

For over 40 years, it has been generally accepted that upon separation, a couple will divide their relationship property equally.  Indeed, it was only in the most extreme cases that this did not occur.  Generally, an unequal division would take place if a 50/50 division would result in an extreme injustice or in relationships of short duration (less than three years).

The law changed in 2002 with the most recent major amendments to the Property (Relationships) Act 1976.  Those amendments included section 15 which made a provision for circumstances in cases of “economic disparity” where it could be established that the future income or living standards of one party had been disadvantaged as a result of the division of functions within the relationship.  In most cases this was understood to mean that where one partner had given up a career to look after children, there could potentially be some financial compensation awarded to that person at the time of the relationship coming to an end.  Nevertheless, it was generally understood that the intention of Parliament when including this provision was that the economic disparity awards would be only made in rare cases and would be the exception as opposed to the rule.  And, indeed, that was the case for 15 years. 

In the period up until late last year, there has been very little case law concerning the economic disparity provisions, and awards that had been made by the Courts had been relatively modest.  In most leading cases, the economic disparity division was calculated on a percentage basis in relation to the property available for division.  The percentages awards had been relatively modest (most often in the vicinity of 55/45%; or in extreme cases slightly more).

A further complication in many cases arises from the fact that in assessing the relationship property pool and making a compensatory award, the parties and Courts can only take into account relationship property existing at the date of separation.  This means that, in many cases, property held by a third party (most commonly in a trust) may not be available for such an adjustment. 

In essence, the principle of equal sharing had remained relatively intact.

Late last year, that all changed. 

In the first Supreme Court case involving economic disparity Scott v Williams which was determined in December 2017, the country’s highest Court dramatically altered the position.  That case involved a married couple who are both professionals.  The wife essentially sacrificed her career to look after the couple’s children and raise their family.  The husband’s law firm flourished.  When they separated, the wife sought greater than equal share of the relationship property pool.  Differing amounts were awarded in the Family Court, High Court and then Court of Appeal.  The Supreme Court Justices took the opportunity to consider the approach to section 15 that had been adopted in earlier cases.  Essentially, they came to the conclusion that the previous method of calculating any adjustment (usually a smaller percentage of the relationship property pool) was not the correct approach.  Whereas in the past the Courts had focused on the difference between the income that was actually being earned by the lower earning partner and that which he or she would have been able to earn but for the division of functions in the relationship; the Supreme Court took the view that the disparity should be based on the actual difference between the lower income earning partner’s expected income and that of the higher income earning partner.  As such the likely quantum and frequency of claims of this nature has increased dramatically.  In what may be quite worrying for some people, will be the observation from the Chief Justice that there could be cases where one party could receive nothing from the relationship pool and the other party 100%.  (It is anticipated that those cases would be extremely rare and only where one party had a very high income and the relationship property estate was relatively modest). 

What is clear is that the landscape concerning relationship property division has now changed dramatically.  It is now very difficult for lawyers to advise their clients as to the likely extent of an economic disparity claim without receiving expert input but in almost all cases of parties separating, the prospect of an economic disparity award is now considered, and claims are becoming increasingly common.  It is unlikely that the law will be clarified any time soon. 

What can you do to protect yourself?

There are no failsafe ways to avoid claims of this nature.  The very best that can be done is to ensure that, before entering into a relationship, the parties seek expert legal advice on what steps they can take to protect themselves as much as possible from these types of claims.  Such steps may include having their assets protected either by way of a trust and/or entering into a relationship property agreement recording the manner in which they would seek to have their property divided in the event of separation.  The key is to seek advice as soon as possible, ideally before you enter into a relationship and again when you do.  Our relationship property experts can assist you. 

Contact:

Michael Robinson
Partner
mrobinson@turnerhopkins.co.nz
ph +64 9 486 2169

Sharon Chandra
Senior Associate
sharon.chandra@turnerhopkins.co.nz
ph +64 9 486 2169