Relationship breakdowns can be the most trying times in people’s lives, so it’s vital that the laws concerning what happens to property and trusts in these situations are clear, comprehensive and equitable.
To this end, the Law Commission has recently undertaken a review of the Property (Relationships) Act 1976, and Professor Bill Atkin from the Faculty of Law has been a key member of the Commission’s Expert Advisory Group. The task of reviewing the legislation was first referred to the Commission by former Minister of Justice Amy Adams in 2016, and the group was set up in the early stages of the project.
A leading expert on family law and relationship property in New Zealand, Bill has published numerous books and papers on these topics including one of the definitive works, Relationship Property in New Zealand. He says while the legal foundations laid by the 1976 legislation are still sound, the law requires modernising and clarification in order to remain fit for purpose.
“In 1976 we made significant steps in altering our system away from the conventional British approach—which was largely a matter of judges deciding what might be appropriate,” says Bill.
“But when you dig deeper there are some exceptions and curly technical issues to be worked through.”
Bill says one of these issues is family trusts. “Trusts are an area where we need much more clarity. The relationship between property and trusts is really quite a tricky one—it’s been the subject of major Supreme Court decisions and a lot of other litigation. The current law is ambiguous, it’s inconsistent, and it’s not based on clear principles.
“The Law Commission’s proposal is to effectively treat trust property as relationship property unless it has nothing to do with the family, so most family trust property will be included in the pool for division. The current law goes down that route to a certain extent, but it’s all over the place.”
Bill also notes that the current law on trusts tends to favour male parties, and that the Law Commission’s proposed changes may help to ensure a more equitable outcome for both parties in a relationship.
Another area under review is economic disparity between partners in a relationship. The general rule under the current law is that once you have been in a marriage, civil union or de facto relationship for more than three years, upon separation all relationship property is to be divided equally. However, the Court has the discretion to divide relationship property unequally in certain circumstances. The economic disparity provision is one of these circumstances, and ostensibly allows for one party to seek a greater than equal share.
This provision applies if the income and living standards of one partner are likely to be significantly higher than the other. In this situation, the Court can order a lump sum payment or transfer of relationship property to the economically weaker party to compensate for this economic disparity.
“Issues around economic disparity are quite prevalent in New Zealand and have been coming up a lot in family breakdown situations,” says Bill.
“One of the big problems with economic disparity is determining the amount of compensation. In the leading case that went as far as the Supreme Court, different courts and judges came up with wildly varying amounts, ranging from $187,810 to $895,439.”
Bill says the Law Commission has proposed introducing a new mechanism called Family Income Sharing Arrangements (FISAs) to replace the court’s compensatory powers.
Under a FISA, partners would share income for a limited period following separation in order to ensure the economic advantages and disadvantages arising from the relationship or its end are shared more fairly. The amount and duration of a FISA would be calculated by a formula that takes into account the partners’ incomes before separation and the length of the partners’ relationship.
“This would involve a radical change in the law,” says Bill. “It means removing the rules around economic disparity, getting rid of the law of adult maintenance, and in effect combining the two in this new proposal. The idea is it would be a bit like child support in that it would operate automatically.
Now that’s quite an ambitious proposal—the Government’s going to have to work through the challenges and it might decide that it’s too radical.
On the other hand it can’t leave the law as it is at the present with a great deal of uncertainty.”
Bill says the Commission’s proposal to change rules relating to family homes is also significant.
“At the moment, the family home is always treated as relationship property. The proposal is that pre-owned homes will be outside the pool of relationship property. However, if you sell the home and buy another one it becomes relationship property, and also any increase in the value of the home would be relationship property.
“It’s going to make the law relating to the family home more complex and will potentially give rise to more disputes, but the Law Commission received evidence from a lot of people and some survey results indicating that this was an area where people felt the law was unfair—that you could bring a home into a relationship and lose half of it.”
Bill notes that this proposal is controversial. “Often the home is the main family asset and some people, such as mothers, may miss out or will have nothing to show for their efforts in bringing up the children and looking after the family.”
There are several areas that still require further work, such as the interests of children and what happens in cases of inheritance when one partner dies—Bill notes that the Law Commission has started a new project looking into the latter issue. He also says a major question for the future is how tikanga Māori can be better used in procedures to do with relationship property.
But while there are areas that need updating, Bill says New Zealand’s relationship property laws compare favourably internationally. “I think we’re ahead of the game. The Law Commission accepted that the core principles of our current law are sound. We’re a long way ahead of the law in Australia, England and Wales, where they have very open-ended rules and it’s very hard to determine what the outcome of any situation is.”
In October 2017 the Commission released an Issues Paper of more than 800 pages, and after comprehensive public consultation it released its final report in July 2019. “It’s been a mammoth task,” says Bill.
The Government is now considering the recommendations and will make a decision on whether to implement any or all of them.
Bill expects there will be an indication from the Minister of Justice before next year’s general election. “Realistically I don’t think we’ll see legislation for around two years. If we can get it calibrated in the right way, it could lead to a fairer system for all.”
Bill concedes that even with a fairer system, there will still be disputes and acrimonious settlements under the proposed new law.
“It’s pretty hard in some situations to avoid acrimony, but it helps if the law is reasonably clear. Certainly the Law Commission was looking to reduce acrimony by having clearer rules.”
Ultimately, Bill hopes the updates to the legislation will better reflect the nature of contemporary relationships and values.
“Relationship property law cannot be value-free. Like most law, in the end we draw pragmatically on a mélange of concepts to come up with a package that is widely accepted and understood within the community,” he says.
“But the make-up and values of New Zealand are not static: 2019 is very different from 1976. The work of the Law Commission can help New Zealand take the next leap towards a re-fashioned regime, fit to serve the community.”