It might be more than 40 years old, but recent research reveals a concerning lack of understanding still prevails around who gets what under the Property (Relationships) Act 1976 in the event of a break-up or one partner dying.
More than half of participants didn’t realise that the general rule is an equal division of relationship property for all couples who have been together three years or longer.
Of significant concern, also, was researchers’ discovery that there were couples relying on informal, DIY agreements in a bid to “opt out” of equal sharing. Right idea, terrible execution. They had failed to seek independent legal advice and have their arrangements certified by their respective lawyers, rendering their agreements legally useless from the start.
The University of Otago research on public views of relationship property law came out just prior to the Law Commission releasing its review of the Act late last year, a review which recommended relatively significant changes to how, in this modern era, assets should be divided after a separation or death. Feedback was sought, and the Commission expects to have its final report to Government this year.
In the meantime, though, couples need to remain abreast of the law as it stands – and continues to evolve. Informed, timely decisions, together with robust legal tools, remain the best insurance policy against a potentially costly, stressful and acrimonious battle if the relationship ends. (Remembering, too, the Property (Relationships) Act also applies in cases where one partner/spouse dies, and there is a claim from others over the estate.)
The University of Otago’s research findings around the lack of awareness of the equal-sharing principle mirror my own observations. But what I also see among those who do, in fact, know the 50-50 default for relationship property, is that they’re not aware that it’s not absolute, and that the law does provide for exceptions – for example where there is economic disparity at the end of the relationship, or the relationship was “of short duration” (typically less than three years). Section 13 allows for other extraordinary circumstances that would also make the typical equal distribution particularly unfair.
While under the current legislation the benchmark for anything other than a 50-50 split has been previously relatively lofty, lately we’ve seen important decisions coming out of the courts where judges are ordering one party get more than another under Section 13, on the grounds that an equal division would be “repugnant to justice”.
Key cases
Last year, the High Court upheld a Family Court decision for uneven distribution in Kidd v Russell. The parties had been in a relationship that lasted five years and 10 months. Ms Russell went into the relationship owning a home, which had been bought with the settlement proceeds from her first marriage. She had a low income and her new partner, Mr Kidd, was living in her home rent free. Three years into the relationship she got a mortgage to undertake renovations on the property, and relied on Mr Kidd’s income to secure the finance, which covered the purchase of vehicles, as well. The couple didn’t acquire any relationship property, and Mr Kidd had brought no significant assets into the relationship, although he did help with the renovations and improvements to the home.
By the time it went to court, the house had been sold, so the issue was how to split the proceeds. Weighing up the combination of key factors, the High Court agreed with the Family Court’s assessment that the circumstances were extraordinary, and an equal division would be repugnant to justice. Ms Russell was awarded 70 percent of the relationship property, while Mr Kidd’s 30 percent was awarded to him on the basis of his contributions to the renovations and also recognised the increase in the property’s value due to market forces.
Bowden v Bowden is another particularly interesting case. The husband had brought all of the assets into the relationship – which lasted only three years and two months before his death – and paid for the majority of the outgoings. No assets were acquired jointly during the relationship. His family lodged a section 13 application against his estate, which the court found in favour of, awarding an 80-20 split.The fact the wife had cared for the husband at the very end of his life and had previously given up a state house tenancy was not enough to counter the claim.
Review and clarity welcomed
It’s not surprising that four decades after its inception that the current legislation needs an overhaul. Society has transformed markedly. But even under this current legislation, people need to be aware its interpretation continues to change over time, which can mean markedly different outcomes.
And while the above cases provide us something of a guide, each situation will always be fact-specific. Just because the court decides one way in one case, by no means guarantees a similar outcome for another.
Looking further out, the Law Commission’s report has given us a steer on what relationship property law could look like in the future.
One key area is the family home. Under the current law, in a marriage, civil union or de facto relationship of more than three years, the family home is, with few exceptions, automatically considered to be relationship property and subject to equal sharing. Under the recommendations, however, the family home will not necessarily be divided 50-50, particularly if one partner owned the property before the start of the relationship, and only the increase in the value would be split equally.
Another significant proposal is around addressing economic disparity. The Law Commission recommended for relationships of 10 years or longer, or where there are children, that both parties’ incomes be pooled and divided through a family income-sharing agreement for a period post separation.
So, what to do?
Despite the uncertainty that comes with impending legislative change, and ground-breaking court decisions, people can’t just put asset protection on the backburner.
It’s hard to imagine a time relationship property law won’t exist on shifting sands. And regardless of the legislation and the courts’ philosophies of the time, the fact remains: pursuing litigation should always be an absolute last resort. It tends to be stressful, protracted, risky and costly.
When it comes to protecting your interests in relationship property matters, all roads really do lead to a Contracting Out Agreement – ensuring, of course, it is properly drafted, both parties have sought independent legal advice and any agreement is certified by the lawyers.
These agreements are typically relatively quick and inexpensive to have drawn up – and certainly a drop in the ocean compared to court action. As soon as you enter into a relationship, you can set out what you consider fair and reasonable, updating provisions as the union grows, where necessary.
With legislative change in the wind and the courts drawing an increasingly fine line between what’s an ordinary circumstance requiring an equal division and an extraordinary one justifying a greater share for one party, save yourself time, money and stress: decide what’s right for you ahead of time with a robust Contracting Out Agreement.