When going through separation, relationship property will be divided. The Property (Relationships) Act 1976 governs the division of property accrued when in a relationship. All marriages and civil unions, alongside de facto relationships, come within the Act. It should be noted that there are different rules for de facto relationships and marriages of less than 3 years. The Act is guided by the principles of equality between men and women and the economic effects of ending the relationship.
Section 8 of the Act sets out what comes within relationship property. This includes the family home, chattels, jointly owned property, life insurance policies and superannuation funds. When starting the separation process, it is important to ascertain the current value of things that you and your partner own. Being able to determine this will help your lawyer to understand your property. For more information on what to do before starting the separation process, see our blog: What should you do before approaching a separation lawyer?
Coming to a private agreement is the best way to work through dividing relationship property. This will better preserve relationships, which can be crucial where children are involved. In order for an agreement to be enforceable, it must be written and both parties must have taken legal advice.
If an agreement cannot be reached between parties, either party can make an application to the Family Court. Applying to the Family Court to determine the division of relationship property will take the control out of the parties’ hands.
Typically, dividing marital assets can be a straightforward process where there is consensus. Two difficulties that may arise when dividing marital assets are the establishment of trusts and curing the disparity of income.
Family trusts are widely used in New Zealand to protect property. Trusts can be an issue where the property in question has been contributed by a party and the trust structure limits their rights to it. This issue often arises when splitting assets.
The constructive trust has been used as a tool by the Courts to determine that one party has an interest in a property controlled by the trustees of the trust. A constructive trust essentially sits on top of the trust already created. The establishment of these trusts is discretionary to the Courts.
Contributions to the trust property do not need to be monetary. However, there are thresholds that need to be met:
By applying to the Family Court the division of property is taken out of your hands. This means that the division of property will remain squarely within the Family Court Judge’s discretion. This is highlighted through the assessment of disparity of income resulting from the division of functions within the relationship.
Section 15 of the Act details that the Court may award lump sum payments or order a transfer of property. The Court is empowered to use this section where it is satisfied that, after the marriage, civil union or de facto relationship ends, the income and living standards of one spouse or partner are likely to be significantly higher than the other because of the effect of the division functions within the marriage, civil union or de facto relationship while the parties were living together.
Scott v Williams sets down a formula to restore the ‘homemaker’ to where they would have been prior to the relationship. There are a multitude of different factors that may be taken into account when determining the disparity of income. These include a comparison of income and the causal link between the disparity and roles within the marriage. There will also be discussion on the length of time that compensation will be paid for.
What is highlighted through the case is that there is no set formula to determine the disparity of income. Guidance can be ascertained from the majority judgment in Scott v Williams, but it is not definitive.
These two difficulties highlight the advantages of coming to an agreement over assets outside of the Family Court. However, situations may dictate that Court determination is needed.