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Not Entirely Legal

If we separate we will just divide everything in half, we don’t need a lawyer

I am (sadly) old enough to have been practising law when the Matrimonial Property Act 1976 came into force and effect. It was a revolutionary piece of legislation. Before then a party to a marriage had to prove their contribution to an asset before they could take a share of it on separation. So a wife and mother might devote 40 years of her life to bringing up 6 children, managing the farm accounts, work from dawn to dusk on the farm alongside her husband, and find at the end of the day she had a very limited claim to the farm when the marriage came to an end. The 1976 Act broadly said that all property acquired during the course of the marriage, provided it lasted more than 3 years, was divided equally. There were exceptions and qualifications but that is a pretty fair summary.

 

The Matrimonial Property Act 1976 was a slender volume. My boss at the time, the litigation partner, a worldly wise gentleman of 29 years, retreated into his office and took the phone off the hook for 1 hour within which time he had read the Act from beginning to end. He then walked past my desk, tossed the Act onto it and exclaimed that “that should sort matters out”. In fact in the very first year of enactment there were a multitude of cases before the Court sorting out peoples property disputes where the Act was not entirely clear, and since then there have been a similar volume of cases every year as the Courts struggle to apply the Act, and the body of case law that has arisen under it, to the infinite variety of circumstances that arise in people’s tangled property and relationship affairs. However, that’s in large part a reflection of the fact that litigation relating to property is the most common form of litigation in New Zealand given the high incidence of separation and divorce, in which we are no different from any other western country. In the majority of cases, the Act was clear enough and did indeed, as my former boss predicted, sort matters out in a pretty straightforward fashion.

 

In 2001 and 2002 the Matrimonial Property Act was changed and amended and became the Property (Relationships) Act 1976. The 1976 date was retained, presumably to show that this was an amendment to the original Matrimonial Property Act of 1976, and in many cases it is similar if not identical to that pioneering piece of legislation. It is widely and generally known that one of the major changes was the inclusion of de facto relationships under the protective coverage of the Act. Those in a de facto relationship are not treated absolutely identically to those who are married (or, more latterly, enter into a civil union) but the differences are minimal. They largely relate to relationships of short duration, if you were in a de facto relationship of less than 3 years then property orders won’t be made unless there is a child of the relationship. The requirement that there be a child is not a prerequisite to the Court making a decision if you are married or in a civil union.

 

Another change, not so widely known or understood, even now, is the provision for, in certain instances, unequal sharing of property. In the last year there have been some high profile cases in Auckland involving millionaire couples with high profile lawyers acting for them that have attracted a flurry of public interest, in particular the case of X and X (parties can now no longer be identified by their name in any legal reports to protect their privacy, fair enough but it makes it incredibly difficult now to remember cases by their name!). It was held that Mrs X should be entitled to a compensatory payment in addition to a one half share despite the fact that she would receive post separation a sum in the millions and had training and expertise that would ensure her a high earning job. The decision has been appealed, to be next heard in the Court of Appeal. In simple terms the issue in dispute is the original decision of the Family Court Judge that the wife, despite her caregiving role for the children, was free to pursue other employment if she wanted to and made a lifestyle choice in looking after the children and therefore should not receive reimbursement because of the effect that not working had on her income earning abilities post separation. The Judge in the High Court thought it irrelevant as to whether a choice was made along these lines or not, it was the outcome that was relevant.

 

Few people will find, unfortunately, their financial circumstances on a par with Mr and Mrs X but it might be the case that the relevant part of the Property (Relationships) Act 1976, Section 15, will apply to their circumstances.

 

The major problem with Section 15 from the point of view of the Courts, lawyers, and, most importantly, separated couples struggling to see whether it applies to them, is that it sets out a general principle, sets out three hurdles that the person seeking to benefit from the Section 15 adjustment needs to get across, and then leaves it to the discretion of the Court as to what money is then paid and where that money is to come from. The basic principle is that if on separation your income is less than it would otherwise have been because you sacrificed your career to look after the kids then you might be entitled to receive a lump sum payment or some additional property. The Act doesn’t actually say “look after the kids”, it talks of “... the effects of the division of functions within the marriage”, but that’s what it means. Before this Act came into effect there was quite a bit of research in New Zealand and overseas that showed fairly conclusively that post separation men bounced back and did better, financially, than women, as a generalisation, because women had to look after the children post separation, and because they had put their career on hold when they looked after the children during the course of the relationship they hadn’t advanced as far up the career ladder and were likely to earn less. Before a number of readers rush off to their computers to bang off an angry letter to the editor I stress that I am talking about general patterns, and of course it is sometimes the case that the husband or male partner is left with the predominant care of the children or cared for the children predominantly during the relationship. It is also very clear that that pattern is increasing rather than decreasing and, further, there is a definite shift towards shared care. I am just talking about statistics here that undoubtedly influenced the Government when it enacted this section.

 

So, having established that there is going to be a disadvantage the custodial parent needs to show a direct link between that assumption of caregiving and the lesser earning capacity, show that its likely to be ongoing and will have for some time in the future a negative effect in terms of possible income. After considering this and “any other relevant circumstances” the Court can order an adjusting or compensation payment or transfer of property “if it considers just”. So there is quite a bit of discretion there which always makes it difficult to be certain as to outcome. Although this amended legislation has been law for 5 years now it is still unclear as to when, in any particular situation, there is a good case for a Section 15 adjustment and how to calculate exactly how much money should be paid. Some Judges have taken a global approach without too much explanation. Others have followed quite an actuarial path in calculating the likely difference in income over a number of years, 4 or 5 or sometimes more, then discounting the difference for the value of money received now and the general uncertainty as to what the future might hold.

 

Getting back to the heading for this article, this comment I think reflects a common view, that regardless of who is looking after the children or what peoples income earning abilities are going to be property is nonetheless split down the middle. Although Section 15 adjustments are still the subject of legal argument and not as simple to implement as one might hope, here nonetheless is a provision to provide for a fairer outcome in circumstances where one party is disadvantaged by either the historical and/or the ongoing care of children. It can result in an extra sum of money which might make life more comfortable and endurable. It is therefore important that anyone separating who may be in this situation takes the opportunity to get good legal advice before they informally agree to divisions of property which whilst not legally binding (agreements have be in writing and witnessed and certified by your own independent solicitor to be binding) are nonetheless felt to be somehow morally binding. It is important to note also that this Section 15 adjustment is in addition to, not in substitution to, adequate child support which can either be reached by agreement or by application to the Child Support Division of the Inland Revenue Department. In fact it is also possible to obtain spousal maintenance as well as a Section 15 adjustment although it is likely that a Court would carefully look at the cumulative effect of making both an order for spousal maintenance and Section 15 adjustment to ensure that there was no unfairness.