The Law Commission wants an overhaul of the rules for dividing up property when a couple splits up, saying they are out-of-date and have failed to keep up with social change. I talk to Susan Edmunds.

 

Auckland man Sam had been in an amicable arranged marriage for 20 months when he and his wife separated.

After more than a year of litigation, and $150,000 in legal bills, Sam says the divorce proceedings will probably last longer than the marriage.

The Law Commission this week finalised and submitted to Parliament its report on the changes it wants to see to the Property (Relationships) Act, which governs how relationship property should be divided when a relationship ends.

Among its suggestions, the commission wants the process of separating made more efficient, clearer ways of tackling economic inequality after a split, and a new way to determine how the family home is divided

Sam, who doesn’t want to be identified, agrees an overhaul of the system is urgently needed.

In his case, he said things turned nasty after he discovered his wife had a new partner, and feared she was only using him to get residency in New Zealand.

Because the pair had only actually shared a home for a brief time – less than half the marriage – and there were no shared assets, he hoped for a clean, easy split.

But, since he was the only one working during their marriage, and the couple had no children, he was reluctant to offer her any money. “She got the idea that I had some wealth and wanted to take a crack at it.”

He now feels she’s trying to drag it out to the point where it will be cheaper for him to pay her to go away.

He’s already paid $150,000 in legal fees, and she hasn’t even presented her claim in court yet. “Things are just not moving.”

As the Property (Relationships) Act stands, after three years together – or less, if it’s a “relationship of significance” – the home becomes relationship property and is split 50/50.

This is regardless of whether one party owned it before the relationship, or one put more money into it than the other.

The law has been in place, with few changes, since 1976. Lawyers say it might have been sensible legislation at a time when most couples met when they were young and saved up to buy a home together, building assets over their lives.

It’s less applicable now, when many people do not marry until later, or divorce and remarry, and already have significant assets that they bring into the partnership.

The commission said only the increase in a property’s value that happened during the relationship should be shared.

It also proposes family income sharing arrangements, which would compel some people to share their income with their ex-partners for a period after the separation, and greater focus on children’s needs.

“The existing legislation is well in need of overhaul,” says barrister Ross Knight.

“I don’t think it serves people as it should… the legislation has well and truly passed its used-by date.”

An Otago University study last year found many aspects of the current law are out of touch with contemporary New Zealand.

Knight said anyone who had to go to court for a relationship settlement would find it difficult to get a fast or cost-effective resolution.

He said the package of proposed changes appeared designed to provide a more pragmatic approach.

“If the legislation can provide formulaic ways of dealing with things like economic disparity and maintenance there’s less opportunity for people to get into contentious situations that will take them into court.”

It can be hard for separating couples to determine what’s “fair” when one walks away with much more than the other.

Tim and Sophie Biggs, a former Queenstown couple who are believed to be involved in New Zealand’s biggest divorce settlement, valued at $59 million, have been arguing over exactly that.

Tim Biggs argues his wife should get 15 per cent of the relationship property. But she is seeking an equal share, and a share of her estranged husband’s wealth available to him via his trusts and companies.

They are due back in court next year.

Another lawyer, Jeremy Sutton, said people were currently advised to take out a contracting out agreement when they got together, to avoid these sorts of issues, but few did.

“Only about six per cent of people enter into those agreements. It’s a really awkward conversation to have – it’s horrible to talk about.”

The commission also wants it to be made easier to access property that is held in trusts. At the moment, if something is in a trust, it usually isn’t captured as relationship property.

Sometimes, that means that property that should be split when people separate is not.

Sutton said almost all clients he dealt with had at least some property in a trust. “If a client comes in with a trust you think ‘here we go’ it’s a lot more difficult.”

It took an average of two years to get a court hearing, he said, and relationship property cases tended to fall to the bottom of the court’s priorities.

In that time, people had moved on to new relationships and wanted a clean break. “As a society, we could be doing a lot better for people.”

University of Auckland associate professor in the department of commercial law Alex Sims said the original law had been intended to help women, but in many cases it had ended up harming them.

That was particularly true where their partners had assets, such as pre-existing investments, that continued to be counted as separate property, but their own assets were all captured as relationship property and divided.

Sims said the Law Commission’s package of recommendation had to be looked at as a whole. If the Government adopted some measures but not others, there was a risk the effectiveness of all aspects could be diluted, and there could be unintended consequences.

She said the Government needed to act, because the system was clearly not working.

Knight said it was unclear whether Parliament would take any steps towards turning the recommendations into legislation this parliamentary term, “if it happens at all”.

Justice Minister Andrew Little said the Government would now give further consideration to the report’s recommendations and the wider impact of its proposals.

 

This article was first published in the Sunday Star Times.