Ben Frampton of Saunders & Co highlights the impact of upcoming legislation changes on de facto and same sex relationships

Social changes over recent years have forced successive governments to consider offering de facto and same sex relationships the same legal protection given to marriages.

Parliament has been considering the changes for some time. In March 1998, the previous Government introduced a Bill (Matrimonial Property Amendment Bill 1998) with significant amendments to the Matrimonial Property Act 1976 ("the Act"). In May 2000, the present Government introduced a new Bill that significantly extends the proposed amendments to the existing legislation (Property (Relationships) Amendment Bill). The most important changes in the new Bill would effectively extend the provisions of the Act to de facto and same sex relationships.

The proposed changes to the law would significantly affect many New Zealanders.

Parliament's Justice and Electoral Committee has considered the proposed amendments at length. The amendment Bill has been reprinted in a Supplementary Order Paper completed in October 2000 (SOP 2000/97). At this stage it is not known when, and in what form, the Bill will be passed. It appears that the present form of the Bill is a Government-supported measure and is likely to be passed in the present or next parliamentary session.

The issues are still subject to debate in Parliament but it is anticipated that amending laws will be passed to significantly extend the existing Act.

De facto and same sex relationships

The most significant change in the Bill is the extension of the existing laws for matrimonial property to de facto and same sex relationships. Effectively, the new law would apply the equal sharing provisions of the Act to any de facto or same sex relationship that has existed for more than 3 years. When a married couple were in a de facto relationship before marriage, the total length of the relationship would be considered in deciding whether the Act would apply.

The inclusion of de facto relationships can create some uncertainty because it will not always be clear whether a couple is in such a relationship. A de facto relationship is defined as a relationship between two people, both aged over 18, who live together as a couple and are not married to one another. To determine whether or not a de facto relationship exists, several factors would be considered, including the duration of the relationship, whether there is a common residence, a sexual relationship, financial dependence and support, property ownership, mutual commitment, and care and support of children.

Debate continues on whether the existing matrimonial property laws should be applied to all de facto relationships. A strong view is that the law should work on an "opt-in" basis. This means the equal sharing provisions of the Act would not automatically apply to de facto couples, and would only operate if the couple chose to agree on those provisions. Parliament, in the present Bill, has chosen an "opt-out" regime. This means the equal sharing laws would apply to all de facto couples, unless they made a specific agreement to contract out.

Another proposal suggested is that the new laws should have a "grand parenting" provision. This means the new laws would only apply to relationships begun after the new law came into force and existing relationships would only apply equal sharing if specifically agreed to. This was not accepted by Parliament, and the present intention seems that the equal property will apply to existing relationships, except where the partners specifically agree otherwise.

Relationship property

The present form of the Act involves an essential distinction between matrimonial property and separate property. With the proposed new law, this is a distinction between relationship property and separate property.

In a marriage or de facto relationship, the combined property of each partner would be referred to as relationship property. "Relationship property" has a wide definition. It includes family home, chattels, motor vehicles, and a wide variety of other types of assets including business interests, investments, bank accounts, superannuation funds, and usually all types of property acquired by the partners together or for the benefit of the relationship.

However, not all property is relationship property. Partners, whether in a marriage or in a de facto relationship, may also keep items of their individual property separate. Separate property is usually property acquired by either partner before the relationship began, and kept separate during the relationship.

Property inherited by one partner only, or that came to one partner as a gift from family or outside the relationship, is usually separate property.

It is possible for separate property to become relationship property. This usually happens when the separate property is intermingled with relationship property so it becomes impractical to tell them apart. This usually only happens when the property is intermingled with the express consent of the partner who owned the separate property. For example, if one party to a relationship inherited money used to buy motor vehicles, household furniture, or perhaps repay a mortgage on a jointly owned property, the inherited property would become relationship property. But if the inherited property were put in a separate bank account or investment in the name of that partner only, it would remain separate property.

Division of relationship property

The general rule is that partners to the marriage or the de facto relationship will be entitled to share equally in the division of relationship property. Under the present Act, there is a distinction between domestic property (including house, contents, and motor vehicles) and other matrimonial property. The effect of the distinction is that the other matrimonial property can be divided unequally if either spouse has made a significantly greater contribution to the marriage partnership. The domestic property can only be divided unequally if extraordinary circumstances make equal sharing "repugnant to justice".

In the present Bill, the distinction that applies to other matrimonial property has been removed. This would mean that all relationship property is to be divided equally, unless extraordinary circumstances make the equal sharing repugnant to justice. In such a case, the Court would need to look at the contribution of each partner to the relationship. Contributions can be monetary or non-monetary, both of which carry equal weight. A Court would need to look at all circumstances and take many factors into account in deciding whether an unequal division of property was required.

It is also important to note that fault or misconduct is not normally considered. The Bill requires that any misconduct to be taken into account must be "gross and palpable" and have significantly affected the value or extent of the relationship property.

Lump sum adjustments

A significant provision included in the new Bill is the power given to the Court, after the end of a relationship, to award a lump sum payment to one partner if the income and living standards of one partner are likely to be significantly higher than the other because of the effects of the division of functions within the relationship. This provision would give the Courts wide discretion and leaves a significant amount of uncertainty as to how relationship property settlements might be determined by the Courts. It would create difficulty for lawyers in advising clients how property settlements might be negotiated after the end of a relationship.

Spousal maintenance

The provisions in the Family Proceedings Act 1980 for spousal maintenance have been extended to cover de facto partners. They have also been amended to give the Court greater flexibility in granting spousal maintenance.

Generally, orders for spousal maintenance have been unusual, but it is clear the Courts have discretion to take into account several factors in deciding whether one partner retains an obligation to provide financial support for the other after the end of a relationship.

Interests of children

The Bill makes specific reference to the interests of children, and directs that these interests should be considered in making orders after the end of a relationship. In particular the Court has power to postpone a sharing of the relationship property. The Bill provides that this should only be postponed to alleviate undue hardship to the partner with the primary care of the children.

Trusts and companies

The new Bill includes provision to deal with relationship property transferred into family trusts or companies. When a division of relationship property is to be decided, the Court has the power to look closely at any arrangements with family trusts and companies. It is able to check if any property that would otherwise be relationship property has been transferred into a trust or a company with the result of reducing a claim the other partner would have had to that relationship property. The Court can order compensation paid to the disadvantaged partner. This can be an order for an additional lump sum payment or the transfer of relationship property. The Court has power to direct the trustees of a trust to pay income to the disadvantaged partner as compensation.

Death

The new Bill would introduce significant changes to the disposal of relationship property after the death of one partner.

The new provisions relating to death will not need to apply in some standard situations:

- where jointly owned property passes automatically by survivorship to the surviving partner; and

- where the deceased partner has made a will leaving all or virtually all the deceased partner's property to the surviving partner.

Assuming that those circumstances do not apply, the changes in the new Bill are important. On the death of one partner, the surviving partner has two options:

- Option A. To apply for an order for division of property under the Act. This would be an application for an order entitling the surviving partner to a one-half share of the relationship property. It is important to note that, if Option A is chosen, the will of the deceased partner is administered as if any gift to the surviving partner was revoked, and the administration of the remaining property of the deceased is carried out as if the surviving partner had died first. The general effect of this is that the surviving partner would get a 50 percent share of relationship property, but nothing more.

- Option B. The surviving partner does not make a claim under the Act but takes the property left under the will or by the intestacy of the deceased partner.

The surviving partner has 6 months to decide on Option A or Option B.

The provisions of the Administration Act 1969, relating to intestacy when there is no valid will, have been extended so that a de facto partner is entitled to a share of the estate of the deceased partner, to the extent that it is not disposed of by a valid will.

The Family Protection Act 1955 provides for direct family members to be able to make a claim for further provision from the estate of a deceased person, when adequate provision has not been made under a will. This Act is to be amended to give de facto partners the right to make a similar claim for adequate provision for their proper maintenance and support. Such an application could be made in addition to taking Option A or Option B.

Contracting out

The contracting out provisions are very important because the Bill will impose provisions that may not necessarily be intended to apply to many people in existing relationships.

In the present form, the Act is intended to come into force on February 1 2002. Partners in an existing relationship have an opportunity to contract out of their provisions of the Act entirely, if a properly completed agreement is made before August 1 2001.

A contracting out agreement has to be in writing, signed by each partner, and each partner needs to have separate independent legal advice.

Contracting out agreements can cover a variety of issues. They can include provision for the status, ownership, or division of existing or future property during the joint lives of the partners, or on the death of either partner.

If partners in an existing de facto relationship complete a contracting out agreement before August 1 2001, the new Act will not apply to their property ownership. If partners in an existing marriage make a contracting out agreement relating to the death provisions before August 1 2001, the provisions relating to death will not apply to such a marriage.

For agreements made between August 1 2001 and January 31 2002 by de facto couples, the Act will not apply if the relationship ends before the February 1 2002. Similarly if a married couple make a contracting out agreement relating to the death provisions in the same period, the Act will not apply if either spouse dies before February 1 2002.

The Court has discretion to set aside a contracting out agreement in certain circumstances. Under the new intended law, it seems the power of the Court to set aside agreements has been reduced. A Court can set aside the contracting out agreement if it is satisfied that giving effect to the agreement would cause "serious injustice". In deciding whether an agreement would cause serious injustice, the Court must consider the provisions of the agreement, the length of time since the agreement was made, whether the agreement was unfair or unreasonable, and whether the agreement has become unfair or unreasonable in the light of changed circumstances. The Bill also takes into account that the partners wish to achieve some certainty about their property relationships by entering into the agreement.

Under the present law, the Court has a wider discretion to set aside agreements. It seems that Courts applying the new law should be more likely to uphold agreements, and should only set them aside in limited circumstances.

Even though the final form of the new law may change significantly from the present Bill, parties to an existing relationship should seriously consider the contracting out provisions and take legal advice about whether they should enter into a suitable agreement.

This report was prepared in November 2000, based on the present form of the Supplementary Order Paper. It is still not certain when the Bill is likely to pass through Parliament, and the final form remains to be seen. It is important to bear in mind that any of the particular points covered in this article are subject to further amendment in the parliamentary process.

This is a general summary only and should not be taken as a substitute for specific advice that partners in a particular relationship may require.

Ben Frampton is a partner at Saunders & Co, specialising in general and matrimonial property law, trusts and estate administration.

Web site: Saunders & Co.
Email: bhf@saunders.co.nz

March 2001