Alice Ferguson, of Timaru Lawlink firm Timpany Walton, considers the impact of the new Property (Relationships) Act 2001 on distribution of assets at death for farming families.

Your will is an extremely important document, for obvious reasons.

Many farming families these days have formed family trusts or companies to run their farms or hold their family assets. Their wills should have been updated at the time the trust or company was formed. Probably, most of those wills will have been more or less forgotten.

The new Property (Relationships) Act 2001 fundamentally changes the 'rules' on death, in terms of how your property may be distributed. Therefore, you need to make surethat your will is updated to cope with these changes, or that you make an agreement to ensure your property is divided just the way you wish.

The old Matrimonial Property Act 1976 did not apply on death. The new Act does, and it applies to both married and de facto couples. The Property (Relationships) Act 2001 provides that, after your death, your spouse or de facto partner has the right to share in relationship property as if your relationship had ended during your life.

On death, your spouse or partner has two options:
1. Option A - to make an application under the Act for a division of relationship property, instead of getting the property left under your will; or
2. Option B - inheriting from you under the terms of your will, or under the general law if there is no will.

This change has important consequences for all families, and the new Act needs to be borne in mind whenever you make a new will. Your lawyer should be advising you, when you make your new will, about the Act and what it means for the particular will you are making.

An example - Murray and Kath

An example that illustrates the effect of the new Act is of Murray and Kath. Murray and Kath make wills that leave only their furniture and chattels to each other. They leave all their other property to a family trust. That property includes stock and some farmland which has not been transferred to the family trust. They have not made an agreement contracting out of the new Act.

On Murray's death, Kath has two options. She can either choose Option B - to take the property she is left under Murray's will, or she can choose Option A - to make an application to the Court for a division of property under the Act. We will assume that the stock and farmland is 'relationship property'. Under the Act, Kath is entitled to a half share in not only the furniture and chattels, but also the stock and farmland.

If the farm is going to carry on, it may need to find the money to pay Kath out. That could be quite a substantial sum. If the money can't be found, the land or stock may have to be sold. What if the farmland is essential for running another part of the farm as an economic unit? What if the stock is stud stock that forms the basis of the farm's flock or herd?

Conclusion

Therefore, it is very important to discuss the issue of the new Act and your wills with your lawyer. An agreement can be made under the new Act, under which you contract out of your right to make a claim under the Act as outlined above. Your lawyer can answer all your questions about your wills, trusts, and companies or other farming structures, and can help you make an agreement under the Act, or new wills if required.

Copyright The Lawlink Group Ltd 2001

Every effort has been made to ensure that this information is accurate. However, it is general introductory information only. It does not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.

Alice Ferguson is an Associate in the Lawlink firm of Timpany Walton. Alice practises in the conveyancying and commercial area, which includes residential, business and farm sales and purchases, company formations, and advice in relation to the new Property (Relationships) Act 2001.

Web site: Timpany Walton
Email: alice.ferguson@timpanywalton.co.nz

September 2001