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Relationships

Relationship Property Claims by Children – Part 2

Kids, Property, Relationships
0

Our last article discussed claims by a partner on separation or death.

 

Conversely, some blended families want to provide for their new partner on their death and seek to minimise the risk of a claim by their respective children.

 

Under the Family Protection Act (FPA), parents owe a moral obligation to make adequate provision for their children in their Will.

 

To minimise the risk of FPA claims, couples may change the ownership of their assets so that those assets do not form part of their estate and are not open to claims under the FPA.

 

Some common ownership structures include:

 

  1. Transferring property into a discretionary family trust; and/or
  2. Transferring property into joint names so that it passes by survivorship on death.

 

These ownership structures make it more difficult for children to make claims against estates.

 

However, section 88 of the Property Relationships Act (the Act) allows an executor to make an application for division of relationship property against the surviving partner, where refusing them the right to do so would cause a “serious injustice”. If an executor is not willing to make the claim, the deceased’s children may apply to the court to have them removed.

 

If most relationship property is jointly owned or was transferred to a trust during a relationship, then that could meet the threshold for a serious injustice. In these circumstances the court may divide relationship property so that the estate has property available for the children to make an FPA claim.

 

A contracting out agreement is one of the only tools that can help to prevent these types of claims.

Libby McDonnell

Relationship Property Claims by a Partner – Part 1

Property, Relationships, Trusts
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A Contracting Out Agreement (COA) is an estate planning necessity for blended families.

 

The relationship property landscape is changing, and some popular protection tools are becoming less effective. Trust busting cases like Clayton v Clayton show the court’s willingness to treat trust property as relationship property in the event of separation, especially where assets are transferred into a trust during a relationship.

 

A COA is the most effective tool to ensure a couple’s assets and liabilities are divided as they intended on separation or death.

 

If there is no COA, then couples in a marriage, de facto relationship or civil union are exposed to claims against potentially all of their assets and liabilities (even if in trust) on a 50/50 basis.

 

On death, the surviving partner can elect to either:

 

  • Apply for division of relationship property in accordance with the Property (Relationships) Act (the Act), the presumption being a 50/50 split; or

 

  • Accept the gift under their partner’s Will and retain any individually and jointly owned property.

 

A COA can prevent a surviving partner (or their children, as discussed in our next article) from making a claim for division of relationship property under the Act on death.

  Libby McDonnell.

COULD YOUR FOREIGN PRE-NUP BE A PRE-NOPE?

Overseas, Relationships
0

Customs officials seize goods at Aotearoa New Zealand’s ports of entry every day, from fruit and veg and animal parts to firearms and illegal drugs. But one thing we don’t expect to be stopped at the border is the validity of pre-nuptial agreements from overseas.

 

Hundreds of thousands of migrants come to our shores every year in search of pastures new. Many of these migrants, particularly those who come from a country with a similar legal system, will have relationship property agreements that were drawn up and signed in their home countries. It may come as some surprise to these folks that their legal documents won’t necessarily be upheld by our courts.

 

This is where you might be tapping your forehead as you triumphantly exclaim “Aha! But section 7A of the Property (Relationships) Act 1976 says that agreements from overseas are valid here!”

 

Well yes, sometimes they are. The Act provides that, if spouses have agreed in writing that the property law of a country other than New Zealand is to apply, and if their agreement is valid according to the laws of that country, then the Act will not apply. However, the courts have been slow to give blanket authorisation to every such agreement. One example is a classic South African ante-nuptial agreement designed to opt-out of the accrual system in South Africa. Previously the courts have said that this kind of agreement is designed to opt-out of South African property law alone, and that it is not designed to apply the world over.

 

There are quite a few different factors the courts will consider when deciding whether to uphold a foreign relationship property agreement. One of these is a requirement that the agreement expressly invokes the application of foreign law. This can be a problem because so few relationship property agreements anywhere in the world are drafted to apply outside of the country in which they are signed.

 

This is where your alarm bells might be going off. How is a couple in say, South Africa, who might have no idea that they will migrate to New Zealand in a few years’ time, supposed to know and contemplate how our relationship property laws might apply? It’s a headache they don’t know they will have!

 

If you have a contracting out agreement, pre-nuptial agreement, pre-marital agreement or antenuptial agreement from overseas and you think there is even the slightest chance that you may need to rely on it, then seek independent legal advice. Edmonds Judd can help advise you on whether the courts are likely to uphold it or if a new agreement should be entered into (assuming you and your spouse both agree). In New Zealand, contracting out agreements can be entered into before or during the de facto relationship or marriage, but bear in mind that legal entitlements may be quite different under New Zealand law.

 

Jamie Graham

Why should I look at my will?

Estate, Kids, Property, Relationships, Retirement
0

Review at life’s milestones

You should review and update your will regularly. It is not something that, once done, you should just stick in a drawer and forget about. There are many significant milestones in life when you should think about whether your will is still appropriate for your unique circumstances.

 

If you don’t often review your will, particularly after important life milestones, you may discover (or worse, your family may discover after your death) that your will does not leave everything the way you intended. This means that certain people or causes may miss out on an inheritance or a gift in your will. Also, out-of-date wills can cause significant complications for the people involved in the management and distribution of your estate.

 

With the summer holidays coming up and some time away from the treadmill of daily life, this is an ideal time to review your will.

 

Buying a home is a milestone

Many people make a will when buying their first home. Although there is no reason why you cannot make a will before then, this is often the trigger when it feels like you have something significant to leave in your will. If you buy your home with someone else, usually you will want to leave the house to that person when you die. However, this is not always the case, particularly if you are not in a romantic relationship with that person.

 

If you have children from a previous relationship, you may want to ensure your partner can continue living in the house when you die but, ultimately, you want your children to inherit your share of the house. You may have borrowed money from other family members to help with the purchase that you need to repay first. Your will should be carefully drafted to make sure it truly reflects your intentions.

 

Joint ownership vs tenants in common: The ownership structure of your home, or any asset for that matter, is also very important to understand. ‘Jointly owned’ assets pass to the surviving owner/s when one owner dies. Assets which are owned as ‘tenants in common’ remain part of a person’s estate when they die and will be distributed under that person’s will.

 

Many people are not sure, or forget what type of ownership they have, especially if their house was bought many years ago. If you are unsure, or the ownership structure of your asset/s changes, you should review your will to make sure that everything will still be distributed as you want after your death. You should also review the ownership structure at the same time.

 

Marriage, separation and divorce

Getting married, separated or divorced are all events that have a significant effect on how your will might operate when you die. If you have a will and subsequently get married or enter into a civil union, your will is automatically revoked, unless your will is specifically worded as being in contemplation of that marriage or civil union. If it is not, you could effectively be left without a valid will, even though you have made one in the past.

 

In the case of a separation order or divorce, your existing will is not revoked but the law states that your spouse or partner is treated as having died immediately before you. This means any gifts to them will be void and, instead, any backup provisions in your will would come into effect. You should update your will after a separation or divorce to ensure that it will operate as you intend.

 

It is also important to know that the simple act of ‘breaking up’ with someone is not enough to have gifts to that person automatically voided. You should take the additional steps of obtaining a formal separation order or an order dissolving the marriage, and reviewing your will. If not, you could be left in the awkward situation of leaving everything in your will to your ex-spouse or partner – which may be a very unpalatable idea for some!

 

Birth or adoption of children

There’s a lot to think about when welcoming a child into your family and a review of your will may not be high up on the to do list. Your will should, however, assign guardianship of your children and account for their future needs, particularly if your child has special needs requiring a higher level of assistance. If there is a significant age gap between your children or you have children from different relationships, your will may need to be tailored to account for this.

 

Death of an executor, beneficiary or guardian

Executors are the people you name in your will to manage and distribute your estate when you die. A will-maker will often appoint a family member or someone to whom they are very close to carry out this role. It is important to have an executor who you trust who will do a good job.

The death of an executor, beneficiary or a guardian of your young children means your will may not work as intended or could create confusion. Do review your will if this happens or should your executor’s circumstances or health change.

 

Significant changes in financial position

Receiving a large inheritance or a significant capital gain on, say, property or business assets (or perhaps winning Lotto!) can significantly alter how you want your estate to be distributed when you die. You may decide to include additional beneficiaries – perhaps more distant family members or friends, or leave a gift to a charity that you care passionately about.

Although it’s not always the case, estates of relatively higher value are often more complex and require greater planning to ensure that everything runs smoothly when you die.

 

What if I don’t have a will?

If you die without a will (called an ‘intestacy’), your assets will be distributed according to the default rules established by law. Depending on your circumstances and who survives you, your assets would usually go to some combination of your spouse or de facto partner, children, parents and siblings. Even if some family members are estranged from you, they could still receive something from your estate under the default rules.

 

Other milestones

The milestones we have noted above for reviewing your will are not exhaustive. Starting a business, having a KiwiSaver account, moving countries, changes in your health and amendments to the law are all good reasons to look at updating your will.

 

If it’s been a while since you’ve looked at your will, we hope this article gives you the impetus to pull it out of that drawer and dust it off. Better yet, talk with us about it so you can have peace of mind knowing that, when you die, your loved ones will be taken care of as you wish.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Wait! Before you sign that pre-nup! Step 3 – Advice

House, Kids, Property, Relationships, Uncategorized
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In this article we look more closely at Step 3 – Advice.

 

Once your lawyer has the details of all property owned by each of you they can assess what your rights would be if that property were divided under the RPA, and provide you with advice on how the agreement affects your property rights and the implications for you if property were divided under the agreement.

 

Why do I need advice on rights under the RPA if it’s just 50/50 and I’m contracting out?

This is where the law jumps in and says “woah there, partner! There’s a lot more to it (131 pages to be precise), so you should definitely get legal advice to check it’s what you want first”.

 

It is important that you fully understand your current property rights under the RPA before agreeing to change or give up those rights.  The starting point for under the RPA is that relationship property will generally be divided equally between partners in a qualifying relationship.  However, this is just a presumption, not a rule set in stone. There are numerous exceptions and adjustments within the RPA that can alter how property is divided based on the specific circumstances of your relationship.  Even the most experienced relationship property lawyers can find the RPA complex. That’s why seeking legal advice is essential before making any decision to contract out of the RPA.

 

Great, now you’ve had advice and know what your actual property rights are under the RPA, let’s compare that to your position under the contracting out agreement.

Even if you’re planning on entering into a contracting out agreement with the intention of maintaining a 50/50 split, it’s important to realise that the implications could be far-reaching.  Property rights, financial arrangements, estate planning, and even third-party property rights (such as those held in trusts or companies) can all be affected.  The agreement might impact more than you expected.  (*Hot tip* now is a good time to consider whether you should create or update your will as it works hand-in-hand with your contracting out agreement)

Your lawyer will be able to assess your specific situation and help you understand how the contracting out agreement compares to your rights under the RPA. They can guide you through the various consequences and ensure you’re fully informed before agreeing to anything.

 

But wait!!! It’s not enough just to receive legal advice—you need to understand it. Ensure your lawyer explains the details and feel free to ask lots of questions, we love to know you are thinking about how this all applies to you.

 

If you’re satisfied with the advice and understand the implications, it’s time to book an appointment with your lawyer to sign that contracting out agreement. This step is crucial to ensure your rights are protected and your intentions are clearly outlined.

Kerry Bowler, SolicitorKerry Bowler, solicitor

Wait! Before you sign that pre-nup! Step 2 – Disclosure

Relationships
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In the first article of this series, we introduced the 3 key steps you must take before signing the contracting out agreement for it to be valid:

  1. Independent lawyers
  2. Disclosure
  3. Advice

 

In this article we look more closely at Step 2 – Disclosure.

 

It is essential for both parties to fully disclose all assets and liabilities. This includes properties, bank accounts, investments, Kiwi saver, and any debts. Failure to provide a complete financial picture can affect your lawyer’s advice to you and lead to potential disputes in the future.  There is a risk the Court may even overturn the agreement if significant property is not disclosed.

 

Your lawyer needs to know what property you each own to assess how it is treated under the Act and advise you on how the agreement will affect your rights and the implications if property is divided under the agreement.  *Hot Tip* Make a list of your assets and liabilities with their values and share it with your lawyer early on to speed things up and reduce costs. This also ensures no property is left out, as any property not covered by the agreement will be divided under the Act.

 

Disclosing assets and liabilities not only fosters trust between partners but also ensures that both parties can make informed decisions. It helps in crafting a fair agreement that accurately reflects the financial realities of the relationship. Moreover, in the event of a relationship breakdown, a transparent agreement can prevent lengthy and costly legal battles.

Kerry Bowler, SolicitorKerry Bowler, solicitor

Wait! Before you sign that pre-nup! Step 1 – Independent Lawyers

Relationships, Retirement, Trusts
0

In the first article of this series, we introduced the 3 key steps you must take before signing the contracting out agreement for it to be valid:

  1. Independent lawyers
  2. Disclosure
  3. Advice

 

In this article we will look more closely at Step 1 – Independent lawyers.

 

Does that mean we just get two different lawyers?

Not only does this mean you each need separate lawyers for the contracting out agreement, but those lawyers should also be at separate firms.  And it goes even further, the lawyer advising you should not have previously acted for your partner either.  This ensures that the lawyer who is advising you does not owe any ongoing duties to your partner as a client that would conflict with the lawyer’s duties to you as a client.  In some circumstances the lawyer may still be able to act for you, if you and your partner give fully informed consent.

 

So how does it benefit you?

The RPA states that the agreement is void unless you receive advice from an independent lawyer.

 

Your legal interests in protecting certain assets against a relationship property claim will often differ from your partner’s legal interests on separation.  Having an independent lawyer protects you and ensures the advice you receive is about how the agreement will affect your rights and what the implications are for you, independently of your partner’s interests in contracting out.  It can help ensure the agreement is future proofed, reducing your legal costs for updating the agreement as your relationship develops, and significantly reduces the risks of having the agreement overturned by a Court for being seriously unjust.

 

Next time Step 2 – Disclosure (and a hot tip on how to reduce your legal costs!)

 

Kerry Bowler, SolicitorKerry Bowler, solicitor

Wait! Before you sign that pre-nup!

Estate, House, Property, Relationships
0

Three key steps before signing

There are many reasons for couples to contract out of the equal sharing provisions of the Relationship Property Act (RPA).

You and your partner are off to have the lawyer draw up a quick document and sign it.  But the law says, “Woah there, partner! There’s a lot more to it (131 pages to be precise!), you should definitely get legal advice to check it’s what you want first.”

The RPA states that your contracting out agreement is void unless before you sign, you receive advice from an independent lawyer on the effects and implications the agreement has on your property rights under the RPA.

There are three key steps you must take before signing a contracting out agreement for it to be valid:

  1. Independent lawyers: You must each have your own independent lawyer. Generally, this means the lawyer advising you on contracting out should not have previously acted for your partner.
  2. Disclosure: Through lawyers you and your partner exchange statements showing balances and values of all assets and liabilities. If significant property is not disclosed there is a risk that a court could overturn the agreement.
  3. Advice: Once your lawyer has the details of all property owned by each of you, they can assess what your rights would be if that property were divided under the RPA. They can then provide you with advice on how the agreement affects your property rights and the implications for you if property was divided under the agreement.

This article is the first in a series of four by litigation solicitor, Kerry Bowler.

 

 

Kerry Bowler, solicitor

The plight of stepchildren

Estate, Kids, Relationships
0

Non-traditional family structures can result in unfair estate outcomes

When a parent dies and leaves their child or children out of their will, those children are entitled to bring a claim against their parent’s estate under the Family Protection Act 1955 (FPA). While a financially stable adult child may not have a claim to a large  proportion of their parent’s estate, they will usually still have a claim for ‘recognition.’

The same is not true for children claiming against the estate of a stepparent.

Stepchildren are only entitled to bring a claim against the estate of a stepparent in very limited circumstances – usually when they are financially dependent on their stepparent at the date of their death.

This can become a real problem when a parent dies, leaving everything to their spouse or partner, who is trusted to make provision in their own will for their stepchildren, but fails to do so.  Stepchildren are often left without a remedy, and this is an increasing source of perceived unfairness in a society where non-traditional family structures are becoming common.[1]

 

 

How does the law respond?

When someone inherits all their partner’s property, but ultimately fails to provide for their partner’s children in their own will, those stepchildren typically must look for alternative ways to bring a claim against the estate of their stepparent, outside of the FPA. Commonly this includes two possible actions:

 

  1. Making a mutual wills claim

Where the parent and stepparent originally had wills which left everything to each other, and then after the death of the second, made provision for each of their families, it might be argued that the wills were intended to be binding and that the stepparent was not intended to be able to change their will later on to leave out their stepchildren. If successful, a mutual wills claim would bind the stepparent’s estate to make the promised provision for their stepchildren.

The difficulty is often found in showing that there was an agreement between the parent and stepparent that the wills would not be changed. This may have been assumed, but it is rarely spoken about or expressed in writing. It can also be difficult when the stepparent clearly did not feel that they were bound by such an agreement.

 

  1. Testamentary promise claims

Claims are sometimes brought under the Law Reform (Testamentary Promises) Act 1949.  As the name suggests, these claims require some sort of promise to have been made.  The stepchild will need to show that:

  • They rendered services to their stepparent
  • Their stepparent promised to reward them for those services in their will
  • The promise was motivated by the services, and
  • The stepparent failed to keep their promise in their will.

Difficulties often arise in showing ‘qualifying services.’ Normal things that one might do for a close family member, such as helping in their older age, will not usually qualify. While some stepchildren have successfully argued that they abstained from making a claim against their parent’s estate, and that was a service to their stepparent, many children don’t ever seriously think about making such a claim, so it is hard to make that out as a ‘service.’

Promises are often vague, and New Zealanders do not always like to talk about money.

Even where there are services, and a promise to reward, in many cases the promise is found to have been motivated by the close relationship rather than the services themselves.

It can be very hard to make a successful testamentary promises claim.

 

 

Case example

In a 2015 case,[2] a child failed in several claims against his stepfather’s estate. The High Court said:

“While I have sympathy for the position Paul finds himself in, his personal claims against the estate appear to me to fall within the rock of the [Family Protection Act 1955] and the hard place of the [Law Reform (Testamentary Promises) Act 1949].”

There are also a variety of claims available to stepchildren such as a constructive trust, estoppel or unjust enrichment. These generally make similar arguments, but often fail for the same reasons as in the Blumenthal case.

Stepchildren often miss out because they wanted to do the right thing when their parent died, and they made the unfortunate decision to trust their stepparent to do the right thing later.

 

 

 

Will this change?

The Law Commission identified the plight of stepchildren in its 2021 Succession Review Issues Paper, but it did not propose any new avenue for stepchildren to bring claims against the estate of a stepparent, simply because they have ‘missed out’ on their parent’s estate.[3]

Further, the law reform project has stalled, leaving things in a rather unsatisfactory position for stepchildren who are more and more commonly in this situation.

This situation for stepchildren highlights the continued importance of having proper estate planning arrangements in place – particularly for blended families. There can be a significant financial and emotional cost when these things are not discussed and addressed while both parents and stepparents are alive and capable.

 

[1] The Law Commission noted in 2021 that only 7% of children lived from birth to age 15 in households containing only nuclear family members: Te Aka Matua o te Ture | Law Commission Review of Succession Law: Rights to a person’s property on death (April 2021, Wellington, NZIPC 46) at [1.15].

[2] Blumenthal v Stewart [2015] NZHC 3187, affirmed on appeal.

[3] Te Aka Matua o te Ture | Law Commission Review of Succession Law: Rights to a person’s property on death (April 2021, Wellington, NZIPC 46) at [4.70].

 

 

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Contracting out agreements for relationships late in life

Estate, Property, Relationships, Trusts
0

A wise move as financial affairs are more complex

You may think that a ‘pre nup’ is most commonly used when a young couple begins a relationship and there is a significant difference in their financial position. However, these agreements, formally known as contracting out agreements (COAs), can be entered into at any time during a relationship. They are particularly useful for couples entering into a de facto relationship, or marrying later in life, as both parties are more likely to come to the relationship with more complex financial affairs.

 

 

Why have a COA?

One of the couple may have been through a previous separation or the loss of a spouse. They may have children – dependent or adult. They may also have trust or company structures that make their overall asset profile less straightforward from a relationship property perspective than younger couples who are just getting started with their lives together.

In these cases, a COA can give both parties (and their families) clarity about what will happen to their assets if one of them dies, or if they decide to separate.

A COA is a way of opting out of the default rules as to how the division of property is dealt with under the Property (Relationships) Act 1976 (PRA). Without a COA, the default approach would apply; this generally means that relationship property assets are divided 50:50. An equal split, however, is not always appropriate. In complex cases, parties can end up in protracted court cases trying to figure out how the PRA applies to their particular situation.

While the default rules are a helpful fallback position where people cannot agree how property will be divided, the PRA does not necessarily reflect what all couples would regard as ‘fairness.’ The legislation also does not take account of fact-specific or unusual cases. COAs allow couples to set in place clear and bespoke rules that apply to their particular circumstances, and their specific assets, in the event their relationship or marriage breaks down.

 

 

Opens up discussion

One of the benefits of considering a COA is that it opens up the discussion between a couple as to what they would like to happen to their property, or what they might consider fair, in the event that one of them dies or they separate. Often we find that couples have never had this conversation, but have made assumptions about what will happen or what their partner thinks should happen.

In particular, these assumptions can be harshly tested and shown to be wrong when a partner dies unexpectedly. The surviving partner may find that they have radically different expectations about what will happen compared with the deceased partner’s children and any other parties involved in such an estate.

The same issue can arise if a couple separates. Efforts to resolve relationship property issues may be made in circumstances where the partners’ perceptions of fairness have changed over time. There may have been unequal financial contributions made during the relationship or owing to events, such as infidelity, that have occurred during or which ended the relationship.

 

 

Complex finances

Where a couple has a complex financial situation, including trust and company structures, a COA should be supported by documents between the parties and the trusts or companies, so that no assets fall through the cracks or fail to be taken into consideration. It is important for couples to seek independent advice about the types of documents required, and their effect.

 

 

Review a COA regularly

It is also critical that couples review their COA as life changes. When properties are bought and sold, home improvements funded or other big changes happen, the COA may become out of date and difficult to apply. A new agreement, or an amendment to an existing agreement, can ensure that everyone has clarity about what the changes mean and what their effect will be if there is a death or separation.

A COA can only be enforced if both parties have received independent legal advice and both lawyers certify the agreement. This requirement ensures that both parties are fully informed about the effect of the agreement.

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Get in touch today, we’d love to talk.

+64 7 872 0236 [email protected]