EXAM relationship property and finance PDF

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S21 and S21A agreements: documenting the divisionThe Devil is in the DetailMore Trusts & Shorter Relationships - Marriages and de facto relationships are shorter - 1, 953 recently separated British couples - Average duration was two years nine months - 400,000 trusts in NZThere is tension be...

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S21 and S21A agreements: documenting the division The Devil is in the Detail More Trusts & Shorter Relationships - Marriages and de facto relationships are shorter - 1, 953 recently separated British couples - Average duration was two years nine months - 400,000 trusts in NZ There is tension between trusts lawyers and PRA lawyers Contracting Out Agreements – s 21 Types of agreements – s 21 -s21A: Cheapest, most flexible and effective way to stop Act Use with/without trust 2 basic types Contracting out v Settlement - before (s21)- “pre-nuptial” or “contracting out” - during (s21) “mid nuptial” or “contracting out” - on separation (s 21A) “settlement agreement” - after death (S21B) “settlement agreement” with executor Who can enter s 21 agreements? Spouses Civil union partners De facto partners of 18+ 2 persons in contemplation of the above Excluded Friends, flatmates, relatives as not in a qualifying relationship Reasons for entering s 21 agreements. Protect existing property of one party Protecting differing contributions to future FH Protection from creditors Protect inheritances, gifts, distributions from a trust Estate planning As pre-cursor to settling a trust What can be covered in agreements? What can be covered in s21and s21A Agreements (s21D) classify as RP or SP define each party’s share of RP on separation or death calculate those shares Prescribe method of RP division Can’t include (as outside s21D) Occupation orders Spousal maintenance Orders to benefit children of relationship Contracting out agreements – s 21 -

Contract out of all/part of Act Specifically, s21 can be used to: list SP and RP classify as SP before transferring to trusts (stop s44C and 9a) declare distributions from trust will remain as SP provide for non-application of s 9A to SP transferred to trust declare assets as RP before transferring to Trust protect inheritances

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provide for different results according to length of relationship and number of children different outcomes for separation and death

Can (but some say unadvisable to) cover - S15 economic disparity - Part 8 Death - Keeping everything separate forever - May increase risk of successful challenge Matter of judgement - Agreements intended to defeat creditors void - Agreements having that effect invalid for two years (s 47) - See Felton v Johnston [2006] NZLR 475 3 categories of s21 agreement Protecting specific assets Totally separate Pool agreements Formalities for agreements - s21F Formalities for s21 and s21A agreements (s21F) - Subject to 21(H) agreement is void unless - in writing - signed by both parties - independent advice from lawyer before signing - witnessed and certified by lawyer Independent advice - Lawyers from separate firms required - Can be ok even if lawyer acted for both parties in the past. See AZSZ v JSHY at [51] and [53] cf Wells v Wells - Not independent if solicitor has an interest in proceedings - Other party should not be present in same room Quality of advice - See Coxhead v Coxhead [1993]2NZLR 397 - More than explanation of agreement’s terms - Implications need to be explained also - “Informed professional opinion of wisdom of entering into an agreement on these terms” Don’t use the “model” s21 agreement Either spouse can apply to declare agreement void under s21 or S21A Onus on party trying to uphold agreement to show formalities complied with Definition of “lawyer” –see S2 Signing overseas- certifier must explain effect and implications of agreement- use NZ lawyer, skype and local lawyer watching see Thom v Davys Burton Explain implications, certify, client sign Agreements void for inadequate advice: SAB v JJB contracting out Contracting out, less obligation on disclosure unless over 3 years See Hanks v Hanks Contracting out Odlum v Odlum. Short inadequate advice and wife not made aware of consequences of signing agreement. Set aside. Husband then also sued wife’s lawyer! DR v NLS 12minutes of advice! Cf West v West (no2) 15 minutes advice inadequate but saved under s21 H as agreement brief clear, wife understood it and court postulated with confidence she would have signed it even if the advice had been adequate

Russell v Russell Separation agreement invalidated as failure to establish asset pool values and entitlement. Told could return. Agreements – s 21 G (S21G) S21F does not limit or affect any enactment, rule of law or equity that makes a contract, void, voidable or unenforceable on any other ground eg - Duress eg JCF v DWG - Undue influence - Unconscionable bargain - Mistake - Misrepresentation Non-Compliant Agreements saved – s 21H (21 H) Agreements voided for non compliance under s21 (F) “may” be saved in whole or part if the non compliance has not materially prejudiced the interests of any party to the agreement - Not a preliminary hearing - Onus on person seeking to uphold non complying agreement to show no material prejudice See Wells v Wells - Court has a residual discretion. See McGill v Crozier Material prejudice consider - Compliance with formalities (fundamental or small breach) - Differ greatly from real entitlement under Act or not? - Absence of legal advice and its effect - Adequacy of legal advice Examples of the Court saving noncomplying agreements under s21 H See p28- 30 of full notes. Set aside agreements if “serious injustice”. (s21J) Court considers - Provisions - length of time since signed - unfair or unreasonable when made - unfair or unreasonable now - Certainty Wood v Wood - other relevant factors See Harrison [2005] NZFLR 252 CA. Contracting out agreement “Gross disparity without more will not suffice. Need procedural unfairness too. See also Wells 2006 NZFLR 870 See full notes pg 31-46 Either partner can apply while alive On death - the survivor after electing option A - Personal rep of the dead partner (after obtaining leave) S21 J does not apply to - Agreements before 1/08/01 between de facto’s (S21P&R) - Agreements before 1/08/01 between spouses on death(s21 Q and R) Time limits for s21J (-s24) - 12 months of divorce or - 3 years after end of de facto - Later with leave under s24(2) After death - S89 apples Application under s21 J to set aside agreement may be heard first or at the same time as division. Depends on facts

Serious injustice “conscience must be materially disturbed” MacKenzie v MacKenzie Harrison -Contracting out agreements “serious injustice = unsatisfactory process resulting in inequality of outcome rather than inequity of outcome itself Serious injustice – Basic principles See Wells v Wells France J pg 35 & 36 notes For consideration in individual cases see pg 36 -46 Trust Assets and S 21 and S 21A Agreements Can you deal with trust property in s 21 or s 21A agreement? Orthodox/traditional view – no - discretionary interests are not property (mere expectancies) - not beneficial owner - section 21D does not permit TP to be redefined as RP or SP Pragmatic view (Murfitt /Crawshaw) – yes VKFM v FJS [2012]NZFLR594 Duffy J - “growing tendency to treat trusts as transparent for the purposes of a relationship property agreement” On appeal M v S [2012]NZCA 574 Issue not specifically argued so point is open Section 21 agreement – essential first step to protect trust assets from future claims. Plan the separation in advance! Agreement should in part - classify assets as SP (use schedules) prior to disposing of them to trusts to stop s 44 and s 44C claims - confirm that other party will have no legal, beneficial or other interest in existing or future trusts or their assets and no expectation of benefitting from them - confirm no claims under s 182 FPA - allow for changes of circumstances - apply on death Each s 21 agreement is different. See Fred and Shiela’s contracting out agreement as an example recitals 2.4 and 2.5 objectives 3.2.4 and 3.2.5 4.1 and 4.2 7.1 and 7.5 (trusts) 8.1, 8.2, 8.3 (death) 12 (amended disclosure clause) sch A and B (8, 9 and 10 and 13) Negotiations take place on a global basis dealing with entire property pool Engage other professionals ASAP to provide specialist advice in complex relationship property - settlements - trust lawyer - accountant - commercial lawyer - tax specialist Separate representation for trust/children? - costs? Do not Simply list assets of XYZ Trust as Party A’s separate property In recitals - List total property pool (RP, SP, TP) - List agreed RP and values (schedule) - Agreed SP and why

- Details of each trust – settled when, settlors, trustees, beneficiaries - Trust assets and liabilities (schedule) - What portion of total property pool each party will retain and why - Gives overview at a glance Operative part List agreed RP that each party will retain (use schedules) Deal with trust assets by (best to worst) - getting trustees consent to the proposed trust transactions before the settlement agreement is signed so the agreement is not conditional - one spouse or both (as appropriate) covenanting to procure the trustees to implement the transactions involving the trust and making the RPA settlement agreement conditional on the trustees signing the documentation attached or listed in the schedule to carry out the distribution or resettlement of trust asset or making the s 21A agreement conditional on the trustees subsequently ratifying or consenting to trust transactions contemplated in s 21A agreement See Appendix 2 for Fred and Sheila’s settlement agreement Division of property Equal division of all RP (S11) except - s9A(2) - s13 (extraordinary circumstances, repugnant to justice) - s14 and s14A and s14AA (relationships of short duration) - s15 and s15A (financial disparity) - s16 (2 homes) - s17 SP (sustained by RP or actions) - s17A SP (diminished by actions or inactions of partner) - s20E (personal debt paid from RP) - s26 (settling assets for benefit of children) - s44C and s44F- (compensation for RP transferred to Trust or qualifying company during relationship that has effect of defeating) - s18B compensation for post separation contributions - s18C compensation for dissipation of RP after separation. s11 –Equal division s11 –Equal sharing (1) On division of all RP… Spouses and partners share equally in (a) the family home (b) the family chattels (c) any other RP (2) … subject to other provisions in the Act s13 –Extraordinary Circumstances s13-Extraordinary Circumstances (1) If the Court considers that there are extraordinary circumstances that make equal sharing of property …..repugnant to justice, the share of each spouse or partner in that property … is to be determined in accordance with the contribution of each spouse to the marriage [or of each civil union partner to the civil union] or of each de facto partner to the de facto relationship. (2) Subject to s14 to s17A s13- Stringent Test New s13 applies to all RP (cf old s14 which applied to FH and chattels only) Pre 2002 cases still apply per Priestly J in De Malmanche See Richardson J in Martin v Martin [111]

See McKay J, in Joseph v Johansen[107] See Quilliam J in Castle v Castle [102] “particular case is so out of the ordinary that an equal division is something the court feels it simply cannot countenance.” See Judge Fleming Brown v Stark [43] not impossible test 1- identify the extraordinary circumstances 2- do these extraordinary circs make equal sharing repugnant ? s13 “Justice” measured against principles in s1N of Act generally (not in the abstract) Extraordinary Circumstances Injected inheritance near end of relationship - Allen v Choi successful, 6 months before end of 3 year 129k inheritance cf - JvJ unsuccessful, 2 years before end of 22 year marriage Gross disparity of contributions - Kid v Russell 70/30 Brevity of relationship - Sydney v Sydney Just over 3 years, Large contribution by husband Non contributing partner- Beven (drink) and D vD (mental illness) Negative contributions - WLP v CSM (forgery of wife’s signature on loan docs- succeeded) - Williams v Crotty (cross dressing/no emotional support- failed) Misconduct – relationship between s13/s18 - See JvJ (CA) Young J at [11] - Current law is that (mis)conduct is not a basis for a finding of extraordinary circumstances rendering equal sharing repugnant. However, if s 18A(2) and (3) are satisfied, (mis)conduct can be a factor in determining contributions. s14 and s14 A –Relationships of short duration Relationships of short duration Complex provisions Short duration = less than 3 years Different rules for marriages, civil unions v de facto’s s14 –Marriages and civil unions s14A- De facto relationships s14 –Marriages of short duration s14 (2) -Equal sharing does not apply to (a)Any asset owned wholly or substantially by 1 spouse at start (b)To any asset that comes to 1 spouse during marriage by (i)Succession or (ii)Survivorship or (iii)As beneficiary under a trust or (iv) gift (c)Where contribution of 1 spouse has “clearly been disproportionally greater” than other spouse Where s14(2) applies then s14(3) provides (a)Share of each spouse in RP determined by their respective contribution to the marriage (b) the share of each spouse in any other relationship property that falls for division under sections 11(1)(a), 11(1)(b), 11A, 11B, and 12, and is not determined in accordance with paragraph (a), is to be determined in accordance with sections 11(1)(a), 11(1)(b), 11A, 11B, and 12. 14(4) provides - If this section applies, each spouse is entitled to share equally in any relationship property that falls for division under section 11(1)(c), unless his or her contribution to the marriage has been clearly greater than that of the other spouse.

14 (5) provides - If, under subsection (4), the spouses do not share equally in any relationship property, the share of each spouse in that relationship property is to be determined in accordance with the contribution of each spouse to the marriage. 14 (6) provides s14 is subject to s15 and s17A Is the marriage of short duration? Question of fact Physical separation and mental rejection of the marriage Conveyed to the other party. Consider for DOS - living in the same house, - whether a couple provided a home for the children in that house, - the extent to which living expenses and household tasks were shared, - the extent of any communication between them, - the parties sexual relationship and - the manner in which they hold themselves out to the public.” s85 short duration marriage ending on death - Still divide RP evenly under s11 and 12 unless that is unjust or s14 or s13 applies Has clearly been disproportionally greater” Burgess v Bevan - “Not only must the quantum of the financial contribution made be clearly greater, it must also have brought a disproportionate benefit to the other party, having regard to the tangible and intangible contributions made by the other spouse”. Other RP - Equal unless “clearly greater” contributions (s18 sets them out) - If established by applicant then court determines the apportionment s14A –De facto relationships of short duration NO ORDER UNLESS - child of the de facto relationship or - applicant has made a substantial contribution to the de facto relationship; and - Failure to make the order would result in serious injustice then - Shares in RP based on contribution to the relationship - Subject to s15 and 17A On / off relationships - 2D (4) -ends when cease to live as a couple - Could be old one followed by new Bourneville - careful consideration of the facts - No blanket assumption that one ended and new one begun. - See also HvE as to endings 2 stage test - Child includes child of both, either, or neither who was supported and living in the family at separation Substantial contribution - “of real importance or value, of considerable amount”. Oxford Lawson v Perkins Asher J - It has a clear meaning and can be properly applied without refinement.” Serious injustice (not defined) See Lawson v Perkins “just return on contributions” PT v Whyman in 88(2) SvW- relatively high threshold. Would it be serious injustice if there is no order dividing the relationship property and the parties were left to pursue any civil remedies

Serious injustice (not defined) - See Lawson v Perkins “just return on contributions” - PT v Whyman in 88(2) - SvW- relatively high threshold. Would it be serious injustice if there is no order dividing the relationship property and the parties were left to pursue any civil remedies Determining contribution and division of property See SvW - identify and remove from the assessment of contributions property found to be separate property - determine overall contributions to the relationship combining non-monetary and relationship property contributions balance between the contributions made by each party and the benefits each received from the relationship Stapleton v Ahern Can support s42 claim s16 –Two potential family homes s16(1) (a) at marriage, cu or relationship each owned a home and (b) each was capable of becoming the FH (c) on division of RP the home or proceeds of only 1 spouse in included in RP s16(2) (c) party A sold in contemplation of marriage etc and (d) When RP divided only the proceeds of party B in pool s16(3) Adjust shares in any RP as “just” to compensate. If only one had a home the other significant cash -s16 not applicable owned by- vested final interest in house ok Letica - Discretionary beneficiary –not ok Illingworth (Barker J) Same house as at beginning of marriage (narrow) or another house purchased with proceeds Gooch (wider) See as example Owers-Single v Single “Capable of being a FH” - at the start of the relationship or when the home was sold in contemplation of the relationship? - Letica (HC)- Sufficient if capable during relationship, if not at start but compare to Lester v Forbes. s16 didn’t apply as incapable of habitation at start of relationship as still being built. Capable if it can’t house the particular family? - Winter s16 can apply even if can’t house the particular family, - Gooch, s16 can't apply if can’t house the particular family. Intention to use as FH not needed see Winter Not relevant that it can’t be immediately used (as tenancy exists) “Being owned” includes for s16 - Long term lease to third party - Co- ownership with third party occupier Homestead ? Rolfe says it does not apply Newnham says s16 applies to homesteads s16 applicability to houses outside NZ? - Enright says it does. But probably wrong Martin s16 applied to house owned by a co where wife had shares Discretion Broad discretion to adjust shares in RP to what is “just” Not all the loss needs to be compensated always S16 can be applied in after death claims

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Eg if the second home is owned by the surviving spouse or partner because it will retain the status it had before the relationship ended on death. It is therefore likely to be separate property.

s 17 – Sustaining Separate Property 17 (1) been (2)

(3)

Sustenance of separate property This section applies if the separate property of one spouse or partner (party A) sustained by— (a) the application of relationship property; or (b) the actions of the other spouse or partner (party B). If this section applies, the court may— (a) increase the share to which party B would otherwise be entitled in the relationship property; or (b) order party A to pay party B a sum of money as compensation. This section overrides sections 11 to 14A.

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Meaning of “sustained” French v French - “In the ordinary sense, to sustain something is to keep it up or keep it going …” Rose v Rose Cf. s 9A(1)–(2) - Nation v Nation Two-stage enquiry - Hebberd v Hebberd Sustained by the application of RelP – s 17(1)(a) Sustained by actions – s 17(1)(b) The award French v French; Hight v Hight; Nation v Nation s 17A – Diminution of Separate Property 17A Diminution of separate property (1) If the separate property of one spouse or partner has been materially diminished in value by the deliberate action or inaction of the other spouse or partner, the court may, to such extent as it thinks just, diminish the share to which the other spouse or partner would otherwise be entitled in the relationship property. (2) This section overrides sections 11 to 14A. s 44C – Compensation for Property Disposed of to a Trust Jurisdiction – s 44C(1) Nation v Nation Ord...