What are the proposed changes to the Property (Relationships) Act?

What are the proposed changes to the Property (Relationships) Act?

Earlier this year, the Law Commission submitted its review of the Property (Relationships) Act 1976 (PRA) to the government, recommending that the law be replaced by a new statute; the Relationship Property Act. This new statute would enact up to 140 recommendations for reform, becoming the principal source of law applying to the division of property when relationships end on separation. It also recommends that rules governing relationship property in the event of a death should be addressed separately, in a broader review of succession law.

The proposed changes are meant to clean up the much-amended, and difficult-to-parse PRA, and more importantly to improve the way that relationship property matters are resolved in practice. This means dividing property justly, taking into account the contributions of all individuals involved, and ensuring that property matters are resolved inexpensively and quickly.

What’s wrong with the current Property (Relationships) Act (PRA)?

The PRA defines how property owned by either or both partners should be divided if they separate, or if one of them dies. It seeks to ensure the just division of property, typically by following the general rule that each partner is entitled to an equal share in any “relationship property”. In practice, this has turned out to be less than ideal in terms of achieving its goal

At the time that it was passed, the PRA was a major step in the development of relationship property law in New Zealand. Today, the law is outdated, and fails to reflect the needs and values of the country and its citizens. It is perceived by many to divide property unjustly, to neglect the needs of children, and to be too tolerant of behavior that causes delay, places relevant relationship property out of reach of a partner or the Family Court, and increases costs. To deal with this, the Law Commission has recommended some significant changes.

Changing how family homes are split

Currently, a family home is automatically considered relationship property after 3 years in any marriage, civil union, or de facto relationship. Even if one partner previously owned the home individually, the partner is entitled to an equal share if the relationship ends after that point. The reforms proposed for the new Relationship Property Act would end this practice, allowing the family home to remain with the original owner. Instead, the other partner would only be entitled to an equal share in any increase to the home’s value during the relationship.

Eliminating the implied “Clean Break” principle

While it isn’t mentioned in the purpose and principles of the PRA, courts and legal professionals have long operated on the principle that couples should—as soon as possible—be able to start fresh after a separation, free of any financial ties to one another. The Law Commission recommends that this “Clean Break” principle be excluded from the new act, instead aiming to explicitly prioritise the best interests of any minor or dependent children.

This means preserving financial ties between partners when deemed appropriate, and ensuring that relationship property can be used to benefit dependent children. For example, the parent who manages the day-to-day care of the child or children should automatically retain the right to remain in the family home for a limited time.

Introducing Family Income Sharing Arrangements (FISA)

In keeping with the end of the “Clean Break” principle, partners might be required to pool and share their income after a separation through a Family Income Sharing Arrangement (FISA), which can apply to relationships involving children, or those lasting more than 10 years. If one partner ended their career or made significant professional sacrifices in order to contribute to the relationship, or to enable the other partner to advance in their career, they might be entitled to share in a FISA. This new measure would replace both the court’s compensatory powers under section 15 of the PRA and maintenance under the Family Proceedings Act 1980. According to the Law Commission, this change is meant to ensure that partners are compensated for the unpaid or non-explicit contributions they made to the relationship, and that they receive the support they need as they “transition out of the family joint-venture”.

The amount involved, and the duration of such an arrangement is to be determined by equalising the income of both partners for a period of time corresponding to half the length of the relationship, up to a maximum of 5 years. This ensures that both partners share more equitably in the advantages and disadvantages arising out of their relationship and their separation.

Changing how trust-owned property is managed

The PRA doesn’t ensure the just division of property held on trust. This is because property held on trust generally falls outside the PRA, and trusts are generally not viewed as relationship property. As a result, the Family Court has only limited jurisdiction when it comes to making orders regarding trust-owned property. Instead, matters relating to trusts involve protracted and expensive High Court proceedings. Often, partners have few realistic options for recourse.

The Law Commission’ report asserts that this is unfair in cases where trusts hold what would otherwise be considered significant relationship property, such as the family home, or other property acquired or maintained with the partners’ income. Because of this, they recommend that the Family Court gain the power to divide trust property in cases where that property was produced, preserved, or enhanced by the relationship.

What these changes mean

Fundamentally, the Relationship Property Act is designed to restructure how property is divided after a relationship ends, and what is functionally considered relationship property. In practice, most separations will still be managed in the same way as before. Partners frequently make their own arrangements about the status and division of property, and the new act is expected to maintain this freedom.

Trusts can still keep most property out of the hands of former partners

While changes to how property in trusts can be divided may be controversial, most property held in trusts will still remain outside the reach of former partners. The beneficiary of a trust established before a relationship starts, and which doesn’t contain any relationship property, will not lose any of that property so long as the partner doesn’t contribute to the maintenance or enhancement of the property held on trust. This means that, for example, a beneficiary receiving regular payments from a trust established by a parent will not be compelled to share that income with a former partner.

Separations might become messier

The Law Commission explicitly maintains that it intends to ensure the swift, and inexpensive resolution of property matters after a separation. Unfortunately, this may be difficult to implement with the introduction of FISA and the end of the “Clean Break” principle, which may result in much longer ongoing property disputes. These, in turn, might undermine the new priority for which the “Clean Break” is being sacrificed—the best interests of the children.

If successful, though, the Relationship Property Act could mean a significant improvement to the PRA, which is undoubtedly in need of reform. Ultimately, the success or failure of any new legislation rests in the hands of the government and their ability to recognise and meet these challenges while implementing the Law Commission’s recommendations.

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