October 2017, Wellington, New Zealand | ISSUES PAPER 41 Dividing relationship property – time for change? Te mātatoha rawa tokorau – Kua eke te wā? October 2017, Wellington, New Zealand | ISSUES PAPER 41 Dividing relationship property – time for change? Te mātatoha rawa tokorau – Kua eke te wā? Version: 8 Nov 2017 General information The Law Commission is an independent, publicly funded, central advisory body established by statute to undertake the systematic review, reform and development of the law of New Zealand. Its purpose is to help achieve law that is just, principled, and accessible, and that reflects the heritage and aspirations of the peoples of New Zealand. The Commissioners are: Douglas White – President Donna Buckingham Belinda Clark QSO Helen McQueen The General Manager of the Law Commission is Jasmine Tietjens The office of the Law Commission is at Level 19, 171 Featherston Street, Wellington Postal address: PO Box 2590, Wellington 6140, New Zealand Document Exchange Number: sp 23534 Telephone: (04) 473-3453, Facsimile: (04) 471-0959 Email: [email protected] Internet: www.lawcom.govt.nz A catalogue record for this title is available from the National Library of New Zealand. ISBN: 978-1-877569-82-1 (Online) ISSN: 1177-7877 (Online) This title may be cited as NZLC IP41 This title is also available on the Internet at the Law Commission’s website: www.lawcom.govt.nz Kei te pātengi raraunga o Te Puna Mātauranga o Aotearoa te whakarārangi o tēnei pukapuka. This work is licensed under a Creative Commons Attribution 4.0 International License. Contents Acknowlegements 4 Have your say 5 Glossary 7 PART A – INTRODUCING THE LAW COMMISSION’S REVIEW 10 Chapter 1 – Context, scope and approach 11 Introduction 11 Social context of this review 12 Scope of this review and our approach so far 14 Structure of this Issues Paper 15 Chapter 2 – Why do we have the PRA? 19 Marriage and property practices in traditional Māori society 19 Post-colonial history of relationship property law 24 The PRA as social legislation 35 Tikanga Māori and the PRA 40 Chapter 3 – What does the PRA do? 45 The framework of the PRA 45 How it works – The PRA rules 53 Application of the PRA on death 61 How New Zealand compares internationally 62 Chapter 4 – What are the big questions of this review? 66 Is the framework of the PRA sound? 66 The big questions 72 Other general issues 81 PART B – WHAT RELATIONSHIPS SHOULD THE PRA COVER? 84 Chapter 5 – Who is covered by the PRA? 85 Introduction 85 Relationships covered by the PRA 85 The inclusion of de facto relationships in the PRA 89 Chapter 6 – The definition of de facto relationship 96 Two people who “live together as a couple” 97 Issues with the definition of de facto relationship 105 Options for reform 118 Chapter 7 – Specific relationship types and family arrangements 124 Māori customary marriages 124 Relationships involving young people 126 Relationships with and between members of the LGBTQI+ community 129 Contemporaneous relationships 131 Multi-partner relationships 134 Domestic relationships 135 PART C – WHAT PROPERTY SHOULD THE PRA COVER? 141 Chapter 8 – What property is covered? 142 Introduction 142 The PRA’s definitions of “property” and “owner” 142 Should the PRA apply to wider economic resources? 145 Is the definition of property future-proof? 149 Exclusion of Māori land from the PRA 153 Chapter 9 – Classifying relationship property and separate property 163 Relationship property, separate property and debts 163 The basis for classification 169 Is the basis for classification appropriate for contemporary New Zealand? 170 Options for Reform 179 Chapter 10 – When separate property becomes relationship property 183 Increasing the value of separate property 184 Applying separate property to relationship property 197 Intermingling of gifts and inheritances with relationship property 199 Implications of moving to a “fruits of the relationship” approach 205 Chapter 11 – Issues with particular types of property & debts 211 ACC and insurance payments 211 Super profits and earning capacity 215 Taonga 226 Heirlooms 233 Student loans 235 Family gifting and lending 239 PART D – HOW SHOULD THE PRA DIVIDE PROPERTY? 242 Chapter 12 – The general rule of equal sharing and exceptions 243 Introduction 243 Equal sharing 243 Extraordinary circumstances 246 Misconduct 250 Dissipations of relationship property 256 Successive and contemporaneous relationships 260 Chapter 13 – Valuation 267 Valuation of Property in the PRA’s overall scheme 267 Determining value 268 Issues and options for reform 274 Chapter 14 – How a court implements a division of property 280 Division orders 280 Interim property orders 291 Non-division orders 299 Protection of rights under the PRA 304 PART E – HOW SHOULD THE PRA TREAT SHORT-TERM RELATIONSHIPS? 309 Chapter 15 – The three year rule 310 Introduction 310 Should the PRA have different rules for short-term relationships? 311 How does the three year rule operate? 312 Should the qualifying period be longer? 316 Options for reform 321 Chapter 16 – Short-term marriages and civil unions 326 The property division rules 326 Issues with sections 14 and 14AA 328 Options for reform 330 Chapter 17 – Short-term de facto relationships 334 Background to section 14A 334 The section 14A(2) test 335 The property division rules 336 Issues with section 14A 336 Options for reform 344 PART F – WHAT SHOULD HAPPEN WHEN EQUAL SHARING DOES NOT LEAD TO EQUALITY? 350 Chapter 18 – Does section 15 achieve post-separation equality? 351 Introduction 351 Historical background 352 What is section 15 trying to achieve? 354 How does section 15 work in practice? 359 Determining the amount of section 15 awards 378 Other issues with section 15 387 Chapter 19 – Options for reform 391 Is reform needed? 391 Common objectives and characteristics of section 15 reform 393 Option 1: Retain section 15 but lower the hurdles that partner A must overcome 397 Option 2: Repeal section 15 and address financial inequality in other PRA rules 400 Option 3: Replace section 15 with financial reconciliation orders 402 PART G – WHAT SHOULD HAPPEN TO PROPERTY HELD ON TRUST? 423 Chapter 20 – Trusts 424 Introduction 424 The use of trusts in New Zealand 425 Trusts used by New Zealand families 428 The PRA and property held on trust 433 Chapter 21 – The Issues 456 Issue 1: The priority trusts have over rights under the PRA may be causing problems 456 Issue 2: It is unclear whether an interest in a trust is property 469 Issue 3: The Supreme Court’s decision inClayton v Clayton [Vaughan Road Property Trust] did not resolve the tension between the PRA and trusts 475 Issue 4: Remedies outside the PRA to recover property held on trust are inconsistent and create procedural difficulties 478 Issue 5: Section 182 of the Family Proceedings Act 1980 481 Issue 6: Whether there are adequate remedies in the wider law to deal with trusts and rights under the PRA 484 Chapter 22 – Options for Reform 487 Reform is necessary – what are the options? 487 Option 1: Revise the PRA’s definition of “property” to include all beneficial interests in a trust 490 Option 2: Revise the PRA’s definition of “relationship property” to include some property held on trust 494 Option 3: Broaden section 44C 502 Option 4: A new provision modelled on section 182 of the Family Proceedings Act 1980 505 PART H – RESOLVING PROPERTY MATTERS IN AND OUT OF COURT 508 Chapter 23 – How are property matters resolved in practice? 509 Introduction 509 Achieving just and efficient resolution of property matters under the PRA 510 How do people resolve property matters in practice? 517 Chapter 24 – Resolving property matters out of court 523 Do people have access to appropriate information? 523 Is access to legal advice appropriate? 527 Access to dispute resolution services 530 Chapter 25 – Going to court 554 PRA proceedings in the Family Court 554 Is the court process operating effectively? 563 Options to improve the court process 567 Chapter 26 – Jurisdiction of the courts 583 Introduction 583 The Family Court as a specialist court 583 The limited role of the High Court in PRA proceedings 587 The PRA is a (partial) code 588 Issues with the Family Court’s jurisdiction 592 Issues with the High Court’s jurisdiction 613 Options for reforming the jurisdiction of the Family Court and High Court 620 Other jurisdiction issues 628 PART I – HOW SHOULD THE PRA RECOGNISE CHILDREN’S INTERESTS? 638 Chapter 27 – Children and the PRA 639 Introduction 639 How does parental separation affect children? 640 How does the PRA Fit in? 648 Chapter 28 – The case for taking a more child-centred approach under the PRA 652 How does the PRA recognise children’s interests? 652 Should children’s interests have a role in the PRA? 653 Should the PRA take a more child-centred approach? 654 Which children is the PRA concerned about? 661 Minor or dependent children 671 Chapter 29 – Options for reform that take a more child-centred approach 674 Promoting Children’s interests in the principles of the PRA 674 Section 26 678 Postponement of vesting 692 Occupation and tenancy orders 698 Furniture orders 700 Participation of children in PRA proceedings 702 PART J – CAN PARTNERS MAKE THEIR OWN AGREEMENT ABOUT PROPERTY? 705 Chapter 30 – Contracting out of the PRA 706 Introduction 706 The law governing contracting out agreements 707 Are the contracting out provisions are working well? 718 Issues regarding what a contracting out agreement can cover 723 Other issues 733 PART K – SHOULD THE PRA AFFECT THE RIGHTS OF CREDITORS? 744 Chapter 31 – The PRA