September 2009

The importance of good housework

Lessons in protecting Separate Property

There has been much attention in the media recently regarding a decision of the Supreme Court of New Zealand whereby a wife claimed a share of her husband’s separate property based on her “domestic duties”. Her contributions entitled the wife to a 40% share of the increase in value of the husband’s separate property.

The facts

Prior to the marriage the husband (“Mr R”) owned a property known as Cloverlea which ran at a loss. During the marriage he inherited a share of a property known as Poplars. During the marriage Mr R and his brother developed a wine growing business on the land.

The claim

Mrs R mounted a claim against both Cloverlea and Poplars but the Court’s decision in respect of the Cloverlea property is of most interest. The wife had undertaken no work on the farm and had not played any role in the farming partnership. She had, however, undertaken domestic duties and for a time had worked outside of the home and had contributed that income into the general relationship property pool. It was Mrs R’s argument that had she not contributed her income into the relationship pool then Mr R would have needed to increase indebtedness to sustain the family. Mrs R also argued that it was her undertaking of domestic duties and the care of the children that allowed Mr R to put long hours into the vineyard enterprise.

The decision

The Court noted that even though the increase in value may have been due in part to inflation this did not prevent Mrs R making a claim. The Court accepted her evidence and awarded her a 40% share of the increase in value.

Lessons to be learned

Mr R had a right to expect that both blocks of land would be treated as his separate property as one (Cloverlea) was land he owned prior to the marriage commencing and the second (Poplars) was acquired by inheritance during the marriage. Pursuant to the provisions of the Property (Relationships) Act 1976 (“the Act”) both pieces of land were his separate property. However, the Act contains a provision that provides that an increase in the value of separate property can become relationship property if the increase in value is –

(a) Attributable (wholly or in part) to the application of relationship property; or

(b) Attributable (wholly or in part, and whether directly or indirectly) to the actions of the other spouse.

Therefore, Mr R was always susceptible to a claim by Mrs R for a share of the separate property.

The decision of the Supreme Court refers to a Pre-nuptial Agreement between the parties which had been set aside in the Family Court. The Court declared the Agreement void on two grounds, firstly that the wife had not received truly independent advice, and secondly the length of time that had passed since the Agreement was entered into.

The lessons to be learned from this case are therefore threefold –

1. In order to protect assets from a claim by a spouse or de facto partner a Contracting Out/ Pre﷓Nuptial Agreement should be entered into.

2. If such an Agreement is entered into it must be done properly and comply with all the requirements of the legislation.

3. These Agreements should be reviewed on a regular basis (at least every five years or when there is a significant change in circumstances) to ensure that the Agreement remains current.

For any further advice in respect of these issues please contact one of our Family Law Team.