Most of us are concerned with what happens to our property when we die however, a lot of us don’t do anything about it to prepare for this happening. If you do nothing then the law of succession under the Administration Act applies to your property and no doubt you’ve all heard nightmare stories of the arguments that can ensue when this happens. You only have to look to media reports of how some of these play out in the Courts.
Even with a valid Will in place people can still make claims against the Estate if they feel they have not been adequately provided for. The law in this area in New Zealand is located across several pieces of legislation so it can be difficult to apply. The Law Commission is currently reviewing the law in this area with a view to making changes that hopefully make it easier to apply. In particular the law applying to relationship property is in desperate need of reform.
At the end of a relationship the parties must divide their property and there are rules in place regarding how that is to occur. The rules are in the Property (Relationships) Act 1976 and you can see from the date this legislation it is now 44 years old. A lot has changed in our society in the last 44 years! Relationships have changed from previous generations and blended families are now very common.
Part 8 of the Act contains the rules that deal with the division of a couple’s property when one of them dies. When someone in a qualifying relationship dies, the surviving partner must elect to choose either Option A or Option B within 6 months of Probate being granted by the High Court.
- If Option A is elected the surviving Partner can make an application to the Court to divide the property according to the rules of the Act.
- If Option B is elected the Act does not apply and the property is divided according to the deceased’s Will or if there is no Will then the Administration Act.
If someone chooses Option A any gifts in the Will are immediately revoked unless the Will specifically says otherwise however, the party electing Option A may apply to the Court to have that gift reinstated. If the election isn’t made within 6 months of Probate then Option B will apply by default.
The rules were designed to ensure that the surviving party is not left any worse off than if they had separated while they were both living. As you can imagine this often creates tension between the surviving party and the deceased’s children from a prior relationship if they do not feel surviving party deserves those assets or if they feel they have not been adequately provided for.
As an example if Bonnie and Clyde had been in a qualifying relationship for 10 years and Clyde was killed in a robbery gone wrong Bonnie will need to make her election of Option A or B. If Clyde left most of his estate to Bonnie then she would be best to use Option B and receive the assets left to her under the Will.
However, if Clyde left say 75% of his assets to his three children from a previous relationship and 25% to Bonnie then Bonnie would be better off financially electing Option A and making a claim under the Act for a division of relationship property. Clyde’s children will still be entitled to a share of the estate but it wouldn’t include Bonnie’s share.
To further complicate matters Bonnie and Clyde may have entered into a “prenup” (Contracting Out Agreement) meaning that the rules of the Act don’t apply to their relationship. When entering into this Agreement each party must receive independent legal advice explaining the terms of the Agreement including what happens on the death of one of the parties. Normally the parties expect this Agreement to be valid on the death of one of the parties so it is standard practice to have a clause included to ensure their property is divided according to the terms of the Agreement and their Will.
The Law Commission has made a recommendation that the law be changed so that rather than the default position of dividing the family home 50/50 once you’re in a qualifying relationship the default position would be amended so that the parties only share the increase in equity during the course of the relationship. For example, if the family home was worth $300,000 at the commencement of the relationship and $400,000 at the end of the relationship the person who doesn’t own the family home would receive $50,000 (a 50/50 division of the increase in value) rather than $200,000 (a 50/50 division of the entire asset). However, the law hasn’t changed yet and a personal educated guess on the timeframe for this occurring is that it will likely be a few years away at this stage.
For the time being it is essential that you at least consider entering into a prenup (Contracting Out Agreement); these can be entered into at any stage of the relationship, even if you’ve been in a relationship for 20 years. It is crucial that you update you Will at the time you enter into the prenup to ensure your estate is divided per your wishes.
If you wish to discuss your affairs with one of our experts, please feel free to book a free 30 minute consultation.