Our 'broken' divorce system: Trusts targeted as relationship property

In the second of a two-part series looking at the nightmare faced by couples locked in acrimonious relationship property disputes, Jane Phare asks experts what they'd do to change a 'brutal' system that leaves some Kiwis facing financial ruin. Plus tactics to navigate a fair settlement.

It doesn't take Lady Deborah Chambers, QC, long to rattle off how she'd fix the dysfunctional legal system separated couples face when trying to resolve a relationship property dispute.

She, backed by others working in the industry, would start with the Family Court - bogged down by complex rules of procedure and poor case management. Badly in need of a revamp, she says.

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And discovery, where both parties are supposed to disclose information, like bank accounts; there's a headache in itself. Chambers and others say it's far too easy for one side to keep details of the matrimonial pot of gold to themselves, information that is crucial to get a fair settlement.

The problem is the penalties for non-disclosure or drip-feeding information are little or nothing.

"There's not enough incentive to comply and obey, and I think the Family Court judges need to be more commercial on this stuff," Chambers says.

At best there's a cost order to pay a few hundred dollars, chicken feed in cases where relationship property is worth millions, and sometimes hundreds of millions, of dollars.

University of Auckland law professor Mark Henaghan says he can't understand a system that expects parties to have to pay expensive forensic accountants to find hidden assets.

"We have this drip feed disclosure thing which is just a nightmare for people. They just run out of funding," he says.

Chambers thinks the Family Court judges need to be "more ruthless and tougher" over discovery and timetable orders.

"It costs people their lives, money, distress for their children, the uncertainty of (not) being able to get on with your own independent financial life and start a new business or whatever."

Lady Deborah Chambers, QC, thinks Family Court judges need to be tougher with penalties for non-compliance. Photo/supplied

Others in the industry want to see a fairer system to make sure both sides have enough money for legal representation. And they want outdated anomalies fixed, like section 182 of the Family Proceedings Act 1980 which has been the go-to trust-busting tool. It applies to married couples only, not those in a de facto relationship.

Trusts are a big one. Chambers thinks the Law Commission has got it "exactly right" by recommending trusts should be more easily accessed for relationship property divisions.

"We need legislative change in that area. Where relationship property has gone into a trust it just shouldn't be that hard."

Henaghan says trusts need to be opened up cleanly and simply by legislation. It's nonsense to argue that assets in a trust or company are not personal property.

"Why should trusts trump social legislation which says this is what you are entitled to? Clearly they are assets. Why we allow this to happen is beyond me."

Warring wealthy not a priority

As it stands, the Family Courts are among the busiest in the country, charged with looking after the needs of vulnerable children, abused spouses, the elderly and mentally impaired. Warring wealthy fighting over the spoils are hardly going to be a priority.

But those working in the industry say once relationship property is sorted, often the antagonism and bitterness disappears. Research shows that co-parenting improves and custody cases diminish once the money's sorted, Chambers says.

Lawyers describe the Family Court judges as hard-working and dedicated. It's the court's system that lets them down, they say.

Auckland lawyer Sheila McCabe says counsel turn up at 10am only to find a dozen other cases listed at the same time. All those lawyers waiting around add to the clients' costs.

"Sometimes you see 15 lawyers hanging around at 10 o'clock. And there's only one judge in that particular court room."

Why not, she says, allocate specific times for each case and make greater use of telephone conferences?

Chambers thinks part of the issue is that judges do their jobs too well - writing lengthy and intricate judgements that take months to produce, applying the law to all the facts.

"I think they Rolls-Royce too much. I think they should be doing Minis."

She understands the thinking behind the Rolls-Royce judgments, that both parties are more likely to accept the findings if they can understand the reasoning behind it. But surely five pages, not 50, would do, she says.

"They really just want the result, don't they?"

Both the Justice Minister Kris Faafoi and the Ministry of Justice acknowledge the Property (Relationships) Act 1976 and the court system need reform. Two years ago the Law Commission filed a report saying the act was no longer fit for purpose and that it wanted to "address behaviour that causes delay and increased costs" in the courts.

Justice Minister Kris Faafoi acknowledges there is work to be done on family law issues and the court system. Photo/Mark Mitchell

But that 2019 report has yet to be acted on. The Government instead asked the commission to review the law of succession, a report that Faafoi says is expected by the end of the year. He did not say when the proposed new Relationship Property Act would come into play.

Acknowledging the workload faced by Family Court, the Government allocated $15 million over five years in this year's Budget to pay for Family Court Associates to help with administrative matters.

But for couples who have spent years, and eye-watering amounts of money, battling through the courts armed with costly lawyers and accountants, it's too little too late. Right now, the entire Family Court system needs to be taken apart and rebuilt, they say.

Lawyer Jan McCartney, QC, would like to see a change from an adversarial system to an inquisitorial process. Instead of two sides going head-to-head, a judge would ask questions and direct the case.

"It's a better environment for everybody and no-one's jumping down anyone's throat."

Divorcee Sarah Sparks, who spent $2 million fighting a fruitless relationship property battle for seven years, agrees. She's involved with the Waitangi Tribunal and is impressed with how an inquisitorial system works in that setting.

"I believe we shouldn't have an adversarial system in this context (relationship property) because instantly you go through the doors, it's conflict. Mum and Dad at each other. It sets up families for failure and it's brutal."

Sparks is also pushing for a code of conduct introduced for banks to ensure they don't favour the party who controls the money, lending money to help fund one side of the legal fight.

Industry professionals also favour court-appointed valuers, similar to the Australian system, to stop experts going up against each other resulting in endless, costly reports.

Mediation favoured as alternative to court

Frustrated by the enormous cost and delays, couples are increasingly turning to mediation as an alternative. The advantage is it's usually over in a (long) day and the decision is binding. There's no appealing the settlement through the higher courts.

Nearly 90 per cent of cases that go to private mediation settle. Judicial settlement conferences, before a judge, have a much lower success rate at around 34 per cent.

But private mediation's not cheap. A day with a skilled mediator costs around $10,000 plus the cost, to both sides, of having lawyers and accountants/valuers present. In Auckland, the ivy-covered Northern Club is a favoured venue.

The Northern Club in Auckland is a favoured spot for high-end relationship property mediations. Photo/Richard Robinson

Chambers favours mediation because it gives couples a chance to air emotional issues at the beginning of the day - the hurt, anger and resentment that has invariably got in the way of resolution. Quite often that process "lances the boil," Chambers says.

"And so often I think that is necessary. If you go along to the Family Court the judge isn't going to be too interested in that stuff."

McCartney is cautious about mediation unless both sides are confident there has been full disclosure.

"There needs to be funds for an expert to go over the documents and understand the value. That's what I expect for whomever I'm acting for."

McCabe says timing is everything when it comes to mediation. Both sides need to be ready to negotiate, what she calls "softened up around the edges".

"Sometimes people try to do it too early. People can be really bitter and twisted when they first separate and they can't perceive of 'giving' that person anything."

Former district court judge and mediator Tony Lendrum has seen a sharp uptake in couples wanting mediation, particularly in the high net-worth end. One of the big attractions is that it's confidential, he says.

Mediator Tony Lendrum has worked as a Family Court judge. Photo/Paul Taylor

"No-one is ever going to learn about their wealth, how its structured, what entities it's in."

If couples have had a hand in making the agreement they tend to accept them. And a lot of the "pre-match bolshiness" disappears in the mediation room, he says.

Let's sit down and talk

Apart from mediation, McCartney says she'd like to see more lawyers sit down and sort things out rather than exchanging demanding letters and attending court hearings. More talk, less court.

She has one case that she can't progress to any sort of settlement until she recommends her client pays $150,000 to the other side for their legal costs. That's not a good start, she says.

"The costs involved in taking a relatively simple case through the Family Court are often more than a complex commercial case in the High Court."

University of Auckland law professor Mark Henaghan thinks money wasted in court fighting over assets should be spent on the family instead. Photo/supplied

Henaghan has no patience with the amounts of money spent fighting over assets.

"The money that is wasted in court should be spent on the family. People get caught up in defending their little patch. It's pathetic frankly."

He says the legislation and court system need to be reformed urgently.

"We've fallen behind other countries. "If we leave it too long it's not a good look for New Zealand."

• In the first part of this two-part series in the Weekend Herald, Auckland lawyer Jan McCartney, QC, was quoted as saying: "People think it's the women who get hit hardest, and they do; it's awful. But don't think the men aren't having a hard time too."

The correct quote should have been: "People think it's women who get hit hard, and they do;..."

10 tips for protecting your share of relationship property:

• Don't sign documents, including trusts, unless your fully understand them; get independent legal advice.

• With regard to trusts, question who does the appointment of the trustees and beneficiaries, and who can remove them.

• Make an effort to understand the family finances; ask questions.

• Be familiar with family assets - property, businesses, investments, superannuation etc.

• Be aware that your ex can quickly empty joint bank accounts in the event of a split. Make sure you have access to funds before separation.

• If a break-up is imminent and you think your ex might be difficult, snoop. Photograph/photocopy bank statements and relevant documents.

• Change passwords if your ex is likely to know yours.

• Encourage your lawyers to have meetings to resolve relationship property matters.

• Try to tell the children together and protect them from any arguments. Consider "bird nesting," where children remain in the home and the parents alternate.

• Don't over share on social media. Avoid posting photographs of your new love interest until settlement is concluded.