Breaking up is so expensive to do

From today many unmarried couples could find that breaking up has become expensive. REBECCA WALSH explains how the Property (Relationships) Act will change people's lives.

It has prompted separations before it even starts.

Lawyers and politicians say the Property (Relationships) Act, which replaces the Matrimonial Property Act from today, has already brought some couples to grief, unable to sort out how they will divide their property if they separate.

The biggest change is that people in de facto and same-sex partnerships of three years or more will now have to divide their property equally if they separate - unless alternative legal arrangements have been made.

That has caused a last-minute rush to lawyers' offices to sign agreements "contracting out" of the law.

It has also sparked ultimatums and separations. One lawyer said this week: "There will be a few suitcases on the pavement on Friday morning."

The National Party has described the legislation as "social engineering gone mad", saying it will force couples to separate or pay costly legal fees.

National says that if it wins the next election it will change the qualifying period to five years, so that only relationships where "commitment has lasted" will be covered.

But Attorney-General Margaret Wilson says the new law is a long-awaited reform for many people who have previously been subjected to "gross unfairness" and "serious injustice".

Until now, she says, de facto couples have had virtually no legal protection if they split up.

Who does the new law apply to?

Unlike the Matrimonial Property Act, the new law covers married, de facto and same-sex partnerships of three years or more.

If a couple separate, it will effectively split their property down the middle, unless they have signed alternative legal arrangements.

Couples can choose to "contract out" of the law, putting in writing the division of property they want should they split up or one of them die.

Each partner must receive independent advice before signing.

National and Act MPs say drawing up the contract could cost between $250 and $2000 in legal fees.

People may choose to keep assets they have brought to the relationship (such as investments or a superannuation fund) as separate property, but must state so in the agreement.

Property acquired by a couple during the course of their relationship will generally be "relationship property", subject to a 50:50 split.

The new law goes some way to reflecting the changing make-up of society. The 1996 Census recorded more than 230,000 people living in heterosexual de facto relationships, more than double the number in the 1986 Census.

Family law specialist David Burns says a number of the agreements he has worked on involve couples where there is a huge discrepancy in assets.

In some cases one partner has given an ultimatum - either sign the agreement or we separate.

"In some ways it's easier to have a harmonious relationship when you both have bugger all."

Auckland lawyer David Amodeo has encouraged family and friends to sign agreements.

"It's a lot better if people, with a bit of advice, can sort out for themselves how they want their property divided, rather than get someone outside who doesn't know much about them, like a judge, to do it."

What about couples who have been together for less than three years?

In some cases the law can also apply to them. A person could stake a claim if he or she has made a "substantial contribution" to the de facto relationship or a child is involved. They must then prove that failure to make an order will result in "serious injustice".

For example, it might be argued that a substantial contribution is made when one partner stays home to look after the couple's children, putting his or her own career and earning capacity on hold.

Stephen McCarthy, convener of the Auckland Law Society's family law committee, says what is deemed "serious injustice" will have to be assessed by the courts case by case.

For most married couples it will be "business as usual", Mr Burns says. The most significant change for them will be a provision allowing the courts to consider compensation for economic disparity after a couple separates.

What is the definition of a de facto relationship?

Critics argue that the law will create endless legal debate over whether a couple are in a de facto relationship and, if so, when it started.

Unlike a marriage, there is no wedding day.

Some lawyers believe the courts will be clogged with a countless stream of witnesses attesting to a couple's relationship.

Under the act, a de facto couple consists of two people aged 18 or over "who live together as a couple".

The courts will look at a number of factors when determining what this phrase means, such as the duration of the relationship, whether a sexual relationship exists, the nature and extent of a common residence, the degree of financial dependence or inter-dependence, the ownership, use and acquisition of property, the degree of mutual commitment to a shared life, the care and support of children, the performance of household duties and the reputation and public aspects of the relationship.

Will property always be divided equally?

No. Courts have the power to consider compensation for economic disparity after a couple have separated.

If the court believes one partner has significantly greater earning capacity or will have a significantly higher standard of living, it can order that person to pay a lump sum on top of the 50:50 split.

Any compensation must come out of property accumulated during the relationship, not out of future earnings.

This part of the law considers how duties have been divided during the relationship and is designed to take into account those people, often women, who may sacrifice their own careers to look after children.

"Some people will welcome the economic disparity provision and think it's high time. Other people will recoil in horror," Mr Burns says.

"From my perspective I think it will be a vehicle to produce justice in certain cases but it will be a significant challenge to Family Court judges and the Bar in interpreting and implementing it."

Mr McCarthy says colleagues have told him some couples want to contract out of the economic disparity provision of the act.

He questions whether that would work. "My understanding of it is you can't contract out of that. You won't be able to work out the economic disparity question until the partners split up."

Family law specialist Simon Jefferson expects "frequent departures" from the 50:50 divide and some unusual cases.

"It is not inconceivable a man may have a wife and mistress, both [of whom] have qualifying rights under this new legislation."

What happens if one partner dies?

One of the biggest changes - and one many people may be unaware of - is that the new laws also apply after death, placing greater restrictions on people's freedom to make their own wills.

In the past, it has been taken for granted that people should be able to decide who should inherit their property when they die, although legislation such as the Family Protection Act states a moral obligation to provide for a partner and children.

From today, when a person dies his or her partner can choose to take what is left to them in the will or, if they are unhappy with that, seek what they are entitled to under the law.

"What it means in practice is that all property on death is presumed to be relationship property and the surviving partner - or partners, where there are multiple partnerships - will have the right to share this property on the same basis as if the relationship had ended during their lifetime," says Lindsay Lloyd, chair of the New Zealand Law Society's property law section.

Under previous law, a de facto partner could not make a claim against a deceased partner's estate.

Can the courts intervene in other ways?

Yes. The court will be able to take into account any property put into a family trust during the relationship as a ploy to keep it in one partner's control.

"Under the current law, property in trust is largely immune from matrimonial property division," says Mr Jefferson.

"With the new rules, property in trust will be more available. There will be provision to compensate people because they can't get at property placed in trust."

The court also has greater powers to protect the interests of minors or dependent children when deciding how and when property should be divided.

It may postpone property sharing where it is necessary to avoid undue hardship to children.

THE LAW AT A GLANCE

* Couples who have lived together for three years or more will be treated as married if they separate.

* In most cases property owned by either partner, including a house, must then be shared equally.

* Couples can opt out of the law by drawing up their own legal agreements.

* Courts can order a high-earning partner to make payments to a partner who has lost income because of the relationship.

* If one partner dies, the other partner is entitled to the same equal share as in a relationship breakdown.

* The law applies to all married and de facto couples, including those in same-sex relationships.

How it could work

* A single 50-year-old woman owns a $300,000 house in central Auckland freehold. She begins seeing a man, who moves in and lives with her for three years. When the relationship breaks up, he is entitled to half the value of the house - $150,000.

* A lawyer and a teacher with two children aged 10 and 8 decide to separate. Their assets are worth $800,000, so both would normally get $400,000 each. But the court awards the wife $100,000 (based on $20,000 a year over five years) to compensate for her reduced earning power, since she looked after the children instead of working. The wife gets $500,000, the husband $300,000.

* A husband and wife make standard wills leaving everything to each other, with the survivor leaving everything to their children. The wife dies. The husband inherits the whole property and starts a de facto relationship with another woman which lasts for four years. When the husband dies, his will leaves only a small amount to his new partner and the rest to his children. However, she contests the will and successfully claims half the property from that relationship.