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Priestley, Hon John --- "Whence and whither? Reflections on the Property (Relationships) Act 1976 by a retired Judge" [2017] OtaLawRw 4; (2017) 15 Otago LR 67

Last Updated: 3 December 2019

67

Whence and Whither?

Reflections on the Property (Relationships) Act 1976 by a Retired Judge

The Hon John Priestley*

Introduction

Family Law captured my imagination half a century ago when I was an undergraduate at the University of Auckland. The diet of family litigation in those days (other than disputes over wills and estates) comprised negotiating separation agreements, obtaining divorces in what is now the High Court, and paternity disputes. The law governing property disputes between husbands and wives (and very infrequently couples in de facto relationships) was rudimentary. It is not my intention, in this article, to walk you down memory lane. Forty years on, the scope and nature of Family Law practice and the overarching legislation has transformed the paths along which families walk.

This article will essentially be an overview. It does not pretend to be a carefully researched academic paper. Rather, I want to examine the drivers for reform; how we arrived at the current legislation; discuss the suitability of the New Zealand model for contemporary society; comment on the vexed interface of the Property (Relationships) Act 1976 (PRA) and trusts; and conclude with some idle proposals for the road ahead.

A little history

New Zealand’s legal system originated in England. The common law and Imperial statutes were the starting points. New Zealand’s Parliament, reflecting the needs of a small society attracted to reform, developed the law. In the 19th century and for two-thirds of the 20th century, marriage and the nuclear family were the basic social units. Property rights ruled supreme. Marriage made not a jot of difference to the respective property rights of husband and wife inter se.

It was not always thus. The reforming legislation of the 1880s (the English Married Women’s Property Act 1882 and New Zealand’s 1884 counterpart) was driven by a desire to confer upon women equal legal status. But the common law since the 13th century, and certainly equity since the 16th century, had developed rules hostile to any concept of community property or marriage extinguishing the legal title of women to land. (The common law relating to chattels and personal property was not as protective.) Marriage gave to a husband the common law right of jus mariti – the right to control a wife’s property and enjoy its fruits

CNZM, QC, BA, LLB (Hons) (Auckland), MA (Cantab), SJD (Virginia). This article was first presented as a paper to “A Colloquium on 40 Years

of the PRA: Reflection and Reform” (Auckland, December 2016).

and profits. A husband could dispose of those rights but he was unable to dispose of a wife’s core right of ownership without her consent. If a husband predeceased the wife, the wife, during her widowhood, enjoyed the right of dower (shades of the dower house in “Downton Abbey”), being the use and enjoyment of an interest in one-third of the husband’s freeholds. The interests of a surviving wife in her own land would revert. If a wife predeceased, her husband would enjoy a life interest of “curtesy”. But on marriage, the wife’s interest in property other than land would pass completely to her husband’s control.

I shall comment on the vexed issue of trusts later in this article. We need to recognise that Equity played a vital role from approximately the 16th century in preserving and safeguarding the property interests of wives from their husband’s control. Dicey put it thus:1

... the aim of the Court of Chancery had throughout been not so much to increase the property rights of married women generally, as to enable a person (e.g. a father) who gave to, or settled property on a woman, to ensure that she, even though married, should possess it as her own, and be able to deal with it separately from, and independently of, her husband, who, be it added, was, in the view of equity lawyers, the “enemy” against whose exorbitant common law rights the Court of Chancery waged constant war.

The motivation of a rising mercantile class and smaller land owners was to ensure that property of value could be settled on daughters and grandchildren without the risk of dissipation or alienation by husbands. By the 16th century, modification of earlier rules (irrelevant for our purposes) led to the equitable device of estates being conveyed to a trustee “to the separate use” of married women. Very few today, I suspect, appreciate that the nomenclature “separate property” used in the PRA had its origins in the equitable separate estate which trusts created.

Because wives could still be prevailed upon by importunate husbands to surrender their separate estates, a further device was created, known as the restraint upon anticipation, entirely attributable to the ingenuity of Lord Thurlow.2 The equitable separate estates of women could thus be linked to a prohibition on a married beneficiary from anticipating or dealing with the income of a trust fund until it fell due. There were usually additional prohibitions to prevent a beneficiary from alienating or disposing of the trust fund for so long as a marriage lasted. What a refreshing contrast such trusts, extensively used in the late 18th and the 19th century, were from the current noxious class of trusts which confer powers of appointment to remove or add (at the whim of the appointer) beneficiaries, or which revolve around a sole controlling trustee who is also the settlor and principal beneficiary.

AV Dicey Lectures on the Relation between Law and Public Opinion in England During the Nineteenth Century (MacMillan and Co, London, 1905) at 374. See Walter Hart “The Origin of the Restraint upon Anticipation” [1924] LQR 221; Dicey, above n 1, at 376.

The protection of trusts, however, was of little use to women who owned cash and chattels or who, as the 19th century advanced, might earn modest incomes through their own efforts. Property of that nature remained under the husband’s control.

John Stuart Mill, an influential 19th century writer and philosopher, wrote a seminal essay in 1869, “The Subjection of Women”. What Mill advocated would not be seriously resisted in New Zealand today. He saw in 19th century attitudes to marriage and the status of women aspects which were unconscionable:3

The principle which regulates the existing social relations between the two sexes – the legal subordination of one sex to the other – is wrong in itself, and now one of the chief hindrances to human improvement; and that it ought to be replaced by a principle of perfect equality, admitting no power or privilege on the one side, nor disability on the other.

Four chapters of Mill’s essay dealt with the inequalities which the law imposed on married women, prevailing attitudes towards women, and their political disenfranchisement. Mill advocated a system whereby the property owned by each party before a marriage should continue under their exclusive control during the marriage. He referred to the equitable settlements I have described and attacked the common law thus:4

... a community of goods resting on the doctrine, that what is mine is yours but what is yours is not mine.

Reform in England did not come as rapidly as it did in the United States, where doubtless the efforts and contributions of pioneer women during settlement west of, first, the Alleghenies and, secondly, the Mississippi led to speedy acceptance of criticisms of the type advanced by J S Mill. Precursors of the Married Women’s Property Act, which came to us in the 1880s, were enacted in Mississippi as early as 1839, Texas and Massachusetts in 1845 and New York in 1848. The United States’ template was effectively to allow any female who married to own her real and personal property as her sole and separate property as if she were single.

Passage of the British Divorce and Matrimonial Causes Act 1857, granting hitherto unavailable civil remedies of judicial separation and divorce (all fault based), required some focus on the respective property rights of marriage partners. The outcome was, for New Zealand purposes, the Married Women’s Property Act 1884 (mirrored on the English legislation of 1882), which as in the United States held that a married woman was capable of acquiring, holding and disposing of real and personal property “as her separate property in the same manner as if she were a feme sole”.5

John Stuart Mill The Subjection of Women (Longmans, Green, Reader, and Dyer, London, 1869) at 1.

At 86–87.

Married Women’s Property Act 1884, s 3(1).

Interestingly, Dicey saw this legislation as parliamentary approval of equitable remedies:6

... parliamentary policy is in reality little else than the extension to the property of women who marry without a marriage settlement, of the rules established in equity with regard to the rights of a married woman over property settled upon her or given to her for her separate use.

Otto Kahn-Freund, a distinguished English commentator, described the reform process in this way:7

What is of special importance for an understanding of the present law is that the principles of equality of status and of separation of property appeared on the scene together ... The legal status of married women and the effect of marriage on the property of the spouses are entirely distinct ... In England ... the idea of separation of property became in the minds of people, lawyers, and laymen, interwoven with that of equality with which intrinsically it has very little to do. This is one of the reasons why the gradual process of equalising the status of the sexes, one of the main themes of English legal developments during the concluding decades of the 19th and during the first half of the 20th century was, in the law of matrimonial property, reflected in the radical substitution of the separation of property with the ancient rules of the common law.

There the reform of law rested. The policy of New Zealand’s 1884 legislation was replicated by s 3 of the Married Women’s Property Act 1952. Marriage made no difference to the property rights of either husband or wife. The common law rules which gave dominion and control to a husband had gone. The equitable rules which had applied to separate property applied to all women and in particular to chattels and personalty.

The Married Women’s Property Act regime, however, did not allow courts to reallocate or redistribute property. At best, there was a power for a court to make such orders as it thought fit in respect to questions of title or possession of property in dispute between husband and wife.8 This did not confer a broad judicial discretion to reallocate property. Rather, it was to define interests in property according to well established legal and equitable rules, a point emphasised by the High Court of Australia in Wirth v Wirth9 and ultimately by the House of Lords in Pettitt v Pettitt.10 New Zealand courts adopted the same approach.11

6 Dicey, above n 1, at 391.
7 O Kahn-Freund “Separation of Property Systems: England” in

W Friedman (ed) Matrimonial Property Law (Carswell, Toronto, 1955) 267 at 277–278. Also O Kahn-Freund “Inconsistencies and Injustices in the Law of Husband and Wife” (1952) 15 MLR 133.
8 Married Women’s Property Act 1952, s 19(1) [now repealed].
9 Wirth v Wirth [1956] HCA 71; (1956) 98 CLR 228.
10 Pettitt v Pettitt [1969] UKHL 5; [1970] AC 777 (HL).
11 Such cases included Barrow v Barrow [1946] NZGazLawRp 57; [1946] NZLR 438 (CA); Reeves v

Reeves [1958] NZLR 317 (SC); and Hendry v Hendry [1960] NZLR 48 (SC).

Expanding the discretion and the forerunner to the PRA

The social upheavals which followed both World Wars, the irreversible process of divorce law reform, and growing economic affluence in the developed world soon exposed the Married Women’s Property Act template as inadequate. The basic rule that marriage made no difference to respective property rights of spouses, the total absence of any legal concept of “matrimonial property”, and the very limited judicial discretion to unscramble created palpable problems. A distinguished New Zealand judge, Woodhouse J, put it thus in Hofman v Hofman:12

During recent years there have been criticisms ... of anomalies which are said to have resulted from [the Married Women’s Property Act] legislation and the way in which it has been applied. The claim has been made that a wage-earning husband frequently has a valuable advantage in property disputes with his wife because the extent of the interest which each might have in the property in dispute has consistently been tested by the money contributions each may have been able to make in acquiring it. In the nature of things the wife’s contribution to the family welfare has usually had a domestic rather than a money importance ... The solid tug of money has been allowed to submerge any faint suggestion that other contributions should play a valuable part in the acquisition of family assets.

The clear inadequacies of the Married Women’s Property Act to provide just solutions for spouses (particularly wives) on separation and divorce led to the enactment of the Matrimonial Property Act 1963, the provisions of which came into force in 1965. It was linked with Part VIII of the Matrimonial Proceedings Act 1963, which conferred on the then Supreme Court after divorce certain powers in relation to the matrimonial home, spousal maintenance and (importantly today) ante-nuptial and post-nuptial settlements. The core of these latter powers of inquiry still remain in s 182 of the Family Proceedings Act 1980, into which recent life has been breathed by the Supreme Court in Clayton v Clayton.13 Importantly, an amendment was made inserting s 182(6) which allowed partners’ s 21 agreements to restrict a court’s power under s 182 (except in the area of the interests of children) to vary post-nuptial and ante-nuptial settlements. This linkage between s 21 and s 182 is crucial for lawyers advising relationship partners in the area of family trusts and s 21 agreements.

It is unnecessary to detail the provisions of the 1963 Act beyond broad outline. A court was required to consider contributions. Contributions was defined to include both monetary and non-monetary contributions by the spouse, thus freeing the fetters of the solid tug of money and permitting a weighing of those domestic and child-rearing efforts traditionally expected from a non-working wife. It was mandatory to consider contributions in relation to the matrimonial home. The court had a discretion to consider contributions in respect of other property.

Misconduct (this being an era when adultery and desertion were still grounds for divorce) was prohibited as a consideration factor when deciding the shares and interests of spouses in disputed property. Conduct could only be considered if it related to the acquisition, extent, or value of property.

Interestingly, the 1963 Act, by s 6(2), prohibited a court from exercising its powers “so as to defeat any common intention which [the court was] satisfied was expressed by the husband and the wife”. It is tempting to see this section as the precursor of s 21 of the PRA conferring the statutory right to contract out of the PRA’s regime. However, the jurisprudence under s 6(2) was essentially undeveloped and one detected a reluctance on the part of judges to have their discretion fettered. There were, for instance, decisions that settling a matrimonial home under the Joint Family Homes Act 1964 (a joint tenancy) was not the expression of a common intention which would lead to equal sharing of the home’s proceeds. The intention could only be applicable to the situation before the court.14

The overarching feature of the 1963 Act, which led eventually to its downfall, was the conferring of a broad and unfettered judicial discretion to resolve matrimonial disputes between married couples. Proponents of a discretion argued, and undoubtedly will still argue, that because a court is dealing with infinitely various situations (the personalities and relevant factual history of every relationship will differ), it is preferable not to confine such infinite variety inside inflexible rules but instead allow courts to bring about a “just” result specially tailored to the circumstances of the disputing parties. I well recall, when giving a lecture at Cambridge in 2003 to an audience of practitioners and judges who daily practised and adjudicated in family law arenas, there was little enthusiasm for our 1976 rules. The individual discretion was seen as preferable.

Opponents of the unfettered discretion, who carried the day forty years ago, point to the uncertainty of outcome. In the early 1970s some judges in the High Court required little persuasion to apply the principle of equal sharing to the matrimonial home, whereas with other judges one had to work very hard to rise above 25 per cent for a wife, despite similarities in such cases of the duration of the marriage and domestic responsibilities shouldered. It is really a nonsense to argue against the proposition that different judges will value the history of and contributions to relationships in different ways. The analogy with the length of the Chancellor’s foot has always appealed to me. Selden gibed that, as the keeper of the King’s conscience, the principles of equity would vary from Chancellor to Chancellor, as did his foot. Another ancient commentator, Coke, referred somewhat caustically to the power conferred by a judicial discretion “substitut[ing] the uncertain and crooked cord of discretion

See Walker v Walker [1966] NZLR 754 (SC) at 755, Morris v Miles [1967] NZLR 650 (SC); Wacher v Guardian Trust [1969] NZLR 283 (SC) at 287; and E v E [1971] NZLR 859 (CA).

for the golden and straight metwand of the law”.15

The Matrimonial Property Act 1963 held sway for just over a decade. For the policy reasons outlined in Margaret Wilson’s article,16 and in particular because of a perception that a broad and sometimes unpredictable judicial discretion was not always bringing just results when marriages split asunder, a new Matrimonial Property Act was born in 1976.17

I make no apology for my scamper through history. We need to view that history as a constant backdrop to our current legislation and to the interesting questions of whether reform is necessary and, if so, what it should be. Many historical planks remain unaltered. Highly relevant aspects of the history include:

(a) Marriage makes no difference to the property rights of husband and wife inter se. Equality between men and married women of property ownership was a significant advance for the status of married women.
(a) Equalising the status of women (wives) did not necessarily lead to just results when property rights were unscrambled.
(a) Men and women have an unfettered right to deal with their separate property (as opposed to jointly owned) whilst a relationship subsists.
(a) Equity provided, through trust mechanisms, the critical right for a spouse (particularly a woman) to hold an equitable interest in property for separate use and benefit regardless of marriage.
(a) There are problems of certainty and prediction with judicial discretions.
(a) Joint expressions of intention as to how property should be divided have been recognised by New Zealand law for over half a century.

This was the platform on which the Matrimonial Property Act 1976 built. The legislation forty years on enacts what is essentially a deferred matrimonial or relationship property regime. The regime applies to defined relationship property. The Act creates statutory rights which, from a property perspective, are inchoate. A fundamental purpose (seen still today in the PRA (s 1M(b))) was to recognise the equal contribution

15 Pettit v Pettit, above n 10, at 808, citing Edward Coke The Fourth Part

of the Institutes of the Laws of England: Concerning the Jurisdiction of Courts (M Flesher, London, 1644) at 41; John Selden and Richard Milward Table-Talk (London, 1689).

  1. Also presented at “A Colloquium on 40 Years of the PRA: Reflection and
    Reform” (Auckland, December 2016) and published in this edition of the Otago Law Review: Margaret Wilson “Policy and Law in the Development of Relationship Property Legislation in New Zealand” (2017) 15 OLR 89.
  2. The National Government elected in November 1975 took over a draft
    Bill which had been introduced by the Labour Minister of Justice, the Hon Dr Martyn Finlay, QC, but the Bill was expanded considerably under the auspices of National’s Minister of Justice, the Hon David Thomson, and a Statutes Revision Committee chaired by J K McLay, MP.

of both parties to a relationship.

The 1976 regime and its social context

The features of the Matrimonial Property Act 1976 are well known. The rights of parties under the Act were essentially inchoate. Marriage made no difference at all to the respective property rights of husband and wife. On the breakdown of the marriage, however, the court’s powers to make a variety of orders came into play. The Act created what was essentially a deferred community property system. The matrimonial home and certain chattels (the furniture, motor vehicles and boats being the main categories) were to be shared equally regardless of their origins and history. Other property acquired during the course of the marriage was to be shared equally unless one spouse proved a contribution to the marriage partnership clearly greater than the other spouse’s, in which case the relevant property was to be shared in proportion to the parties’ respective contributions to the marriage.18 Property acquired by a spouse before the marriage, and property flowing from distributions of estates and trusts were designated separate property, falling outside the sharing regime.

Of critical importance was the ability of the parties to a marriage to use the provisions of s 21 to contract out of the statutory regime. The underlying premise of the Act was that “core” items of matrimonial property should be shared equally. Section 21 provided what was seen as a legitimate escape route for marriage partners who, for whatever reason, did not regard the equal sharing regime as fair or appropriate for their particular circumstances. They had a statutory right to create their own regime. Over the years, as the s 21 jurisprudence developed, the statutory requirement for independent advice was rendered effective and meaningful.

Finally, the equal sharing regime was not instantaneous but, subject to the exercise of a judicial discretion either side of the line, would bite after three years.

My recollections from practising in the matrimonial property area during the 1970s and 1980s was that the Act’s regime rapidly became acceptable to most New Zealanders. Certainly there was a degree of spoken opposition during the early years, usually from middle-aged or elderly men from “traditional” marriages where they had been the sole breadwinner. The Act also moulded social expectations. This is not surprising given the nature of New Zealand society from the 1970s to the mid-1980s. It was a very different world. The economy was closely regulated by both National and Labour administrations. Thousands of married couples during the 1960s and 1970s had acquired without difficulty loans from the State Advances Corporation to buy sections and

18 Problems which need not concern us had arisen with the Court of Appeal’s

judgment E v E, above n 14, that contributions had to be to a particular asset rather than to the marriage.

build houses in developing suburbs on the outskirts of the major cities. Top tax rates were high. Houses were affordable. The labour market saw wage rates that made it relatively easy for full-time employees to earn a wage sufficient to support a dependent spouse and children. The age of a fertile woman’s first conception was in the early 20s. New Zealand’s population was predominantly Pakeha, with Māori and Pasifika being the next largest groups. Yes, there were wealthy families, wealthy people and wealthy suburbs, but the gap between top and bottom was not as great as it is today. The explosion of family trusts lay ahead. Trusts forty years ago tended to be the preserve of farming communities, the very rich, and complex estates. In such a society a modest matrimonial home, unremarkable chattels, perhaps two motor vehicles, sometimes a boat or caravan, and for some a modest beach or inland holiday home were the norm. Small wonder that for a matrimonial property pool of this type equal division seemed fair and was rarely disputed.

There were, of course, anomalies. There were a significant number of de facto couples who, for a variety of reasons, had never married. The regime did not apply to them. De facto wives were at a significant disadvantage and had to resort to the equitable tests and standards enunciated in Lankow v Rose.19 As the years marched on it became more acceptable for heterosexual couples to live together for significant periods of time in an unmarried state. Although not unknown in the 1970s, such arrangements carried the risk of a degree of social stigma. Gay couples similarly lay outside the scope of the Act. They too had to rely on Lankow v Rose type remedies.20

Margaret Wilson’s article21 details the background to the expansion of the Matrimonial Property Act’s scope. The PRA has been with us for 15 years. Its significant changes were:

(a) The Act reached beyond marriages to gather up de facto relationships.
(a) A number of statutory rules were provided to assist courts to fix the start point of a de facto relationship. Unlike an ascertainable marriage date, fixing the start of a de facto relationship22 would be problematic and lack pinpoint certainty.
(a) The threshold at which a court might be persuaded to set aside a s 21 agreement was raised. The more stringent tests, flowing from submissions of the NZLS Family Law Section, undoubtedly constrained judicial discretion.

19 Lankow v Rose [1994] NZCA 262; [1995] 1 NZLR 277 (CA).
20 In simple terms, a court might be persuaded to find a constructive trust

over an asset where the claimant had made direct or indirect contributions to the property; had an expectation of an interest in it; the expectation was a reasonable one (had not been expressly ruled out by the other party) and a defendant should reasonably expect to yield an interest to the claimant.
21 Wilson, above n 16.
22 Property (Relationships) Act 1976, s 2B(2) sets out factors to ascertain the

existence of a de facto relationship.

(d) The allocation of relationship property not being the core assets (the home and chattels) has now driven a presumed equality with a very high onus resting on the party who disputed such equality.
(d) The regime was later extended to civil unions.
(d) Section 15 conferred a power on courts to alter what in most cases would be an equal division by awarding a sum from one party’s relationship property to redress any economic disparity on the part of the other party arising out of the division of functions within the parties’ relationship.
(d) The provisions of the Act could be deployed for succession purposes, at the option of a surviving partner after death, to a greater extent than was previously possible.

These changes, which were enacted by Parliament in mid-2001, represent a significant change to the provisions of the Matrimonial Property Act 1976. Interestingly, the contracting out provisions came into force immediately, whilst the other substantive changes to the statute remained dormant until 1 February 2002. Anecdotally, a significant number of couples living in de facto relationships (some doubtless to avoid the equal sharing regime which applied to married couples) entered into s 21 agreements. In some cases, de facto relationships were terminated by one party on or before 1 February 2002.

What is significant about the 2001 amendments, as is readily apparent from Margaret Wilson’s article, is that a statute which was originally intended to produce predictable but just results when a marriage failed had been extended to all adult cohabitation relationships; added another dimension to New Zealand’s succession law which hitherto had been dominated by remedies under the Family Protection Act 1955 and the Law Reform (Testamentary Promises) Act 1949 and provided, by s 15, a mechanism to vary the equal sharing regime to redress a perceived gender or societal inequality.

Society forty years on

I am not a sociologist. It is trite to observe that we all live at a time of rapid social change. The society in which today’s middle-aged and elderly lived when children is a distant memory. However, one does not need to be a sociologist to record significant differences, highly relevant to relationship property, between New Zealand society as it existed between 1968–1975 and society today.

New Zealand is no longer a society in which established Christian religions hold much sway. Such concepts as marriage as a sacrament and “living in sin” seem quaint and have little appeal. Marriage is still a popular institution. But it is frequently preceded by a lengthy period of cohabitation. Serial monogamists are not ostracised. For many New Zealanders a first child does not arrive until the parents are in their late 20s or early 30s, compared with the late teens and early 20s forty years ago. Thousands of women deliberately delay child bearing

until their mid or sometimes late 30s, with many having to resort to new birth technologies. The neo-liberal policies of governments in the 1980s and 1990s have reduced significantly employment opportunities for the unskilled. An average wage is not necessarily sufficient to support comfortably a non-earning partner and children. The State Advances Corporation no longer exists. Urban property prices have soared. The percentage of owner occupied houses has decreased. More people live in rented accommodation. The number of family trusts in existence has increased. The abolition of both estate and gift duty has opened the door to people making unlimited gifts to family members or to trusts without any adverse financial consequences. The number of recent immigrants living permanently in New Zealand from East Asia and South Asia exceeds the Pasifika population. There are greater extremes of wealth. Separation and dissolution carry little, if any, social stigma. Repartnering and blended families are widespread. The traditional role demarcation between husband and wife has become blurred. Certainly patriarchies still exist (deeply entrenched in some immigrant communities) and working women are stressed by juggling and balancing their maternal and employment roles, but partnerships in which both parents work and preschool children are entrusted to crèches are common.

The dominant social picture in 1960s–1970s New Zealand of the married couple where the father was the breadwinner living happily in a suburban home with two children, having married in their early 20s, is no longer the norm. Indeed, there are probably no norms anymore. So, forty years down the road, is the PRA still a satisfactory vehicle for resolving property disputes between separating couples?

Analysis

I make no apology for the broad historical narrative which I have given early in this article. The PRA is in the current stage of a process of reform.23 Section 1M(a) unequivocally states that the Act’s purpose is to reform the law relating to the property of partners. Reform was also the purpose of predecessor statutes. The Matrimonial Property Act 1976 addressed difficulties of judicial discretion, prescribed mandatory equal division of core property, and was based on the assumption that marriages were partnerships to which contributions, both monetary and domestic, were of equal value. The Matrimonial Property Act 1963 was designed to redress the difficulties of allocating property fairly between the parties of failed marriages – a task to which the Married Woman’s Property Act 1884 was unsuited. At the start of the road was the Married Woman’s Property legislation which removed the common

The Minister of Justice has referred the Property (Relationships) Act 1976 to the New Zealand Law Commission for review. See Amy Adams (Minister of Justice), “New Law Commission Projects Announced” (press release, 30 November 2015) and New Zealand Law Commission “Review of the Property (Relationships) Act 1976” <www.lawcom.govt.nz>.

law restrictions on women to own property in their own right and which buttressed the independent and equal legal status of women.

At the centre of my article is my belief that the 2001 amendments, enacted as a laudable desire to continue the reform process, have made what was otherwise a well delineated highway somewhat slippery. New Zealand society, particularly in the area of family units, is markedly different from the society which existed four decades ago. Furthermore, relationship property law has become more problematic because of the plethora of family trusts, some of which have been drafted in terms which would have been unthinkable half a century ago. As I comment in a later section of this article, I think appellate courts have been beguiled to take their eyes off what are the core features of trusts and have looked instead to advancing remedies to bring justice to the weaker party in the relationship where the stronger party has clearly structured or manipulated a trust to his partisan advantage.

A partnership

The s 1M(b) purposes of a marriage being a partnership to which both spouses would make equal contributions and for an equal division of relationship property being a “just division” (s 1M(c)) would have been unremarkable as a societal norm during the 1970s and 1980s. A couple who had both pulled their weight, bought a home, raised their children in it, acquired motor vehicles and chattels, contributed to life policies or superannuation schemes, and perhaps acquired a holiday home would indeed expect equal division when their relationship ceased. They were unlikely to have come away with a strong sense of injustice. But are those assumptions of equal contribution and a just result necessarily applicable to the second or third relationship of a partner; or to a couple where both agree they do not want children, both having their own careers, but living in a home which one acquired before the relationship? Or to a couple who live together for 10 years, each with separate employment, enjoying each other’s company in a rented apartment, travelling frequently and keeping their investments (which may include KiwiSaver and investment properties) separate? The cock and the hen24 have spent 10 years feathering separate nests of perhaps unequal size. Is an equal division then a just result? Is it a just result to divide an asset built up during the course of a relationship (other than the “core” assets of home and chattels) where the financial contributions of one partner have been non-existent and the asset would have been built up regardless of whether the acquiring partner was in a relationship or not? As a hypothetical example, ponder the position of a female judge who lives for eight years with an artist or a musician. What contribution has that partner made to the judge’s superannuation?

24 To Lord Simon is attributed the analogy that the reason a cock could

feather the nest was because he did not have to sit on it: Petitt v Petitt, above n 10, at 811.

The 2001 amendment moved away from a judicial discretion to order unequal sharing of such non-core assets to the very strict regime imposed by s 13(1), where unequal sharing can be considered only where there are extraordinary circumstances making equal sharing repugnant to justice.

Undoubtedly there are many relationships in New Zealand which, as a matter of fact, are partnerships to which both parties make equal contributions (both emotional, monetary and domestic). But the s 1M assumption of equal contributions, which has shaped the substantive provisions of the PRA, may be invalid for the growing diversity of relationships which were not on the radar of family lawyers and politicians twenty or thirty years ago, and certainly lay outside the scope of the Matrimonial Property Act 1976.

Economic disparity

The purpose of s 15 was clearly stated in subs (1). The provision is designed to ameliorate the position of a spouse of a failed relationship where the division of functions within the relationship resulted in one spouse having a significantly higher income and living standard. The section imposed clear jurisdictional guidelines, which were discussed in de Malmanche v de Malmanche,25 a High Court decision which has not been significantly modified or reversed by appellate courts. But the purpose of s 15, reflected in the s 1N(c) principle, is clearly at odds with the notion of a relationship being a partnership of equals, the fruits of which would be equally shared. Any relief granted under s 15 will be in the form of a monetary payment from the relationship property of the economically advantaged partner. One senior but somewhat cynical member of the Auckland Bar described s 15 as being about economic disparity for the very rich. In practice, although many s 15 claims were brought, most were settled. The few which went to trial usually involved large relationship property pools.26 Uncertainty with more modest pools over how the judicial discretion would be exercised to arrive at “just” compensatory payment doubtless assisted settlements.

My current view is that s 15 is an unwelcome distraction in the relationship property area and that disparities of income and standards of living are better addressed by lump sum and periodic maintenance awards. It may be a laudable policy goal to redress gender economic disparity linked to the division of functions in a relationship. Whether the PRA is the correct vehicle for such an objective is problematic. There is much scope for philosophical and judicial disagreement.27 Do people still enter into partnerships “for better or for worse”? Would the

25 de Malmanche v de Malmanche [2002] 2 NZLR 838 (HC).
26 For example, M v B [2006] NZCA 535; [2006] 3 NZLR 660 (CA); X v X [Economic disparity]

[2009] NZCA 399, [2010] 1 NZLR 601; and Jack v Jack [2014] NZHC 1495.

  1. See Susannah Shaw “Disparity in Jack v Jack: Judicial Overreach or a Just
    Result at Long Last?” (2014) 45 VUWLR 535. The article is an excellent review of s 15 decisions but the writer’s preferences are signalled in the title.

partner of a legal, accounting, or medical practice who chose the benefits of a firm be entitled, on partnership dissolution, to a compensatory payment because he or she might undoubtedly have earned much more as a takeover expert, a taxation consultant, or an orthopaedic surgeon? Is there an expectation that the party who sat on rather than feathered a nest should fly away with two-thirds of it when the breeding season ends? Why should the goal of compensating for function-based economic disparity be limited to those New Zealanders who have had the benefits of training or high incomes or accumulated wealth? Is there not an artificiality about the complex actuarial exercises used to calculate a s 15 award, which can only guess at the contingencies. Section 15 is at odds with the core purposes of the PRA. I hope the Law Commission conducts a pragmatic rethink.

Discretions

Although, as discussed earlier, the deferred community property regime introduced in 1976 (and extended in 2001) was designed to replace a broad and sometimes unpredictable judicial discretion, a resurrected discretion is operating more frequently in post-2001 judgments. Discretion reigns when a judge weighs the various s 2D(2) factors in determining whether there is a de facto relationship; a discretion is indisputably present when, during the course of a s 2D exercise, a judge has to nominate a start date or duration of the relationship. There is inevitably a discretion in marriages and civil unions of short duration (ss 14 and 14AA) where relationship property must be shared in accordance with each spousal partner’s contribution to a marriage or civil union. Critically, it is there in s 13 when assessing whether there are extraordinary circumstances which make equal sharing repugnant to justice, which, although unarguably a high threshold, will have considerable relevance for parties of serial relationships and assets to which s 11(1)(c) – other relationship property – applies. A discretion is there to assist judges who are philosophically dubious about the statutory right to contract out. Regardless of judicial philosophy, “serious injustice”, which s 21J stipulates as triggering the power to set aside a s 21 agreement, is a threshold which will vary from judge to judge and which, although fact-specific, is replete with uncertainty. There is a discretion when assessing a s 15 compensatory payment to address economic disparity. As discussed in another section, the discretion is a potent force when equitable principles come into play in the area of family trusts. Finally, there is, quite properly, room for the exercise of a judicial discretion found in the s 1M(c) purpose for “a just division” of relationship property.

Most judges, when exercising a discretion, will give anxious consideration to whether a finding or order will be fair or just. But on the margins, the Chancellor’s foot factor will be decisive and unpredictable.

Where to go?

I do not pretend that my analysis is a comprehensive catalogue of problems and difficulties flowing from the PRA. Throughout my

28 years of practice I was uneasy in situations where a discretion ruled supreme and an outcome was uncertain. But, because relationships and partners are infinitely variable, a just and civilised regime for resolving relationship property disputes must have flexibility on the margins. A judicial discretion is a sensible escape valve, provided the legislation tightly controls and limits its range.

The Matrimonial Property Act 1976 introduced an admirable regime. For “traditional” marriages or civil unions where a couple have cooperated as partners, acquired those core assets of a home and family chattels, and probably produced children, then a mandatory equal sharing regime is appropriate and, importantly, is regarded as fair by New Zealanders. In situations where one spouse or partner already owned the home or significant family chattels in respect of which equal sharing was regarded as inappropriate or unfair, then the statutory s 21 right to contract out is an adequate safety valve.

However, the 2001 amendments have, in my view, made a number of qualitative changes, not all of which sit easily with the lofty purpose (s 1M(b)) of couples making equal contributions to a partnership. That assumption is flawed in situations where partners are happily cohabitating – sometimes for years – but for various reasons want to continue to feather their own nests and not commit to each other for life or to having children. It is clearly flawed with the middle-aged and elderly with disparate assets surviving previous relationships. It is probably flawed with blended families where parenting responsibilities are often the lot of three or four individuals rather than two. And there is an uneasy illogicality in the assumption that the gifted partner or the workaholic or the fortunate who has built up a large pool of non-core assets (s 11(c)) owe that success solely or even largely to the function activities and support of the other partner.

It is timely that the Law Commission is looking at the entire scope of the PRA. For what they are worth, my suggestions are:

(a) The s 21 right to contract out should be retained and should be the subject of much wider education and publicity.
(a) The s 15 economic disparity provision should be repealed.
(a) The original 1976 provisions of relationship property other than the home and family chattels being divided in accordance with the contribution of each party to the relationship should be restored where a clearly greater contribution was established, thus taking such assets outside the mandatory equal sharing s 11 regime.
(a) The PRA should unquestionably apply to marriages and civil unions but there should be a separate statute to cover de facto relationships. A De Facto Relationships Act could well have parallel provisions governing the property of de facto couples who have produced children but apply a much lighter discretionary regime to childless couples.

Trusts

Much has been written on the interface between family trusts and the PRA. I have no intention of trying to synthesise those commentaries. Nor have I anything particularly original to add.

Trust mechanisms have, since 1976, proved to be a popular way of ensuring that assets which would otherwise be relationship property fall outside the pool to be equally divided should the relationship fail. This is unsurprising. Survivors of a failed relationship who have shared equally in the core assets are not attracted to the proposition that, should they repartner, failure of a second or subsequent relationship would automatically mean a further depletion of assets by 50 per cent. If one considers (hypothetically) the situation of a person who owns or builds up a comfortable matrimonial property pool and who, over the next forty years, suffers four relationship failures, then he or she might be left with a mere 6.25 per cent of the original pool. Quite apart from an individual’s desire and motivation to preserve his or her assets from further risks of equal division, there are parents who, having lent or gifted capital to assist their children, want to ensure that such capital is preserved for the benefit of their descendants, rather than siphoned off to a short-term partner or stranger to the family.

Until recently in New Zealand, the principles of trust property were clear. Yes, trustees were the legal owners of the property but that ownership was clearly subject to the equitable obligation to hold the property, not for the trustee’s benefit, but for the benefit of the beneficiaries. In the same way that a shareholder is a different entity from a company, so too the property of a trust was totally different from the trustee’s own property. The waters have become muddied, however, by a number of factors over the last twenty years. First, there has been an explosion in the number of trusts. Many trustees have scant regard for their equitable obligations and regard the trust as being in reality their alter ego (even though New Zealand courts have been reluctant to define particular trusts as being alter ego trusts or illusory).28 I once encountered a trust where the trustee was perfectly happy to allow her mother to spend trust cash on groceries and other items so that the mother could accumulate airpoints.29 Secondly, there has been a perception that it is unfair (usually to female partners) for a trust to restrict what would otherwise be a clear claim under the PRA because the trust owns assets which, but for the trust, would normally be part of the relationship property pool. Thirdly, there have been cases where one partner has transferred relationship property to a trust without the consent, or even the knowledge of, the other partner. Finally, there have been cases where, on the facts, trusts have been deliberately formed at a stage during the life of a relationship when there was a perception

28 Official Assignee v Wilson [2007] NZCA 122, [2008] 3 NZLR 45; and

generally the discussion in Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.
29 Spence v Lynch [2013] NZHC 1478 at [81].

choppy waters lay ahead. The integrity of trusts has not been assisted by extraordinary drafting in terms of which a relationship partner has very broad powers of appointment, power to add or delete beneficiaries, and/or an unrestricted power to distribute the entire corpus of the trust to himself.

There is, I believe, a significant risk that decisions at the difficult interface of trust law and the PRA might damage irrevocably trusts as a valuable legal tool. Trusts, like the limited liability company, can be a legitimate form of creditor protection. They can be used to preserve family wealth through several generations. They can be used to provide continuity for agricultural enterprises. Over periods of years they can increase significantly a nation’s or a region’s GDP. Charitable trusts are an undoubted source of philanthropy and community benefit. But at the point that the walls which equity has built around trusts are breached in the name of “fairness” to a partner, there is a considerable risk that the waters flowing through the breach will inundate trusts other than the single trust a court is contemplating.

There is an irony in this, given that the development of trusts in the 16th and 17th centuries was caused by the desire of families to preserve capital for the benefit of their daughters and children from the depredations of profligate husbands. Today it is largely counsel for women who are in the vanguard of trust busters.

Family trusts have been the subject of judicial attack on two fronts. In that regard, 2016 has been a busy year. First, the Court of Appeal has sanctioned a return to the pre-2001 Lankow v Rose30 approach. A constructive trust in favour of a partner will, if the Lankow v Rose tests are satisfied, be imposed on property owned by a family trust.31

The second front was opened by the Supreme Court’s breathing fresh life into Clayton v Clayton [Claymark Trust].32

Anecdotally, I gather some lawyers who were members of Parliament’s Statutes Revision Committee in 1976, which drafted the Matrimonial Property Bill in its final form, are bemused at what they saw as a very clear demarcation between matrimonial property and separate property, with interests under trusts clearly falling into the latter category, has been eroded. But perhaps this development is unsurprising, given not only a proliferation of discretionary family trusts but in particular the somewhat lax way in which New Zealanders have administered those trusts. Far too frequently there has been an alpha male trustee who has treated a family trust as being in large measure an extension of himself. Delivering the Court of Appeal’s judgment in Vervoort v Forrest33 Asher J carefully reviewed various High Court authorities over the previous 15

30 Lankow v Rose, above n 19. See discussion above.
31 Vervoort v Forrest [2016] NZCA 375, [2016] 3 NZLR 807; and Murrell v

Hamilton [2014] NZCA 377, (2014) 3 NZTR 24-012.
32 Clayton v Clayton [Claymark Trust], above n 13.
33 Vervoort v Forrest, above n 31.

years which had struck down such alpha male controlled trusts using the now forbidden terminology of “sham”, “illusory”, or “alter ego”. Asher J acknowledged the traditional trust principles of unanimity and non-delegation, but said such principles “must bend to the practical realities when one trustee is in absolute control of all trust activities and the other trustees have effectively abdicated their trustee responsibilities”.34 The Court of Appeal saw previous High Court cases as being “the application of established Lankow v Rose principles to [the reality of discretionary family trusts of this type]”.35

Asher J continued:36

In a case like this, where one relationship partner is in control of the trust, under the present state of New Zealand law there is a valid trust. However, that controlling partner cannot avoid equitable constructive trust obligations by relying on the prohibition on delegation and the lack of consent from the other trustee whom that controlling partner has deliberately isolated from trustee functions. To allow that would be to allow a trust principle to operate as a weapon for inequity.

The resounding conclusion justifying the imposition of a constructive trust on trust property appears in Vervoort:37

It is acknowledging the reality of the New Zealand trust landscape as it has developed that has justified the recognition of the constructive trust beneficiary’s claim. It is a further reality of that landscape that the trustees of family discretionary trusts are more often than not the beneficiaries of those trusts and in control of them ... The effect is that the reality of the trustee’s ability to give a third party expectations (in return for that third party’s contributions) over trust property, which that trustee deals with as if their own must be recognised. ... Beneficiaries cannot expect trustees to retain for them an unearned benefit, extracted by expectations engendered by the trustees. The express trust beneficiaries should reasonably expect to yield the third parties an interest.

Trust and Equity purists and academics might rightly be sceptical about this approach. However, lax administration of family trusts and failure to adopt standard trustee procedures have muddied the waters and are seen as “the reality” of the New Zealand trust landscape. Suffice to say that Vervoort was, a few weeks later, approved and applied by a Court of Appeal bench of permanent members in Hawkes Bay Trustee Company Limited v Judd.38 Lankow v Rose principles in that case were satisfied. The husband had settled a residential property on a family trust before he met and married the wife. The wife had contributed $50,000 to assist with renovations, although that sum had subsequently been reimbursed. Her domestic contributions were to maintaining the garden and running

34 At [62].
35 At [64]
36 At [64].
37 At [70]
38 Hawkes
26-019.
(footnote omitted).
(footnote omitted).
Bay Trustee Company Ltd v Judd [2016] NZCA 397, (2016) 4 NZTR

the household. The couple were childless. Somehow, over the 6.5 years of the marriage, the property had declined in value. The husband’s co-trustee had given him carte blanche to do as he wished. The Court was satisfied the trustees owned and operated the property for the husband’s primary benefit.39 The Court of Appeal noted that it was at all times open to the trustees to take steps to preserve the property from a Lankow v Rose type claim and that the husband could have entered into a s 21 agreement with his wife.40

I shall not analyse Clayton v Clayton [Claymark Trust]. Suffice to say that, quite apart from its binding force, the judgment delivered by Glazebrook J is unassailable in pointing to a requirement for a connection or proximity between the settlement of a trust and a marriage.41 Mr Clayton’s s 21 agreement had been set aside by the Family Court with the result that s 182(6) of the Family Proceedings Act 1980 was of no assistance.

The two Supreme Court decisions in Clayton raise a raft of unresolved issues. Is it appropriate or fair that s 182 of the Family Proceedings Act 1980 applies to settlements on parties to marriages and civil unions but not parties to a de facto relationship? At one level an argument can be mounted that it is unfair. But the question is only prompted by the policy decision made in 2001 to bolt on de facto relationships to a statute which hitherto had covered marriages. Is the rump of a 19th century statutory provision, which had the purpose of making adjustments to trusts settled on married couples and children in the relatively rare event of divorce, still appropriate for New Zealand society in the 21st century? How is one sensibly to value a power of appointment? And what about the sheer diversity of trusts? Some trusts may stipulate spouses as beneficiaries. Other trusts will strictly exclude them. Some trusts will describe beneficiaries by name, others by category or status alone. In some trusts family members will have vested interests, yet in other trusts discretionary interests. Some trustees will abdicate or delegate their responsibilities. Others will not. A few trusts might include de facto partners as beneficiaries but most will not. The corpus of some trusts may have accumulated over decades. The corpus of others may have been augmented recently by transfers of relationship property. Some trusts may be debtors under deeds of acknowledgement of debt. Other trusts, operating since the abolition of gift duty, will be free from such encumbrances. The field is vast. Relevant considerations will be myriad. And what will result will be uncertainty and certainly unintended consequences.

I regard uncertainty as a curse in family law. There have been a number of counsel who, in the wake of the Clayton decisions, have rubbed their hands with unholy glee, looking forward to protracted litigation over the PRA and trust interface. My view has always been that the best

39 At [45]–[46].
40 At [48].
41 Clayton v Clayton [Claymark Trust], above n 13, at [34] and [39].

family lawyers are those who, armed with all the facts, fearlessly pursue a settlement which is reasonably close to the result of any litigation. Litigation is expensive. The anxiety or bitterness of parties who have separated can only be aggravated by litigation. Some cases have to be litigated. But my point is that the huge uncertainty which now exists with trusts inevitably leads to uncertainty and impedes settlements.

It is heartening that the Law Commission is investigating this area. The rub will be what recommendations the Commission makes. My own thoughts are:

(a) That any transfer by a partner to a trust of relationship property during the course of the relationship should be void, unless the other partner, independently advised, consents to such transfer. (Not all transfers of relationship property to trusts are heinous. Many such transfers are for legitimate estate planning purposes.)
(a) Any party to a s 21 agreement must disclose to the other party full details of any trusts for which he or she is a trustee or beneficiary.
(a) The scope of s 21 agreements should expressly extend (despite s 182(6)) to statements about expectations or entitlements to trust property.
(a) Section 182 of the Family Proceedings Act 1980 should be repealed. Although the predecessor provisions which used to sit in Part VIII of the Matrimonial Proceedings Act 1963 were carried forward in 1980, the reality is by the mid 20th century very few New Zealand families settled trust property on the next generation of husbands and wives. Commendable though it might be for the courts to breathe life into s 182 for contemporary purposes, the original purpose of the section has become distorted.
(a) In cases where a relationship has produced children and where there is a trust which has been used to support relationship paners, but the partners do not personally own a home, there shortuld be some appropriate jurisdiction to compensate for the absence of an interest in the home (such as that contemplated by s 11B), with the court having a limited power in appropriate cases to order such compensatory payment from the corpus of any family trust in which a partner has an interest.

Conclusion

We live in a society where the law has long recognised individual property rights. It is centuries too late to move to some community property regime. Many New Zealand relationships (particularly marriages) are sustained by love, affection, children, commitment, and sharing. For relationships of that type the deferred community regime introduced by the Matrimonial Property Act 1976 is fair, reflects reality, and has received widespread acceptance. Those 1976 assumptions do not always apply to de facto relationships and subsequent relationships, particularly when there are no children and/or contributions to relationship property are

demonstrably unequal. The happy norm of equal contributions to a relationship has a powerful resonance. But the norm does not necessarily apply to all partnerships, as the PRA now defines them. It is imperative for historical and practical reasons to preserve and publicise the s 21 right to contract out. Steps must be taken to preserve the integrity of trusts, with a view to the only permissible “trust busting” being of those trusts which are set up to defeat a partner’s rights or to which relationship property has been transferred without consent. The rules of a relationship property regime should insist on disclosure, provide as far as possible certainty and predictability, and discourage corrosive litigation.


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