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Not So Extraordinary After All?

June 2019

Departing from Relationship Property “equal sharing rules”

Relationship property can be a contentious area of the law dealing with some of the most valuable assets we acquire over our lifetime. Think homes, your life-savings and retirement funds such as KiwiSaver. Our best advice is always to discuss potential relationship property issues with your partner or spouse from the outset and enter into a contracting out agreement under the Property (Relationships) Act 1976 (the Act”) to ensure your intentions are recorded accurately. 

 

The current legal position is that in all relationships of long-duration (three years or more) there is a presumption that all relationship property will be divided equallybetween the separating parties. There are some exceptions to this general rule, however they will only apply only if strict legislative requirements are met. If you find yourself in this situation, it is important to establish from the outset whether any of the exceptions to this general rule might be applicable. 

Unequal sharing

A departure from the usual equal sharing rule may be made under section 13 of the Act if: 

  • equal sharing of relationship property is repugnant to justice; or
  • there is economic disparity between the parties at the end of the relationship; or 
  • the value of one party’s separate property has been sustained, increased or even reduced by the other party. 

 

To be successful in a claim under section 13 the Court must consider: 

  • If extraordinary circumstances exist? 
  • If there are extraordinary circumstances, do they make equal sharing repugnant to justice? 
  • If so, the contributions of each party to the relationship must be assessed to determine how relationship property will be divided. 

A High Court Appeal

In K v R, Mr K appealed from the Family Court decision that section 13 applied resulting in an unequal division of relationship property, with his former partner Ms R, receiving 70% and him the remaining 30%. It was Mr K’s view that there was nothing extraordinary about his former relationship that justified a departure from the usual equal sharing rule. 

 

Mr K and Ms R were in a relationship for 5 years and 10 months. Six months prior, Ms R had purchased a home using funds from a prior relationship property settlement. The parties lived together in this house for over 5 years. The house was essentially the only relationship property asset from the relationship available for division. Upon separation the house was sold, leaving net proceeds of approximately $140,000.00 for division between the parties. 

 

The Court considered the combination of the below facts resulted in extraordinary circumstances and justified the eventual 70/30 split of the sale proceeds: 

  • Both parties were previously married and were middle-aged when this relationship began; 
  • They had no children together; 
  • That the parties were in a relationship for almost six years – approximately fifteen percent of their adult lives;
  • Ms R’s contribution to the relationship was the house which had substantial equity of approximately $150,000.00 in it and this represented her ‘life’s endeavours’; 
  • Ms R’s home and equity allowed the parties to jointly borrow money to purchase vehicles;
  • Mr K did not bring substantial assets to the relationship – only his 2009 Toyota, tools and some furniture – all assets that depreciate in value; 
  • The only relationship property acquired during the relationship were cars purchased using loans that were still owing at separation; 
  • Mr K had the benefit of living in the property essentially rent-free for the first 3 years; 
  • The parties borrowed money jointly using the house as security and they both contributed to the outgoings; 
  • Mr K’s income allowed the parties to jointly raise a mortgage to renovate the house. The contribution of his income allowed the parties to meet mortgage repayments, take (modest) holidays and support Ms R for approximately half of the relationship when she was not working; 
  • Mr K also contributed labour and efforts to the renovations. However, the increase in value of the property was not solely due to Mr K’s efforts, but also the result of the property market forces and Ms R’s contributions; 
  • Both parties made non-financial contributions to the relationship and the Judge placed equal value on their mutual love, friendship and companionship for each other.

 

All of the above factual findings were supported by evidence. When considered together the Family Court was of the view that it would be completely unfair (or repugnant to justice) for relationship property to be shared equally. The High Court shared this view and dismissed the appeal. In reaching its decision, the High Court referred to the Family Court Judge’s comments that “the test of whether extraordinary circumstances make equal sharing repugnant to justice was a stringently difficult test to overcome… however it was never designed to be an impossible one”.The High Court also endorsed the Family Court’s comments that whether extraordinary circumstances exist is a factual enquiry and whether they are repugnant to justice is a value judgment. 

Conclusions

The writer considers it is arguable that the facts in K v R are quite common place for couples in second or subsequent relationships and it is therefore understandable that Mr K appealed the Family Court’s decision. What is abundantly clear from this case that that there is a fine line between whether there are extraordinary circumstances or not justifying a departure from equal sharing. The result in this caseis welcome news for those who may find themselves in a similar situation to Ms R. However it does beg the question of what constitutes ‘extraordinary’ circumstances. While we cannot use a crystal-ball to predict what outcome the Court might arrive at, we recommend having a detailed discussion with us at an early stage to determine whether this exception (or any other) might be worthwhile pursuing.