by Oliver Allum
In November 2017, the New Zealand Law Commission released an Issues Paper on the division of relationship property. The Issues Paper asks whether the current rules in the Property (Relationships) Act 1976 (PRA) achieve a just division of relationship property.
While the review covers a broad spectrum of PRA issues, the Issues Paper specifically asks what should happen when people or property have a link to another country – either because the partners have ties with those countries or because they hold property overseas. This is becoming an increasingly common issue in New Zealand – and globally – due to increased international mobility, a rising number of international couples and the ease of owning property in other countries.
The Law Commission has identified that the current rules can lead to results that are inconsistent with the equal-sharing policy of the PRA, expensive, time-consuming, and contrary to the reasonable expectations of the parties.
Determining the applicable law
Section 7 of the PRA provides that the Act applies to all immovable property in New Zealand, and, if at the date of application one of the parties is domiciled in New Zealand, to all movable property wherever located. The Law Commission has identified a variety of issues with this approach:
- Domicile (the place that the person intends to make their permanent home) can be difficult to determine where a person has an ongoing connection with multiple countries;
- The exclusion of foreign immovable property can disadvantage one of the parties and/or increase the couple’s legal expenses. For example, if a couple owns immovable property in New Zealand and Scotland, a separate relationship property claim will have to be brought in both jurisdictions, which is costly. In addition, a New Zealand court is unable to order a larger share of the New Zealand property to be allocated to the disadvantaged party to compensate for the exclusion of the foreign property.
- Additionally, if at the time of separation, the couple had money in a bank account in Scotland in anticipation of buying foreign property, the money would be classed as movable property and therefore be within the relationship property pool. The distinction between movable and immovable property appears insignificant to the division of relationship property, yet can significantly impact the outcome of a claim.
- A foreign couple may not wish the PRA to apply to their immovable property in New Zealand (such as a holiday home). For example, the property consequences in a foreign country for de facto relationships may be different than the equal-split under New Zealand law. Applying the PRA to the New Zealand property may lead to consequences that were not reasonably expected by the foreign couple.
Agreements as to which law will apply
Section 7A of the PRA allows parties to expressly agree that New Zealand law will apply, or that the law of another country will apply. These agreements must be made before or at the time of marriage, civil union, or de facto relationship and must specify which law is to apply. As a result, agreements made after a relationship is entered into or that do not state which country’s law is to apply will not be upheld. For example:
- A French couple live together for 10 years before getting married in France, and at the time of marriage enter into an agreement stating that “the property acquired after marriage will be separate property”. They later permanently move to New Zealand. If the couple later separate in New Zealand, the agreement is unlikely to be upheld, and the New Zealand community of property regime will be applied to their immovable property in New Zealand, and all their movable property. This is for two reasons. First, the agreement was entered into after the de facto relationship had started, even though it was before marriage. Second, the agreement did not expressly state what law should apply.
This outcome does not reflect what the parties would have reasonable expected when they created the pre-nuptial agreement. There is no logical reason to set aside the agreement because it was made after the start of the de-facto relationship, but before marriage. There are no persuasive reasons for the PRA to require an agreement to be made at the start of a relationship. It is common for couples to live together in a de facto relationship for many years before marriage, and at the time of marriage to make formal property arrangements. It is also common for circumstances to change after marriage, such as a move overseas, which will make it desirable to specify which law is to apply to the couple’s relationship property.
Also, even though the agreement does not specify what law is to apply, there is an implication that the agreement is governed by French law, as it was entered into in France and complied with French law. The PRA currently provides no room to imply a choice of law into a pre-nuptial agreement, despite the reasonable expectations of the couple that their relationship property is governed by French law.
- Setting aside choice of law agreements: If a couple has a valid choice of law agreement specifying a foreign law to apply to their relationship property, the courts have the power to set aside that agreement if it is contrary to justice and public policy. This test is broad and provides little statutory guidance as to which factors are to be taken into account.
- Which court should hear cases where a foreign law is applied: The Family Court is unable to hear proceedings where the PRA does not apply. This can occur where a s 7A agreement requires the application of foreign law. Transfers of proceedings to the District Court or High Court can be costly in both time and money. The process can be improved to reduce inefficiencies.
- Enforcement: Any orders by New Zealand courts over immovable property inside a foreign country are unlikely to be enforced by the foreign country. To give effective relief, the range of remedies in the PRA should be increased, for example the ability to order personal obligations such a financial order against a partner. This allows New Zealand courts to enforce the order, such as through contempt of court.
Additional comments – the unilateral nature of s 7
An issue not expressly identified by the Commission is that the unilateral nature of s 7 may have undesirable consequences. In the absence of a choice of law agreement the PRA specifies when New Zealand law applies to the relationship property claim. The PRA provides no room for the courts to apply foreign law to the parties’ relationship property if the PRA does not apply, or there is no valid pre-nuptial agreement specifying a foreign law. Issues that can arise under this approach include:
- Where the parties and property are present (but not domiciled) in New Zealand, New Zealand is likely the most appropriate forum to hear the dispute. However, because of the wording of the PRA, the New Zealand courts will be unable to determine the dispute by reference to either New Zealand or foreign law, and the dispute will have to be heard overseas.
- The PRA may be triggered by one of the parties’ domicile in circumstances where a foreign law is more closely connected to the relationship. For example, a New Zealand domiciliary may have worked overseas, met and married their partner overseas, sought legal advice on the property consequences of marriage by reference to overseas law, and have bought property overseas. If the New Zealander retained domicile, and brought a claim in New Zealand, the PRA would apply to all of the couple’s movable property.
A better approach is to replace s 7 with a multilateral choice of law rule, that can point towards the application of either New Zealand or foreign law. This means that, where New Zealand is an appropriate forum to hear the dispute, the court can apply the law that is most closely connected to the relationship, rather than just New Zealand law. This respects the parties’ reasonably expectations and promotes predictability of the law. If every country adopts a multilateral approach, the same law should be applied to the parties’ relationship property regardless of where the claim is heard.
More information on the review is available at http://prareview.lawcom.govt.nz/.
The Law Commission is accepting submissions on the Issues Paper until 7 February 2018.