Dialogue: Unfair disinheritance will result from act

The new property relationships law has major implications and complications for people making their wills, writes PATRICIA SCHNAUER*.

Worth more dead than alive? That could be true once the new Property Relationships Act comes into full effect from February 1.

The act radically changes how property is divided when people separate. So far, public understanding of the law has focused on married, de facto and same-sex couples all being treated alike if their relationship ends.

Normally, equal sharing of property follows after a couple has lived together for three years.

What has been largely ignored is that the act also makes major changes about what happens after a person has died. Potentially those changes will cause huge injustices.

Older people will have difficulty comprehending the far-reaching legal consequences that companionship and friendship in the later years of their lives may have on their children's inheritances. Signing a property-sharing agreement in order to protect their children's legitimate inheritance appears inevitable.

How has this happened?

Under our existing law, the property-sharing rules apply only if a couple is married and they are both alive when a claim is brought to divide property. If one spouse dies, the right to claim half the property by the other spouse ends. (There are complex ways to get around this but such claims are rarely pursued.)

From February 1, that changes. First, the new law extends the property-sharing rules to de facto and same-sex couples. Second, if one partner dies, the surviving partner has an automatic right to claim against the estate of their dead partner.

The social policy underlying this change is presumably that a surviving partner should not be worse off if their relationship has lasted three years and ends through death rather than as a result of separation.

While that sounds fine in theory, there are major fish-hooks in practice. First, the dead partner is not around to tell his or her side of the story, so any claim will reflect the views of the surviving claimant only.

The circumstances relevant when a surviving partner sues an estate are very different from those applying when estranged partners dispute a property division while both are alive. Yet under the act, the same rules apply.

The position is further complicated because it is still unclear what "living in a de facto relationship" means. The new act says it means "living as a couple". It sets out criteria the court will consider when deciding whether or not people are "living as a couple".

However, people enter into myriad relationships - boarders or elderly people living in the same house for companionship, for example. Often it is difficult to assess if people are living in a de facto relationship in terms of the act. Yet critical legal consequence follow if they are.

Take the elderly widow who invites a man, or for that matter a woman, to live with her in her home. They go out together socially and go on holiday together. She puts money in a bank account for housekeeping and gives him signing authority on that account. They have no sexual relationship.

Five years later, she dies. Under her will, her children inherit all her property.

The man brings a claim under the act, saying, "We were living in a de facto relationship. Therefore, I want half of the estate."

The claim will be difficult for the woman's family to disprove. Worse, the act inexplicably tilts the proceedings in favour of the claimant and against the beneficiaries in the will.

The difficulties facing the children defending such a claim will be much greater than separated couples trying to resolve a property dispute while both are alive. The act ignores this major difference.

Take another example, that of a husband and wife married for 35 years who have children. They make standard wills leaving everything to each other. The wills go on to say that the survivor leaves everything to their children. The wife dies. The husband inherits the whole combined property.

The husband then enters into a de facto relationship at some stage during the remainder of his life. That relationship lasts at least three years.

The husband makes a new will leaving his de facto partner a legacy and perhaps even a right to stay in the house for, say, three years. He then dies.

The de facto partner has a choice. She can either take what is given to her under the man's will or she can claim half his estate under the act.

If she takes the latter road, the man's children are disinherited by half of what they legitimately expected from their father's estate.

Overall the new law significantly complicates the making of wills. Property agreements contracting out of the provisions of the act will now frequently be required at the time wills are made.

The public has yet to understand the major changes the act has made to wills, and the huge potential for unexpected and unfair property consequences it has created.

* Patricia Schnauer is an Auckland barrister and solicitor.