THE SUPREME COURT AND THE ANNIHILATION BY STEALTH OF SEPARATE PROPERTY
The Supreme Court’s decision Rose v Rose is notable for a number of things and the case is the subject of a detailed article at pages ……… of this issue of NZ Lawyer. This note is confined to one aspect of the case: the way in which the performance of ordinary domestic chores may enable a spouse/partner to appropriate the other’s separate property.
When Mrs Ward married her husband he already owned his farm and it was his separate property.
Section 9A(2) of the PRA says that:
“If any increase in the value of separate property … [is] attributable … indirectly to actions of the other spouse, then – the increase in value [is] relationship property.”
Mrs Ward says that her actions in caring for children, cooking meals, and so forth, was an “indirect” contribution that freed her husband to develop his separate property. She also said that the income that she earned during the marriage ($300,000 before tax over a 10 year period) was additional assistance that freed her husband to develop his land as a vineyard.
The Supreme Court agreed and held that s 9A(2) required that Mrs Ward should receive 50% of the entire increase in value of the husband’s farm – even though most of the increase was attributable to inflation.
The Court acknowledged that Mrs Ward “did not undertake any farm work or play any role in the farming partnership”. It said that it was not necessary for her to have contributed “directly” to the increase in value of her husband’s separate property for her to be able to appropriate 50% of the increase in its value. It was sufficient if her contribution was “indirect” ie via the buying of groceries, the cooking of meals, and so forth.
So there you have it. Separate property can be taken by actions such as housekeeping. And even though work could have been undertaken by another for a modest cost, if it is done by a spouse/partner, he/she will be rewarded not by reference to the cost of the work together with interest, but also by reference to inflation. It is hard to conceive that Parliament intended such an outcome.
How can a spouse/partner avoid the loss of his/her separate property? Here are three answers.
1. Record in a s 21 Agreement that the property is the spouse’s/partner’s separate property and that no indirect contributions during the relationship will entitle the other to share in the value of the property – and hope that the Agreement will not be set aside in years to come when it is contended that the Agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (s 21J(4)(e) ).
2. For those who can afford to do so, employ a nanny/housekeeper to do the humdrum work in a relationship and free the other spouse/partner up to do whatever he/she wants to do.
3. Vest the property in a Trust that is worded to withstand future scrutiny so that inflationary gains at least, will not be appropriated by any “indirect contributions” of the other.