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S2107

Section 21 Agreements - a growth industry

NZ $40.00
incl GST
Geoff Harrison Jacinda Rennie
Geoff Harrison
Barrister
Auckland
Jacinda Rennie
Wellington Family Law
Wellington

Published: 17 July, 2007
Pages: 100

Introduction

On 1 February 2002 a number of changes, most of which are well known to family practitioners, came into effect. The three most significant changes were to:

  • Widen coverage under the property sharing regime, previously the Matrimonial Property Act 1976, to include de facto couples (and, more recently, couples who have entered into a “civil union”);
  • Provide for unequal sharing of relationship property, under the Property (Relationships) Act 1976 (“PRA”), on the grounds of “economic disparity”;
  • Bring in a new setting aside regime for challenging s 21 agreements, raising the thresholds from “injustice” to “serious injustice”, coupled with an additional specific factor for the court to consider, ahead of considering the question of “serious injustice”, namely the parties deemed wish to achieve “certainty as to the ownership, status and division of relationship property”.

These changes to the s 21 regime, coupled with developments in case law ahead of 1 February 2002 , and as a result of cases decided under the new regime since then – notably Harrison C v S and, more recently, Wells , now mean that the responsibility on practitioners to “get it right” have become more acute. In the result, this now requires lawyers practising in the field to act in a more focused way when assisting clients – and often their clients are, whether dealing with “pre nuptial” agreements – and certainly more often in a post separation situation, people who are distrustful of their former partners and, in a broader sense, distrustful of the process itself. In addition, for many spouses or partners, it is the first time they have ever had to engage in the difficult, sometime expensive and often time consuming process of negotiating a property settlement.

What these recent changes have brought about is a new level of responsibility on practitioners' shoulders – and other changes and social developments have also occurred in the last few years, including:

  • A number of clients who have substantial assets overseas, either as a result of being immigrants to New Zealand, or as a result of investing overseas, such as an apartment on the Gold Coast or investments in offshore securities; and
  • The increasing number of cases where assets that would ordinarily, in previous times, been beneficially owned by the parties themselves, are now owned under the umbrella of a family trust or trusts.

These developments provide additional challenges to practitioners in the field, coupled with the fact that s 21 agreements are often utilised, for tax purposes, as part of transferring assets into family trusts as part of an estate planning or asset protection exercise, being conducted in the course of an otherwise happy and stable marriage or de facto relationship.

The best summary of the new setting aside environment, is that outlined by the High Court in Wells – which drew guidance from other cases – as follows:

(a) serious injustice is a broad discretion which must be exercised in light of the policy underlying the legislation;
(b) an important component of the statutory scheme is the capacity of parties to contract out of its provisions so long as certain procedural requirements are met;
resultant disparity of outcome at the time of separation is relevant, (c) but is not generally as important a factor in contracting out cases as it might be in compromise cases. In any particular case it might of course require considerable weight, but generally it is not to be seen as a determinative or necessarily dominant consideration;
(d) consistent with (c), a comparison to the outcomes that would be ordered if the Act were applied is relevant but not as significant as it might be in compromise cases;
(e) contracting out will usually occur in circumstances where one party has the assets and is pushing for an agreement. The circumstances will often involve pressure, and may involve an issue of whether the relationship will continue in the absence of an agreement. Accordingly, the presence of such circumstances is not generally relevant to the issue of serious injustice;
(f) more than disparity of outcome per se will often be present before serious injustice arises. Concerns with the procedure will often provide that extra factor;

In light of all of these changes, the aims of this seminar are to:

  • Assist practitioners in being part of a signing and certification process that is, for want of a better expression, “worthy” of certification; and
  • Ensure that you can discharge your responsibilities to your client in a professional and competent manner.

There is one other important point to note, and that is that a lawyer's signed certificate that he or she has explained to their client “the effects and implications of the agreement” is not limited to certifying that explanation of every clause in the agreement has been explained to a client – and what the certification process records, in its broader sense, is that:

  • You have made adequate enquiry to the extent of value of relationship property (or in the case of a pre nuptial what could have been considered as relationship property);
  • The agreement has emerged following the enquiry referred to above;
  • Your client's entitlements, in the case of a settlement agreement, are adequately recognised in the provisions of the agreement, and
  • The agreement has been signed, witnessed and certified against a background of proper disclosure, informed consent and, so far as is possible, without the client being unfairly pressured to sign the agreement, over the relevant negotiation period.

In short, you are certifying that this whole process has been conducted fairly and appropriately – and do not, as part of this process, advise your client that they can, if they later have a “change of heart”, then apply to the Family Court to have the agreement reviewed because, while such advice was commonly given prior to 1 February 2002, given the statutory and case law developments already referred to, such advice would be negligent, given that the new thresholds mean that the Courts are no longer a “soft touch” when it comes to challenging agreements, whether they be pre nuptial agreements or settlement agreements.

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