Wife wins in court’s property shock

4:00AM Sunday Jul 19, 2009

A landmark Supreme Court judgment has opened the way for wives to take a share of their husbands’ property – even though they owned it before the marriage.

A prominent Auckland family law barrister has described the decision as “shocking”, saying the woman has won a huge payout as a result of her performance of domestic chores during the 24-year marriage.

The court says the woman is entitled to almost half of the increased value of the couple’s farm, even though her ex-husband inherited it before their marriage. The long-running dispute case – heard before four different courts – is expected to open the floodgates on a series of similar disputes.

The Supreme Court has agreed with the Court of Appeal the woman is entitled to a 40 per cent share of the increased value of her husband’s farm, even though he owned it before their marriage in 1979.

They separated in 2003. The woman argued that as the homemaker, her duties helped her husband focus on developing the farm and, later, a vineyard on the land. At stake were two properties – the second was inherited by the husband in 1995, during the marriage. The wife won at Family Court level, but lost in the High Court.

For round three, the Court of Appeal said the wife was entitled to almost $560,000 for both properties. Both parties appealed to the Supreme Court – the husband said his wife was not entitled to any of that money; she said she was entitled to more.

“The argument for the wife was that her actions since marriage had freed up the husband to undertake work solely for the benefit of his separate property and that she had prevented the debt from reaching an unsustainable level,” the Supreme Court said. “In addition to looking after the children and managing the household, she had earned over $300,000 from outside employment, all of which she had contributed to the household.”

The wife asserted had it not been for her actions the farm would have been sold to ease debt, and neither party would have seen the “spectacular increase” in the value of the property. Barrister Anthony Grant has described the case as involving “the annihilation by stealth of separate property”.

He says the case is “shocking” and “a stunner”, not necessarily because it was wrongly decided, but because people had not been aware that “indirect contributions” involving something as ordinary as household chores could convert a spouse’s separate property into relationship property.

“In a typical marriage where, say, the husband has separate property from an inheritance or a prior relationship he is now liable to lose it if his wife can say that her doing the housework helped him to increase the value of the property. While he was at his desk working on his separate property affairs and his wife was doing the dishes, sweeping the floor, feeding the kids, and so on – she was simultaneously taking the separate property!” He says the case will have a major impact on all cases involving separate property.

The farm was worth $301,200 when the couple married, and about $1.5 million in 2005. Some of that increase was related to the development of the farm as a vineyard. The Court of Appeal determined the relevant increase at stake was $747,800, of which the wife’s share was determined to be 40 per cent, or $299,120. She received a further $283,000 in relation to the other property.

The Supreme Court acknowledged that the “general purpose” of the Property (Relationships) Act provided for the sharing of property which either partner brought into or acquired during a relationship. “Property owned before the relationship is, prima facie, excluded from the sharing regime but can, in certain circumstances, become subject to it.” This included when values of that property increased during a relationship.

“The basic approach is that if the non-owning partner contributes to an increase in the value of the other partner’s separate property, that increase in value becomes relationship property and thus subject to the sharing rules.” The Supreme Court upheld the 60/40 split for the husband and wife on the first property’s value increase. “We are not, however, persuaded that the court erred in declining to treat the parties equally.”

The Supreme Court said it seemed the husband’s contributions to the increase in value of the land were greater than the wife’s, and the split should stay 60/40 in his favour. The bitter dispute featured some of New Zealand’s biggest legal names, including Anne Hinton, QC, acting for the wife, and Colin Carruthers, QC, for the husband.
Grant suggested three ways for spouses to avoid the loss of separate property:

A Section 21 agreement that specifies who owns what before the relationship and ensures indirect contributions don’t affect that arrangement. Vesting separate property in a trust at the outset.

Get a nanny or housekeeper do the housework. Lawyer Andrew Watkins told North & South magazine that the decision was “very significant”. “It will certainly put the owner of the land on the back foot. It’s sending a signal to husbands, or people who have separate assets, to sign an agreement first. That’s the first and best thing to do.”