Most people think ‘pre nups’ are mostly used by young couples when getting ready to live together due to differences in their financial positions.
However, pre-nuptial agreements, known in New Zealand as contracting out agreements (COA), can and should be entered into, at any time during a relationship, by anyone, and at any age. A COA is particularly helpful for couples entering into marriage or de facto relationships later in life, as one or both parties are likely to come into the relationship with significant assets, existing families and complex financial structures.
Why have a COA?
Often one or both later in life partners have assets due to previous relationships. There may also be children, dependent and/or adult. There may be family trusts and/or company structures that make a person’s overall asset profile less straightforward from a relationship property perspective than younger couples who are just getting started on building up their asset base. In the “later in life” scenario, a COA can give both parties (and their families) clarity about what will happen to their assets if one of them dies, or if they decide to separate. A COA is a way to “opt out” of the default rules on the division of property under the Property (Relationships) Act 1976. Without a COA, the default approach is generally that relationship property assets are divided 50:50, even when an equal split is not appropriate due to contributions, and includes separation and death. In complex cases, parties can end up in protracted Court proceedings trying to figure out how the PRA applies in their situation. A COA allows couples to set in place clear and bespoke rules that apply to their particular circumstances, assets and blended family in the event their relationship breaks down or one partner dies unexpectedly.
What happens on the Death of One Partner?
One of the benefits of a COA is that it enables discussion and agreement between a couple as to what happens to their property in the event that one of them dies. Often couples have never had this conversation and assumptions are made. These assumptions can be harsh and wrong when a partner dies unexpectedly. The surviving partner may find that they have radically different expectations about what will happen to property compared to the deceased partner’s children. Life interests in a property may be invalidated by a new partner moving in with the surviving partner, invoking the sale of the marital property or a buyout of the deceased partner’s share for distribution to the deceased partner’s beneficiaries. Adult children may not know if their parent has left most, if not all, of their assets to their partner under a will or if the partner was added to the title of what has become the matrimonial home. Where a property is held as joint tenants on the title, on the death of one partner, the deceased’s share will transmit to the surviving partner without forming part of the deceased’s estate under a will. In these situations, adult children will not inherit, and may feel very aggrieved, seeking remedies through the Court via the Family Protection Act 1955.
What can I do if my parent’s current partner inherits my parent’s property?
When a parent dies and leaves their child or children out of their will, those children are entitled to bring a claim against their parent’s estate under the Family Protection Act 1955 (FPA). The Courts will assess the proportion of the claim and if there is any recognition of the children. Sometimes wills are drafted in such a way that when a parent dies, all of the property is left to their current partner, who is trusted to make provision in their will for their stepchildren, but does not.
How does the law respond?
The deceased’s children can look to alternative ways to bring a claim against the estate of the step parent outside of the FPA: one is a mutual wills claim where it can be argued the parties’ intentions were that the step parent would not latterly change their will to leave out the step children. If the claim is successful, the step parent’s estate is bound to make provision for the stepchildren; or secondly, making a testamentary promises claim under the Law Reform (Testamentary Promises) Act 1949. Each scenario presents significant hurdles for step children, so parents with assets and blended families, should ensure that when entering into “later in life” relationships, intentions are properly documented in a COA and wills to demonstrate an agreement existed that wills would not be changed after one party passed away. Too often it is either assumed, not spoken about, and not expressed in writing, leading to the belief that a step parent is not obligated or bound to provide for their stepchildren in their new will. This highlights the importance of being proactive to ensure proper estate planning arrangements are well documented where there are blended families, assets and later in life relationships.
If you have questions about wills and estate planning, please feel free to connect with us on Insta, Facebook, or by phone on 0800 544508 or email us via our website at www.ginajansen.co.nz
