%20(1).webp){kind=spacer}
The death of a spouse or partner is an emotional and challenging time for the one left behind. Often left with the overwhelming task of handling the Deceased's estate, the surviving spouse or partner will be unaware of their entitlement under the Property (Relationships) Act 1976 (the "PRA"). Many will opt to taking under the Will, not knowing they also have the alternative option of applying under the PRA for a division of relationship property.
Under Section 61 of the PRA the surviving spouse/partner can choose either:
• Option A: Elect to apply under the PRA for a division of relationship property. This presumes a 50/50 split of relationship property, or
• Option B: Elect to not apply under the PRA for a division of relationship property and;
o Receive inheritance from the Deceased spouse/partner (if the surviving spouse/partner is a beneficiary under the Deceased's Will) or;
o If the Deceased spouse/partner had no Will and dies intestate, receive their entitlement under Section 77 of the Administration Act 1969. In these cases, the surviving spouse/partner receives the prescribed amount of $155,000.00, all personal chattels of the Deceased and where there are no children, anything that remains in the estate. Where there are children, the surviving spouse/partner receives a 1/3 share of the balance of the residue of the estate and 2/3 goes to the Deceased's children.
• If no choice is made, Option B is elected by default.
Under Option A the surviving spouse/partner may be entitled to half of the relationship property, and that might involve them receiving more under the PRA than what their entitlements would have been under the Deceased's Will. The PRA entitlement of the surviving spouse/partner is paid out in priority to the beneficiaries under the Will.
Electing Option A does not preclude the ability of the surviving spouse/partner to also make an application under the Family Protection Act 1955 against the Deceased's half of relationship property assets for further or better provision.
Recent case law developments have confirmed that a surviving spouse/partner is entitled to pursue their entitlement under Option B of Section 61 and also receive their relationship property entitlement under a Section 21 Agreement (or a "Contracting Out Agreement" or "Pre-Nuptial Agreement") upon the death of their spouse/partner. These agreements allow parties to contract out of the provisions of the PRA and provide for the division of relationship property (e.g. upon death or separation) by contract.
Contracting Out Agreements made under Section 21 are treated as separate and not subject to PRA provisions, including the choices under Section 61. This was confirmed by the High Court in Rimmer v Wilton (2023), where the Deceased died intestate. The Deceased had previously made a Section 21 Contracting Out Agreement with their de facto partner. The Agreement gave the surviving partner the right of lifetime occupancy and use of all relationship property upon either of their deaths. The surviving partner was treated as having chosen Option B, and was allowed to receive their cash entitlement from the Deceased estate under the Administration Act 1969. Additionally, they were able to remain in the home they shared with the Deceased by relying on their right to lifetime use of all relationship property given under the Section 21 Agreement.
The case confirms how Option B and Section 21 Agreements can be pursued together. Overall, Option B is the suitable choice if the surviving spouse/partner wants to receive property under a Section 21 Contracting Out Agreement and to also receive their hereditary entitlements on death. In these circumstances the surviving spouse/partner will still be able to receive under the Deceased's Will or their entitlement if the Deceased dies intestate. In other words, a Section 21 Contracting Out Agreement made between spouses/partners under the PRA is enforceable against the estate of the spouse/partner who subsequently dies and, like any contract made by the Deceased in their lifetime, the enforcement of it is able to be done without having to make an Option A election.
However, Option A is necessary in cases where the survivor actually wants to challenge the validity of a Section 21 Agreement upon the death of a spouse/partner. In this case an application under the PRA will need to be made to set aside the Agreement and Option A is therefore required to be elected. Provided this application is successful, the provisions of the PRA can then be applied to the division of relationship property.
Accordingly, applying this case in the context of both spouses or partners being alive but separated, the terms of a Section 21 Contracting Out Agreement can be enforced as a matter of contract law against the other spouse/partner in respect of the property it specifically relates to without the PRA having to be applied again to that property.
If you have recently lost a loved one and need assistance with relationship property matters, please contact:
Peter Fuscic (Partner) on (09) 306 6746 (pfuscic@mcveaghfleming.co.nz)
© McVeagh Fleming 2023
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.
