Thinking about the children when dividing relationship property
A recent LawTalk article by Kimberley Lawrence and Greg Kelly (Joining adult children to their parents’ relationship property proceedings as trust beneficiaries, LawTalk 906, May 2017, page 28) discussed adding adult children into their parent’s relationship property proceedings. But what about when the children are minors? Should we be thinking about them too?
Section 26 of the Property (Relationships) Act 1976 (“the Act”) provides for the court to consider children when settling relationship property.
The section has two purposes: The first is to impose a duty on the court to have regard to the interests of any minor or dependent children of the relationship when making orders under the Act. This duty applies to any proceedings under the Act, and so has relevance both to the sections where the interests of children are explicitly mentioned such as the making of occupation orders under section 27 and an award of compensation under s 15 and s 44C, and also to applications where no mention is made of children. For example, s 26 has been relevant to the court’s discretion under s 2G to depart from hearing date valuation.
The second purpose is to give the court the power to settle relationship property for the benefit of the children of the relationship. The word ‘child’ is defined very broadly.
The court’s approach to s 26 is set out best in the old case R v R  NZFLR 611 as follows:
- Prima facie the property is to be regarded as the property of the parties.
- In every case where there are minor or dependent children, the court is obliged to have regard to the respective interests of each such child.
- The context of consideration of the welfare and best interests of the child is in the light of the property division between husband and wife to ensure their financial protection during minority or dependency.
- The court is not precluded from considering the interests of adult children and may have jurisdiction under s 26 to settle property for the benefit of an adult child.
- It would be the exceptional case where the consideration leads to an actual award for a child.
- It would be wrong in principle to use s 26 to anticipate succession.
- Default or inability of a parent to provide appropriate maintenance, upbringing, shelter, or nurture for a child, are relevant factors whether or not the default is wilful.
- Generally a s 26 order should not be used to substitute or supplement child support arrangements.
- Section 26 is not a backhanded means of providing damages to a child for ordinary parenting shortcomings.
- An award under s 26 must be reasonable in all of the circumstances.
A recent example of s 26’s application is Hader v Hader  NZFC 4376. The respondent was a recovering cancer patient whose life expectancy had decreased as a result of her illness. She had a life insurance policy that was held in the applicant’s name. The applicant father wanted to retain the funds for care of the children if the mother died while the children were still dependent. The respondent argued that she would need the funds to care for the children if she became sick again. In light of the mutual purpose of using the funds to care for the children, the court created two trusts, vesting half of the policy value in each. The overall effect was that the proceeds of the policy were retained by both parents for the benefit of the children.
There is conflicting case law about whether the power can be exercised in favour of adult independent children. Adams, Re Roberts  1 NZLR 200 (HC) and Lockie v Lockie (1993) 11 FRNZ 81 are cases in which it was held that s 26 orders can be made for adult independent children. However, more recently, the court in Babylon v Babylon (2009) 27 FRNZ 622 (HC) concluded that s 26 could only be used to make orders for minor or adult dependent children, that interpretation being consistent with the purposes of the Act in sections 1C and 1M. It is considered that it would be a misuse of the section for it to be used as a tool for succession planning, but it may be relevant to proceedings commenced under Part 8 of the Act after the death of the spouse or partner.
Section 26 is also very unlikely to lead to the making of an order that totally displaces the spouse’s or partner’s interests. In WMM v SJM  NZFC 5019, the child in question had physical disabilities, but there was no order made under s 26(2) because the relationship property pool was modest, and “there [was] simply insufficient to apply funds to [the child]”.
Section 26 is not commonly used in proceedings under the Act to settle property on children, but should not be forgotten. It also has potential to be useful for alternative and creative settlement solutions for parties who cannot otherwise reach agreement.
Last updated on the 4th August 2017