Finances - A Tricky Matter

             

FINANCES – A TRICKY MATTER IN BREAK-UPS

(Diana Clement – NZ Herald)

 

 

Children Complicate Things Further With Child Support Thrown In The Mix

 

Child support payments and division of relationship property are two things we don’t want to think about. That’s until a relationship breaks down. It’s then that Kiwis discover the quagmire that is the separation of family assets and the support of children.

 

Relationship splits are usually easier if there are no children involved. In that case you mainly need to contend with the Property (Relationships) Act 1976. If there are children involved, the second hit for both parties is how those children will be supported. Invariably at least one parent finds him or herself in reduced circumstances and the other has to pay an amount to support the children for years to come.

 

The Property (Relationships) Act 1976 says, more or less, a couple who are splitting get half their combined assets each. But the reality can be complicated. “Half” can be viewed in many ways. Many a newly ditched partner finds that his or her ex has a web of companies or trusts, or that wedding present of a deposit for the house was in fact a “loan” from the in-laws that is now being called up.

 

Complexities abound. For example, the Family Court can rule that money in KiwiSaver or superannuation is part of a split. If the money can’t be accessed, it may have to be accounted for in other ways, such as the other partner getting a greater share of the house in lieu of the locked up money.

 

Sometimes money is squirrelled away in trusts that the Courts rule to be “shams.” In the case of “Clayton v Clayton,” Melanie Clayton claimed assets held in trust by her ex-husband were in fact joint property and should be split. Unravelling the situation resulted in may thousands of words being written. “The case illustrates the trend of Courts at all levels trying to ensure that assets accumulated by partners during long relationships are shared equitably, whether they are held in trusts or not, “ says Andrew Watkins, special Counsel at law firm Duncan Cotterill. Sometimes “assets” can simply be difficult to value, such as goodwill in a business, and couples fight their way through the Courts for years.

 

There can be nasty surprises. Student debt, for example, is not always relationship property and there have been cases where couples repaid one debt first then split leaving one partner with a big debt. Rules that allow for compensation for economic loss when one partner has given up a career aren’t fair if you can’t afford to enforce them. Section 15 of the Act which allows for one partner to get more of the assets than the other to make up for their reduced earning power, is the source of much embitterment.

 

With any law there are always cases that fall outside the usual, and when it comes to a demand to “hand over the money, honey”, a big fight can ensue. Child support is another can of worms, and to add to the potential confusion, a slew of changes have just come into force in this area.

 

The Child Support Act 1991 ensures financial support is paid by parents who either don’t live with their children or share the care. The Child Support Scheme is managed by the Inland Revenue Department (“IRD”) and uses a formula to work out what parents who have split pay for the cost of bringing up their children. Child support is only mandatory in cases where one parent receives sole parent or similar benefits from Work and Income. Parents outside the Work and Income net make arrangements between themselves. If they can’t agree the IRD can step in. More details of how child support works can be found at tinyurl.com/IRDchildsupport.

 

There have been two major changes to the Child Support Scheme in the past 14 months. In 2015 the 20 year old formula was revamped to take into account, amongst other things, children from new relationships.. Then in April 2016, the upper age limit for child support was reduced to 18 years, and the penalties for late payment were made slightly less onerous, splitting it into a two stage process where the total 10% fee isn’t charged until 8 days after the due date. Incremental penalty charges have been reduced and write-offs are now easier. And there are more grounds for administrative reviews.

 

About 137,000 parents are paying child support. Under the changed rules 33,000 will pay more and 46,000 will pay less. The rest are unaffected. It’s difficult to track down large numbers of case studies relating to child support through the IRD or Ministry of Justice. Pressure groups publish case studies but they are probably not a fair representation of the types of complaints. “Belinda” made what is a common complaint. She said the father of her children had set up a limited company with his new wife as a 50% shareholder. The ex-husband was declaring income of $20,000 when he clearly earned more than that, she believed. Belinda complained to the IRD that she was the one paying child support when her former husband lived in a household earning more than she did.

 

Nothing is ever black and white when it comes to families. In one case heard by the Office of the Ombudsman, a mother complained that the father of her disabled child who was on a good salary should be forced to pay his arrears by way of an overdraft or loan, rather than be allowed to claim that he couldn’t afford to pay from his income.

 

There are other financial issues for splitting couples to consider outside property and child support. “For example”, says Ed Saul, Director of Intelligent Life, “what happens if your ex-spouse dies or is disabled and can’t work?” For this reason it makes sense and is sometimes written into Agreements, that the supporting spouse, or both partners, should carry a life insurance policy so that any children are still provided for should a parent die. “When negotiating your divorce settlement, it is important to designate who will be the owner of the life insurance policy,” he says. “As extra insurance”, say Saul, “a provision can be included in a relationship split Agreement that if the beneficiary is changed or the policy lapses, you or your children would be entitled to a portion of your ex-partner’s estate of the same amount as the cover offered by the insurance policy the ex was supposed to retain.

 

“Beware as well”, says Richard Broad of Perpetual Guardian, “that wills, trusts and relationship property matters are intertwined. If, for example, you want money in a will to go to someone other than who it would go to under the Property (Relationships) Act 1976, then you need a Pre-Nuptial Agreement to complement the will.” When one party dies the children can often be left high and dry.

 

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