In 2009 our highest court (the Supreme Court) made a decision[i] which is of great interest to farming families. It also made headlines and generated much debate within the legal profession. For farming families this decision highlights the importance of structuring farm ownership carefully if they wish to ensure the family farm will be retained for future generations.
This decision is of interest because it upheld a wife’s claim against the separate farm properties of her husband. The separate property of one spouse or partner is generally outside the equal sharing rules of the Property (Relationships) Act 1976 (“the Act”), whereas property classified as a couple’s relationship property under the Act will, subject to some exceptions, be divided equally if the couple’s relationship ends after 3 years duration - unless the couple sign an agreement contracting out of the Act.
Rose v Rose
At the time of their marriage in 1979, Mr Rose owned a property in Marlborough called Cloverlea. Mr Rose was also in partnership with his father and brother. This partnership carried on a grazing and cropping business on a property (known as Poplars) owned by Mr Rose’s father and a property owned by Mr Rose’s brother. In 1995 Mr Rose senior died and Mr Rose and his brother inherited Poplars and their father’s share in the farming partnership. Mr Rose and his brother subsequently developed vineyards on Poplars and Cloverlea. Mr Rose worked long hours in the farming partnership and on the vineyards. Mrs Rose ran the household and looked after the children. Mrs Rose did not work in the farming business or on the properties, but worked outside the home as a cosmetics salesperson.
The partnership ran at a loss throughout the marriage. The marriage ended in 2003 and, at the time the relationship property dispute came to be settled in 2005, the vineyard was returning a profit and the value of Cloverlea and the Poplars had increased substantially.
It was not disputed that Cloverlea and Mr Rose’s half share in Poplars were his separate property. Cloverlea was Mr Rose’s separate property because it was owned by him at the time of his marriage to Mrs Rose. Poplars was Mr Rose’s separate property because Mr Rose had inherited it from his father. Mrs Rose was, however, able to successfully claim a share in the increase in the values of Poplars and Cloverlea.
Separate Property can Become Relationship Property
There are various ways in which separate property owned by one partner can change its status to relationship property, and therefore become subject to a successful claim by the other partner. For example, an inheritance which is the separate property of one of the partners and which is used to pay off the couple’s mortgage, or purchase a beach house or family car, can become the couple’s relationship property.
In addition, the increase in value of separate property can become relationship property where the increase is partly attributable to:
- the application of the couple’s relationship property; or
- the actions of the other partner. (Where the increase in value is due to the actions of the other partner, the partners’ shares in the increase will be determined in accordance with their respective contributions to the increase.)
It was on these two latter grounds that Mrs Rose was successful.
Mrs Rose’s claim against Poplars
Mrs Rose successfully claimed a half share of the increase in Mr Rose’s share in Poplars. The court found that Mr Rose’s interest in the partnership with his brother was relationship property and the increase in value of Poplars was partly due to the partnership’s development of the land as a vineyard - even though it was also due to inflation and the increase in the value of viticultural land in Marlborough. Mrs Rose’s claim was successful under paragraph 1 above.
Mrs Rose’s claim against Cloverlea
The court found that Mrs Rose was entitled to a 40% share of the increase in value of Cloverlea. Mrs Rose’s attentions to the household and the children and her significant contribution to household expenses enabled Mr Rose to spend very long hours working in the partnership business so that more labour and money could be made available to the partnership to develop the vineyards. Mrs Rose’s claim was successful under paragraph 2 above.
The End Results
Mrs Rose’s share of Poplars and Cloverlea was $557,517 - out of their total value of $2,846,000. This may well have been a fair result in the circumstances, although Mr Rose was reportedly “very disappointed”. The end result could have been different if Mr and Mrs Rose had signed an agreement contracting out of the Act, or the properties had been transferred to a trust prior to Mr and Mrs Rose’s marriage.
[i] Rose v Rose [2009] NZSC 46
Please email me at [email protected] with your ideas for future articles. Keep an eye out for next month’s column, where I will discuss another relevant rural legal issue.
Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.