THINKING OF DIVORCE? MUM’S THE WORD
Posted by Kalev Crossland on February 27 2020 in News
If you are seriously considering ending a relationship, but are uncertain how it will affect your joint property or family business, please read on…
It is critical that each party has equal information about what exactly is the relationship property for division. Information after all is power. My intent is to save you money, time and better enable a fair settlement which under New Zealand law is generally and currently 50% of the relationship property (please note, that there are potential changes afoot to that in upcoming legislation).
Most New Zealanders are pretty aware about equal division of property, but 50% of what? This can be a vexing topic in the context of a relationship where one or both of the couple are involved in business. The ownership and structure of a business or businesses likely will involve trusts, companies, and partnerships and involve other members of one or both parties’ parents and wider family. This is where things can get tricky. The question of what exactly is the relationship property upon which the 50% rule falls, requires much attention from lawyers and judges.
Often, we encounter situations where one partner has worked assiduously in developing a business or businesses whilst the other has kept the home fires burning. The latter partner may have abandoned other potentially lucrative career prospects in agreeing to be the stay at home person. Under such an arrangement, the business high achiever benefits hugely from not having to worry about the running of a household – such as preparing meals, making a home, organising family holidays, participating in the children’s school life, arranging family events and gatherings, etc.
When a relationship of this type goes south, some (but not all) of the high achieving business individuals can take an unduly aggressive, unappreciative and parsimonious approach to property division. Sometimes, they will have substantial control over the finances and the information relating to the businesses and/or property generating income. What this can often mean in a contested relationship property dispute is the homemaker will be unable to fund a drawn-out legal proceeding to achieve a fair outcome. Consequently, the relationship property settlement struck will be inequitable.
If you see yourself in a situation with a relationship that is on the rocks, where you are the homemaking party, there are some simple practical steps that may better equip you to obtaining a fair outcome. In contested relationship property disputes that involve trusts, companies, partnerships and other family arrangements possibly the biggest drain on your litigation war chest are pre-trial applications for relevant financial documents. The documents we most often seek for affected clients in this situation are:
- Trust Deed – this is the legal document establishing the trust and who are the beneficiaries and trustees.
- Partnership Deed – a family run business may be held by a partnership of two-family trusts of which you may only be a beneficiary but are not a trustee of one of the trusts in the partnership.
- Financial statements of companies and trusts involved in the family businesses prepared by accountants who are used to taking their instructions from your partner and not you.
- Bank statements of the above entities.
- Important contracts with customers of the family business that underpin the capital value of the family business.
- Company and trust resolutions – written records of decisions made by the trustees of the trust or directors of that company that may give an insight into the value of the business and upcoming transactions.
- Valuations of business (sometimes prepared when a business is borrowing money from a bank which can be useful later when one party downplays the value of a business for a relationship property dispute)
Contested pre-trial applications by one party to extract these documents typically will delay resolution of a relationship property claim for eight to twelve months and could cost between $30-$40,000.00 in legal fees. For a struggling separated person looking after children and perhaps needing to find alternative accommodation, sourcing that additional amount of money and facing that additional delay can break a person. Often, people in that situation will give in or give up and potentially yield hundreds of thousands or potentially millions of dollars to the other party. That is life changing – for the worse.
A shareholder of a company or beneficiary of a trust is entitled to many documents as a matter of law – regardless of any personal relationship with a director a company or trustee of a trust. Despite that, surprisingly or perhaps unsurprisingly, a determined narcissist often will instruct her or his lawyers to delay and dissemble. They may assert commercial confidentiality to block disclosure. They may even utilise legal powers disingenuously – say, under a trust deed to remove you as a beneficiary (this can be attacked as a “fraud on a power”) or as a trustee if they hold the power of appointment (that is the right to hire and fire trustees and to appoint and remove beneficiaries).
Therefore, to head off this situation, if you are thinking of a fresh start, obtaining copies of the above-mentioned documents (in good time) could save you a considerable amount of time and money. If you have them and can give them to your lawyer at the start you do not need to pay that lawyer to try and wrestle them out for you later. That money that would have gone to a contested pre-trial discovery application is better used for a substantive trial – though the bulk of civil court cases (include relationship property claims) - or to negotiate to settle a claim.
Once you have these documents (particularly bank statements) they can be a forensic treasure trove. As much as it is unfashionable to utter such words, effective litigation achieves a commercial outcome. Effective litigation is rooted in strategic principles set out in the ancient treatise (The Art of War) – the first of such principles is laying plans, giving great thought to that planning and assessment of your opponent’s position and yours. When we say effective litigation we are not talking about litigation to the death. But well-crafted and strategically smart applications and affidavits that drive the other side to an early settlement rather than a full blown trial.
A forensic assessment of business value is critical. You must choose your forensic accountant carefully. By sourcing the above-mentioned documents early there is no reason why you cannot engage a forensic accountant to provide you with a valuation for the relationship property as well as identifying what is and is not relationship property. You may be interested to learn that if the family home is given as security for a business that your partner founded before your relationship that business may nevertheless be argued to be relationship property. As New Zealand is a small jurisdiction there are a limited number of leading forensic accountants. So, it is tactically wise getting in first and securing the best forensic expert (and consulting with a second to conflict out the other potential warrior from your opponent) is a smart move. Be ready early. Julius Caesar won battles sometimes by “stealing a march” on his opponent by marching armies through the night. He thus attacked his enemy much earlier than they imagined would be possible.
But please note that nothing in this article is taken to advocate unlawful accessing of documents. Indeed, if you obtain confidential documents that you do not have a lawful basis to obtain (as a shareholder or director of a company or beneficiary of a trust) you may end up on trouble. Your case could be prejudiced. If you are unsure seek legal advice and try to remember the classes of documents that you know exist for your lawyer to later seek out (e.g. you may have heard of some upcoming lucrative deal that will make the family business worth a lot more).
As a final tip – as the title of this article says – “Mum’s the Word.” Do not breathe a word of this to anyone, bar perhaps one or two confidants who you absolutely trust. Keep quiet about your plan to leave. See a lawyer early. But do not tell people that you are consulting a lawyer. As you will probably know, all communications with a lawyer are privileged from disclosure to anyone else or to a Court (subject to rare exceptions such as fraud). A great advantage of instructing a lawyer first and doing so before instructing a forensic accountant is the communications with the forensic accountant will also be protected from later disclosure of legal proceedings. If you do it the other way around, then your communications with the forensic accountant may be disclosable later to your partner and his or her lawyers.
For trainspotters: the ‘Mum’ in the expression “Mum’s the word” is nothing to do with one’s mother. It is derived from the humming sound that a closed mouth makes indicating an unwillingness to speak.
You’ll also find it in Shakespeare’s Henry VI, Part 2. The expression is spoken by Hume, an ambitious and knavish servant who double crosses his patronesses, Dame Eleanor. Eleanor funds Hume to hire a witch to foretell her future as a possible queen (her husband Gloucester was heir presumptive to a childless king). But unknown to Eleanor, other characters in the play (Suffolk and Beaufort), have hired Hume to bring Eleanor down by taking up witchcraft (taken very seriously in the 1440s)! Here’s the relevant passage where Hume contemplates playing both sides:
Hume must make merry with the duchess' gold;
Marry, and shall. But how now, Sir John Hume!
Seal up your lips, and give no words but mum:
The business asketh silent secrecy.
Dame Eleanor gives gold to bring the witch:
Gold cannot come amiss, were she a devil.
Yet have I gold flies from another coast;
I dare not say, from the rich cardinal
And from the great and new-made Duke of Suffolk,
Yet I do find it so; for to be plain,
They, knowing Dame Eleanor's aspiring humor,
Have hired me to undermine the duchess
And buz these conjurations in her brain.
They say 'A crafty knave does need no broker;'
Yet am I Suffolk and the cardinal's broker.
Hume, if you take not heed, you shall go near
To call them both a pair of crafty knaves.
Well, so it stands; and thus, I fear, at last
Hume's knavery will be the duchess' wreck,
And her attainture will be Humphrey's fall:
Sort how it will, I shall have gold for all.
For further information on preparing for relationship property claims please contact:
Kalev Crossland | Partner
t +64 9 300 8755 | email@example.com
This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.