The situation is seen all too often. In contemplation of spousal separation, or in preparation for death, individuals and members of their immediate family will often enter into inter vivos deeds of separation or deeds of family arrangement. The purpose for entering into these deeds often involves managing sensitive interfamilial relationships.
A common thread that often runs through both inter vivos deeds of separation and deeds of family arrangement are clauses that purport to exclude or prevent an estate being challenged under the Family Protection Act 1955 (FPA). This note looks at the dichotomy between an individual's moral obligation to provide for their family and the contractual freedom to deal with property as and when the proprietor of that property so decides. In order to do so we will: (a) briefly discuss the relevant provisions and rationale behind the FPA; (b) summarise the relevant case law in New Zealand; and (c) comment on the current state of the law vis-á-vis anti-avoidance measures and what you can do to protect your assets from an FPA claim in the current legal climate.
The impetus for this note does not arise from new or exciting developments in the law. Instead it gains its relevance from the not insignificant amount of practitioners that persist (either inadvertently or advertently) with inserting clauses into inter vivos deeds of arrangement that purport to exclude an individual otherwise entitled from claiming under the FPA.
The FPA establishes a discretionary power of the Court to provide for the proper maintenance and support of entitled individuals if the terms of a deceased's will or the rules of intestacy fail to adequately provide for that family member. Section 4(1) states:
If any person (referred to in this Act as the deceased) dies, whether testate or intestate, and in terms of his or her will or as a result of his or her intestacy adequate provision is not available from his or her estate for the proper maintenance and support of the persons by whom or on whose behalf application may be made under this Act, the court may, at its discretion on application so made, order that any provision the court thinks fit be made out of the deceased's estate for all or any of those persons.
Section 3(1) details who is to be considered an entitled individual for the purposes of the FPA:
An application for provision out of the estate of any deceased person may be made under this Act by or on behalf of all or any of the following persons:
(a) the spouse or civil union partner of the deceased:
(aa) a de facto partner who was living in a de facto relationship with the deceased at the date of his or her death:
(b) the children of the deceased:
(c) the grandchildren of the deceased living at his death:
(d) the stepchildren of the deceased who were being maintained wholly or partly or were legally entitled to be maintained wholly or partly by the deceased immediately before his death:
(e) the parents of the deceased [subject to certain restrictions listed in s 3(1A)].
The underlying purpose of the FPA is to allow the Court an inherent discretion to uphold a parent's moral duty to recognise close members of their family as being valued and appreciated (see for example Williams v Aucutt  2 NZLR 479 (CA)). This has been described as an important declaration of State policy designed to protect the financially dependent. To this end, the cases have consistently held that the Court should go no further than is necessary to repair a breach of this moral duty by making adequate provision for maintenance and support.
The case law
The High Court decision in Gardiner v Boag  NZLR 739 (HC) concerned the separation of a husband and wife and a deed of arrangement that sought to prevent the wife, on death of the husband, from bringing any proceedings under the Family Protection Act 1908 (the progenitor of the FPA). The husband did not provide for the wife or their children in his will. Chapman J came to the conclusion that (at 746):
A full bench of the High Court in Parish v Parish  NZLR 307 (HC) agreed with Gardiner and added (at 314):
This rationale establishing that persons entitled to claim under the FPA may not contract out of their rights prior to the death of the testator has been accepted as being correct in subsequent decisions in the FPA era (see for example Re Churchill  1 NZLR 744 (HC) at 750). Perhaps the dearth of modern authority is evidence enough that the decisions in the mid to late twentieth century contain sound law and are of equal application today.
It is clear that a contractual clause that has the intended effect of preventing a party from exercising their rights under the FPA is void and unenforceable (either absolutely or at the applicant's discretion – see discussion in Public Trust v Dillion  NZLR 874 (HC)). This very likely includes not only contracts that purport to contract out, but also contracts that purport to waive accrued rights and deeds of forbearance. The policy basis for prohibiting contracting out is both obvious and sound. The FPA (and its progenitor) is a social piece of legislation designed to have a broad remedial effect. If the parties could simply contract out of the legislation its raison de'être would be fatally eroded.
It is important to note that the cases leave open the possibility for testators or future testators to enter into agreements that purport to discharge his or her obligations under the FPA. In cases such as this the focus of the Court (if its jurisdiction is invoked) will likely be to make a judicial determination of whether the agreement discharges the duty created by the FPA. But this still requires the imprimatur of the Court.
There are, of course, other practical means of avoiding the effect of the FPA, including:
- Transferring property into a trust.
- Transferring property to be held in joint tenancy.
- Disposing property by way of a gifting process prior to death.
It is the apparent ease that an individual is able to flout the FPA regime by utilising any of the above options that is most concerning. The FPA as it currently stands is increasingly becoming a toothless piece of legislation whose underlying purpose has been abdicated by the removal of gift duty and the simplicity in which dispositions can be made from an estate into an inter vivos trust or otherwise gifted away. This can have the effect of gutting any estate without affording recourse to those individuals that are displaced (see for example Re Henderson HC Wellington CP 433/92 6 April 1993).
There have been calls for anti-avoidance measures to be implemented in New Zealand. This is not a novel concept. Both England (Inheritance (Provision for Family and Dependants) Act 1975) and New South Wales (Succession Act 2006) have adopted reasonably successful anti-avoidance legislation that acts in a somewhat analogous way to the voidable transactions regime under the Companies Act 1993. That is, certain dispositions from an estate fund within a set period of time up until a testator's death can be used to satisfy equivalent FPA claims. To date New Zealand has not shown a particularly big appetite for such a change. This is surprising considering the big bite testators continue to take out of their estates, to the detriment of those individuals the FPA looks to protect.
It is worth noting that inter vivos arrangements attempting to exclude the FPA may be treated quite differently than similar arrangements entered into after the death of the testator. In the leading New Zealand text Law of Family Protection and Testamentary Promises (3rd ed, LexisNexis, Wellington, 2004) the author suggests that no sound reason remains why an applicant should not be bound to a compromise excluding an FPA claim after death (see his reasons at pp 94-95). This is despite a line of authority that seems to suggest otherwise (see Hooker v Guardian Trust & Executors Company of New Zealand  GLR 536; Public Trust v Dillion  NZLR 874 (HC); Re Julso  2 NZLR 536 (HC); and Clarke v Goulding  NZHC 1326).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.