Spousal Maintenance Agreements, by Ewan Eggleston, Holland Beckett Lawyers
Wednesday February 1, 2012
Many family law practitioners incorporate spousal maintenance provisions in section 21 contracting out agreements (contracting out of the Property (Relationships) Act 1976 (PRA)), section 21A settlement agreements, or, less commonly, stand-alone agreements. The issue that can arise is whether the provisions are enforceable or may be vulnerable to challenge at some later date. This article endeavours to answer some of those questions by a review of the case law and then a summary of implications for practice.
Spousal maintenance in section 21 agreements
In Buckthought v Buckthought [1977] 2 NZLR 223, the Court held that a maintenance clause (not to claim maintenance) in a section 21 settlement agreement was not binding due to public policy considerations.
The parties had entered into a section 21 agreement to settle both property and spousal maintenance. The agreement provided that “in consideration of” the wife “forgoing all rights of maintenance in the future”, the husband would transfer to her his half interest in the family home. The Court held the wife’s promise not to claim maintenance was void for public policy (and given that formed the consideration for the husband’s promise to transfer the property, the action by the wife for specific performance failed). The Court held that “any private agreement between parties as to maintenance that expressly or impliedly purports to oust the jurisdiction of the court to fix maintenance and from time to time to vary or discharge maintenance orders is contrary to public policy and void” (at 223).
This has been the prevailing view for some time.
However, in Bellamy v Townshend [2004] 2 NZLR 692 (HC), a provision in a section 21A agreement providing the wife with spousal maintenance of $24,000 per annum until death was held as enforceable. After signing the agreement, the wife remarried a wealthy man. Her former husband brought an application under section 182(2) of the Family Proceedings Act 1980 (FPA) to vary the section 21A agreement. Section 182(2) provides:
“Where an order under Part 4 of this Act, or a final decree under Part 2 or Part 4 of the Matrimonial Proceedings Act 1963, has been made and the parties have entered into an agreement for the payment of maintenance, a Family Court may at any time, on the application of either party or of the personal representative of the party liable for the payments under the agreement, cancel or vary the agreement or remit any arrears due under the agreement.”
In the Family Court decision, Townshend v Bellamy [2003] NZFLR 976, Judge Aubin varied the agreement so that the monthly amount concluded on 1 May 2008. His Honour was persuaded that it was unreasonable for the “financial link” between the parties to be maintained for what would be a period in excess of 20 years. He adopted a 14-year period that was proposed in the course of negotiations.
On appeal to the High Court, Justice Miller allowed the appeal by the wife finding that the Family Court did not have jurisdiction to make an order varying the agreement by operation of section 182(6) of the FPA. Section 182(6) provides:
“Notwithstanding subsections (1) to (5) of this section, the Court shall not exercise its powers under this section so as to defeat or vary any agreement, entered into under Part 6 of the Property (Relationships) Act 1976, between the parties to the marriage or civil union unless it is of the opinion that the interests of any child of the marriage or civil union so require.”
Justice Miller said (at [43]):
“Accordingly, it is not sufficient for a Court that is dealing with an application under [section] 182(2) to inquire only into the question of whether the agreement provides for maintenance. The Court must also consider whether there is a relationship property agreement entered into under [section] 21 of the Property (Relationships) Act and, if so, whether the proposed exercise of the Court’s powers under [section] 182(2) would have the effect of defeating or varying it.”
His Honour held that if the orders would have that effect, the parties are left to their remedies under the PRA unless the interests of a child of a marriage require the agreement to be varied or defeated.
Justice Miller said that the question of whether an agreement is a section 21 agreement is answered by reference to its form (independent advice, witness etcetera) and its content (addressing relationship and separate property of the parties) (at [24]).
The Court of Appeal agreed with Justice Miller’s conclusion that section 182(6) provided a jurisdictional bar to a variation application (Townshend v Bellamy [2005] NZFLR 1129 (CA)). The Court said (at [41]):
“Like [Justice] Miller, we consider that the issue is not whether [clause] 3 is a maintenance agreement but whether any change to [clause] 3 will vary an agreement made under Part 6 of the PRA ... As [Justice] Miller held, this is made clear by the form of the deed and the acknowledgment in [clause] 10 [ie full and final settlement], which cannot sensibly be read as relating to the asset division parts of the agreement alone.”
Spousal maintenance in section 21A agreements
The decision of Bellamy v Townshend was followed in the more recent Family Court decision of KLS v GL (North Shore FAM-2006-044-2418, 11 August 2009, Judge Ryan). In this case, the husband entered into a section 21A agreement as part of an overall property settlement to pay maintenance at $2,200 per month for 27 months. The husband stopped paying after eight months. At the time of the hearing, $37,400 was owing under the terms of the agreement. The wife made an application to the Family Court for spousal maintenance, seeking orders in accordance with the terms of the agreement. (The Court noted that, instead, she could have lodged the agreement with the Commissioner of Inland Revenue, which, if accepted, would have enabled the Commissioner to enforce the agreement.)
The husband argued that the Court had to take into account the mandatory factors under sections 63 and 64 of the FPA to establish a threshold for maintenance, albeit retrospectively. He said his wife had not established this due to a variety of reasons: (1) a new de facto relationship; (2) the marriage being dissolved; (3) the wife having the ability to earn a greater income as a consequence of the division of assets; and (4) the wife’s needs being met by the undistributed income from the family trust.
The Family Court quickly dismissed this argument holding for the same reasoning as Bellamy that the agreement was binding (at [15]):
“[Counsel for the respondent] submitted that if an application for summary judgment had been made, the respondent could have applied to overturn the agreement. It is abundantly clear from the Court of Appeal judgment in Townshend v Bellamy that he could not have. In a case on all fours with the present situation, the Court of Appeal said that it was not open for a party to set aside, vary or overturn a [section] 21 agreement that incorporated what was in effect a spousal maintenance agreement.”
The Court then ordered that the husband pay the wife lump sum spousal maintenance in the sum of $37,400.
Thus, in cases where parties have entered into section 21A agreements to pay maintenance after divorce, section 182(6) of the FPA will provide a jurisdictional bar to an application to vary. However, in cases where parties have not yet divorced or separated, or are de facto couples, what then? Would an application for maintenance be entertained where parties have signed a section 21A agreement?
The answer to that question is addressed in the Court of Appeal case of C v G [2010] NZFLR 497, where the Court considered the relevance of an agreement in respect to an application for maintenance under section 64(2)(a)(iii) of the FPA: “any other relevant circumstances”.
In C v G, de facto parties entered into a termination agreement (covering property, child support, and spousal maintenance) in New South Wales. From the outset, it was accepted by Mr C that the Court had jurisdiction to make a maintenance order, notwithstanding the agreement the parties had entered into (at [39]).
The agreement provided for Mr C to pay generous maintenance for three years until 21 June 2007. In 2007, Ms G decided to retrain as a lawyer and commenced studies at law school. She applied for interim spousal maintenance, which was approved by the Family Court in December 2007 at $990 per week for six months. In October 2008, the Family Court made final orders extending maintenance until 21 June 2009 (when child A reached her fifth birthday). On appeal, the High Court increased the order to $1,100 per week and extended the term for a further two years – 21 June 2011 – until the child’s seventh birthday.
The Court of Appeal reversed the High Court decision and reinstated the Family Court decision. In respect to the non-binding agreement, the Court of Appeal said (at [43]-[44]) (emphasis added):
“We agree with [counsel for the appellant] that the Court should not lightly depart from such arrangements which are properly entered into in order to avoid litigation. It is in the public interest to encourage parties to reach agreement without resort to the courts.
“The weight to be given to the terms agreed by the parties will vary from case to case. But where parties have been independently advised, and the agreement has been the subject of recent, careful and detailed consideration, then the weight accorded to its provisions should ordinarily be substantial. However, we would not accept the proposition that such an agreement should only be departed from in exceptional circumstances. That would be to place an undesirable fetter on the exercise of jurisdiction under the Act to make appropriate provision for maintenance beyond the scope agreed where the circumstances so demand. Changes of circumstance may be of such significance as to warrant a variation or extension of the agreed terms. Any such variation must be assessed against the statutory policies and criteria and giving proper weight to the parties’ agreement.”
So married couples who have entered into section 21A agreements, and who have not yet divorced, remain vulnerable to an application for spousal maintenance. However, the C v G decision suggests that the weight to attach to such agreements will ordinarily be “substantial”.
C v G was followed in the very recent decision of PTB v AFB (Family Court, Dunedin FAM-2002-012-1020, 6 April 2011), a decision of Judge Twaddle, who ruled for similar reasoning to C v G that the orders agreed to in the United Kingdom for spousal maintenance were an ‘overall package’ and were given substantial weight. He declined the application by the husband to vary the overseas maintenance orders.
Stand-alone maintenance agreements
Aside from the definitional section in the FPA, there are no provisions in the FPA dealing directly with maintenance agreements. These provisions were repealed in 1992. (Sections 83 to 90 of the FPA were repealed on 1 July 1992. These provisions provided for spousal maintenance agreements to be a bar to any application for maintenance save for an application for variation.)
There are provisions under the Child Support Act 1991 for registration with the Inland Revenue Department of voluntary maintenance agreements (see Part 3 of the FPA). However, registration of a voluntary agreement with the Commissioner of Inland Revenue is largely used for collection purposes. It is not a bar to an application for a maintenance order under the FPA, as section 66(1) of the Child Support Act makes clear:
“The existence of a voluntary agreement that provides for payments of money by [one] party to the agreement towards the support of another party to the agreement shall not prevent that other party from applying under the Family Proceedings Act 1980 for a maintenance order.”
Summary
The decision of Bellamy makes it much more difficult to challenge provisions for maintenance contained in section 21A agreements once parties have divorced. If an application is to be made for maintenance, then the agreement itself will first need to be set aside.
For other parties (be it separated and not yet divorced or separated de facto parties) that have entered into a section 21A agreement, there is jurisdiction to make an application for maintenance.
However, C v G is a strong push for contractual certainty. The decision suggests that the Courts will not lightly depart from provisions of maintenance contained in agreements that are entered into at separation to avoid litigation. Indeed, the Court of Appeal has said that the weight to attach to such provisions should “ordinarily be substantial” unless there are changes of “significance”.
Such an approach is welcome and gives clients certainty that arrangements agreed upon as part of a ‘package’ can only be revisited in very limited circumstances. Clients should nonetheless be informed of this risk prior to divorce.
Time will tell if a similar approach will be taken to section 21 contracting out agreements. It is suggested that much more cautionary advice is called for on whether terms of maintenance (say providing for no claim) in a section 21 agreement would be successful in ousting the Court many years after the agreement has been signed. In many cases, such provisions may not, given there may be changes of significance which warrant maintenance being revisited.
Implications for practice
Acting for a separated spouse
If you are acting for a separated spouse seeking maintenance, the terms of maintenance ideally should be contained within a section 21A agreement and the agreement should provide for the usual full and final settlement clause. A client should be recommended to obtain a divorce. A client once divorced will then receive the added protection under section 182(6) of the FPA as interpreted in the decision of Bellamy. Prior to divorce, the agreement may be vulnerable to an application, unless the agreement is given substantial weight as per the argument in C v G.
If you are acting for a separated spouse who is to pay maintenance, the terms should not go into a section 21A agreement but rather a maintenance agreement.
Acting for a separated de facto
If you are acting for a de facto party, then section 182 of the FPA will not apply. Thus, if the parties have entered into a section 21A agreement which includes the terms of maintenance, there is no jurisdictional bar to vary the terms of maintenance unless the terms of maintenance are given “substantial weight” as per arguments in C v G.
Contracting out
If you are acting for a married/to be married couple on a contracting out agreement and the agreement provides that no maintenance is payable, then the provisions of maintenance may well be subject to a successful challenge if significant changes occur prior to any divorce.
Reform
This is an area that calls for reform. Parties should have the opportunity to enter into binding agreements for spousal maintenance irrespective of the nature of the relationship. Presently, couples that have divorced gain added protection. Provisions similar to that which is currently available for property under the PRA should be extended to binding maintenance agreements.
Ewan Eggleston is a senior solicitor with Holland Beckett, Tauranga. Ewan thanks Deborah Hollings QC and Claire Allen for their useful review and comments on this article.