The hidden cost of love: rest home care costs and subsidies in contracting out and separation agreements

Contracting out agreements

Many clients come to us for contracting out agreements (known colloquially as pre-nuptial agreements) later in life. They may have suffered through one or more separations with previous partners where their assets were divided 50:50 on separating from their first partner, then divided again on separation from a subsequent partner so they are left with 25% of their initial assets. Those who are really opposed to obtaining legal advice and/ or having awkward conversations about pre-nups with their partners may divide their assets in half again on a third separation and be left with 12.5% of their original assets. A client advised me that people who have divided their assets three times on separation are known as members of the “GST club” – I guess the term was coined in the days when Goods and Services tax was 12.5%.

To avoid becoming a member of the “GST club”, contracting out agreements are increasing in popularity with our more experienced clients and, dare I suggest, are less controversial to bring up in conversation with a new partner when you have each accumulated assets independently and possibly both have children from other relationships who you wish to inherit those assets.

Rest home subsidies

Where there is a large disparity in the income and/or assets of each partner in the relationship, there may be an issue of who is going to pay for rest home care of the less wealthy partner, should it be necessary in future.

Some subsidies are available for rest home care in New Zealand – see our article (here – https://lewislawyers.co.nz/succession-planning-for-lifes-season-finale/), however the Ministry of Social Development (MSD) takes into account the assets and income of both partners for the purposes of means testing. This means a subsidy is unlikely to be available to the less wealthy partner on the basis that they are in a relationship with a more wealthy person. MSD ignores contracting out agreements for the purposes of means testing.

This may result in the potentially unfair result that while you are not obliged to use your separate property to pay for your partners’ rest home costs, circumstances may mean that they are not eligible for a subsidy due to your wealth. If there is a chance you may end up paying for your less wealthy partner’s rest home fees, you can include a clause in a contracting out agreement (or a variation to an existing contracting out agreement), that you can claim any rest home care costs paid from your separate property from the assets of your partner’s estate after their death. Of course, any claim would be limited to the assets of the estate. In the alternative, the parties may agree on their own formula to be applied in the event that one partner pays the rest home costs of the other.

Separation agreements

In the context of a separation, debt owing to the parties (for example by their family trust) may be forgiven in the process to tidy up any loose ends and give each of the parties a clean break.

MSD looks closely at historical forgiveness of debt when assessing whether a person is eligible for a rest home subsidy. If the gifting or forgiveness of assets or money is in excess of the limits prescribed by legislation, it will be considered an “overgift” and MSD may argue that the person applying for the subsidy has deprived themselves of an asset or income, which may be added back in to the total of assets or income for the purposes of means testing.

For this reason, it may be preferable for any debt owing to be repaid under the separation agreement, rather than gifted or forgiven, where possible.

Should you need a contracting out agreement or separation agreement that considers possible future rest home costs or subsidies, contact the Dispute Resolution / Family Hub at Lewis Lawyers by email to Tarsha.Makgill@lewislawyers.co.nz or reception@lewislawyers.co.nz.

This article is current at the date of publication. It is intended to provide general comments only about legislation and case law. Lewis Lawyers accept no responsibility due to reliance by any person or organisation on the content of this article. Please contact the author of this article if you require specific advice about how this applies to you and your circumstances.