Navigating the relationship property scene in New Zealand.
As fate would have it, you meet the one. If all goes well, you become partners or spouses. As two lives become one, so do their assets (with some exceptions). But what if something happens turning what was a romantic comedy into a horror show? This article provides an overview of the relationship property regime in New Zealand and what parties can do to protect their assets if their relationship falls apart.
What’s mine is yours For married couples and de facto partners (generally, relationships of three years or more), the usual starting point for dividing relationship property upon separation is the Property (Relationships) Act 1976 (the “PRA”). Section 11 establishes an equal sharing rule, under which relationship property is typically divided equally between partners, regardless of the respective contributions made by each party. Subject to some exceptions, without a binding agreement stating otherwise, the saying “what’s mine is yours” rings very true.
Equal division under the PRA often has unintended, undesirable effects, particularly where parties are unaware of or do not fully understand its implications.
Some exceptions
Some exceptions to “what’s mine is yours” include:
1. Assets acquired by way of an inheritance or gift. However, care is required to avoid inadvertently converting separate property into relationship property through intermingling. This may arise where the parties apply property that would otherwise be separate property for relationship property purposes - for example, where one party contributes to renovations to relationship property or to the other party’s separate property; and
2. Assets held in certain qualifying trust arrangements may sit outside the relationship property pool, where they were settled into the trust prior to the relationship and not with the purpose of defeating relationship property claims. Trust structures are frequently scrutinised in relationship property disputes so shouldn’t be relied on solely.
Contracting out
To mitigate the risk of unintended outcomes, parties commonly enter into a relationship property agreement contracting out of the PRA under section 21 (commonly known as a “pre-nup”).
A section 21 agreement can specify what property will be treated as relationship property and what will remain separate property, and can address how increases in value, income, debts and other categories are to be dealt with.
For a section 21 agreement to be enforceable, it must satisfy strict procedural requirements, including that each party receives independent legal advice from different solicitors, and that the solicitors certify the advice and execution. If those formalities are met and no other factors undermine enforceability, the agreement will generally govern division on separation.
Conclusion
Without a valid relationship property agreement, most couples will be subject to the PRA’s equal sharing regime. On separation, each party may be required to account to the other for 50% of the value of relationship property. This percentage can differ in some circumstances if it is fair and reasonable for one party to receive a larger share of the relationship property pool. Depending on the circumstances, relationship property can include real property, investments (including Kiwisaver balances) pets, artwork and even intellectual property interests (including royalties).
Early planning is particularly important where parties enter a relationship with materially unequal assets, anticipate inheritances, own businesses, or wish to preserve family or trust-related arrangements. Please reach out if you or anyone you know of needs legal advice on this matter.
Chloe Wilson, Associate E: Chloe.wilson@swlegal.co.nz STEINDLE WILLIAMS LEGAL, Level 2, Suite 2.1, 18 Sale Street, T: 09 361 5563, www.swlegal.co.nz
