Many people think that once a couple is married, in a civil union, or in a qualifying de facto relationship, everything either person owns automatically becomes “relationship property”. That assumption is understandable but not always correct.
Under the Property (Relationships) Act 1976 (the “Act”) when a qualifying relationship ends (upon separation or death), relationship property is usually divided equally. However, the Act also recognises a separate category known as “separate property”. Separate property is generally property that belongs to one partner and is not relationship property.
What can be separate property?
Subject to certain exceptions, separate property includes things one person owned before the relationship began. For example, if one partner already owned a classic car, a boat, shares, or money in a bank account before the relationship, those assets may remain theirs alone.
However, this can change depending on the circumstances. If the property was acquired in contemplation of the relationship, or intended for the common use or benefit of both partners, it may be treated differently.
For example, if one person bought a house shortly before the relationship started because they intended the couple to live in it together, that house may not be treated the same as an investment property they bought many years earlier with no connection to the relationship.
Gifts and inheritances are another area where assumptions often arise. A gift from a parent, an inheritance from a grandparent, or property received as a beneficiary of a trust will often be separate property. In one case, bonus bonds gifted by a person’s parents remained separate property because they had not been mixed with relationship funds. In another, a diamond ring received in lieu of an engagement ring was treated as a gift and therefore separate property.
Mixing separate property with relationship property
A key question is whether separate property has been mixed with relationship property.
For example, if inherited money is kept in a separate bank account and is not used for relationship purposes, it is more likely to stay separate.
However, if that inheritance is paid into a joint bank account, used to renovate the family home, or mixed with the couple’s savings, it may become much harder to say it is still separate property.
Similarly, if a property is gifted to one partner but the couple later move into it and use it as their family home, it may become relationship property.
What if separate property increases in value?
The increase in value of separate property can also cause issues. If an asset goes up in value simply because of the market, that increase may remain separate.
However, if the increase in value happened because relationship money was used, or because the other partner contributed in some way, then some or all of that increase may be treated differently. For example, one partner may own a rental property before the relationship begins. If relationship money is later used to pay the mortgage or improve the property, it may become more complicated to work out what is separate and what is relationship property.
Property bought after separation
Property bought after separation may also be separate property, especially if it is bought using money that is not relationship property.
For example, in one case, shares bought from an employer after separation were treated as separate property because they were paid for using non-relationship funds.
Why this matters
What a couple intends, or assumes, does not always match the legal position.
For that reason, it is important to deal with these issues early and put proper documents in place where needed. This can help avoid unexpected outcomes later.
The team at Steindle Williams can assist with any questions.
Megan Williams, Director
E: megan.williams@swlegal.co.nz
STEINDLE WILLIAMS LEGAL, Level 2, Suite 2.1,
18 Sale Street, T: 09 361 5563, www.swlegal.co.nz
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