The end of a relationship can be an emotional time, and even more so if you suddenly find your partner entitled to half your property – including a house you did not jointly purchase, and financial assets you accumulated yourself.
But the fact is, after three years of living together, your new partner could be entitled to half of it all!
No one has a crystal ball, so agreeing up front how to divide your property if your relationship unravels, can avoid a lot of heartache down the line.
How does the law work?
When dividing relationship property, the rules of the Property (Relationships) Act 1976 apply, and the rules start with presuming all relationship property should be divided equally.
So, what is considered relationship property?
Relationship property are the things of financial value. It includes the family home; contents; vehicles; boat; caravan - regardless of whether these were purchased before or during the relationship; income earned during the relationship; property jointly owned, including bank accounts; and any increase in your KiwiSaver after the relationship begins.
Exceptions to the rules
Historically, there have been few exceptions to the rules, but if the equal division of property is found to be ‘repugnant to justice’ (yes, it’s a legal term meaning plain unfair), there’s an ‘exceptional circumstances’ clause that’s gained a bit of traction over recent years.
What are exceptional circumstances you ask?
The fact you owned the family home before the relationship begun does not make for ‘exceptional circumstances’ but, in combination with some other facts, it might.
One such case was someone in a relatively short relationship, significantly older than their partner and nearing retirement. As they would not be working for much longer and unable to increase their savings ‘exceptional circumstances’ was found - ultimately, the family home represented the older partner’s life savings, and it would have been unfair to divide it equally.
How would the relationship property be split under exceptional circumstances?
If successfully proven, the relationship property will be divided according to each partner’s contribution to the relationship. Contributions to the relationship are not just financial though and can be anything from caring for children to managing the household, paying for expenses, making purchases of property or chattels, assisting their partner in running a business, or supporting them while they study.
What can you do to keep your personal assets safe?
We don’t suggest you rely on ‘exceptional circumstances’ – it’s a bit of a long shot. There’s a much better way. You and your partner can choose to ‘contract out’ of the Property (Relationships) Act and the rules through a ‘Contracting Out Agreement’ - sometimes called a pre-nup. You can both agree on what will remain your separate property and what will become relationship property, as well as how your property will be divided if you separate or one of you dies. While you can do this at any stage of your relationship, it’s best to do it before you have been together for three years because by then your partner will have some entitlements under the rules.
If you’d like to start putting together a Contracting Out Agreement, we can help you get started.