When a relationship comes to an end, the divvying up of relationship property is no walk in the park. Often it can take months, if not years, for disagreements to be resolved. It’s an emotionally charged time, and it doesn’t help that the law in this area has some relatively blurred lines when it comes to the division of relationship property. At present, who gets what at the end of a relationship is covered by the Property (Relationships) Act 1976, with a 50:50 split being the general rule of thumb. This general rule, however, certainly does not apply to all relationships. Given the diversity of relationships, each with its own differing contributions, there is no one-size-fits-all solution.
Thankfully, there is a way to navigate this period of turmoil, and save unneeded heartache and bitterness. But it does involve a rather awkward, if not downright uncomfortable, conversation around the ‘what if’ of separation. It may seem counter-intuitive to have this conversation at the beginning of a relationship, but trust us – it’s better sooner than later.
What is Section 21?
Section 21 of the Property (Relationships) Act gives couples the right to ‘contract out’ of the legislation governing how property should be divided following a separation. The terms provide that individuals within a marriage, civil union or de facto relationship can create their own legal agreement when it comes to the division of assets. This agreement, more famously known as a ‘pre-nup’, overrides any provisions determined in the Act (except under exceptional circumstances). It is commonly mistaken as an agreement only for those contemplating marriage or those with wealthy families, but it’s important for any couple contemplating a civil union or de facto relationship.
Making a contracting-out agreement, however, is not as simple as listing down who gets what. It must be robust and drafted in accordance with the legal provisions under the Act. If it is contested in court, if and found to be unfair and unreasonable, it can be set aside.
Essentially, there are three key questions that must be answered in creating a contracting-out agreement:
1) What assets will be ‘relationship property’ and owned together either equally or in specific proportions?
2) What assets will remain the separate property of each party?
3) What assets will not be separate property because they will be used jointly?
Why contract out of standard family law provisions?
In this day and age, it is common for couples to remain unmarried for lengthy periods of time and people are often unaware of the rules on dividing property in de facto relationships. Once a relationship hits the three-year mark, the general rule of a 50:50 division of assets is implied.
The time to consider a contracting-out agreement is when you and your partner are contemplating buying property together. With the New Zealand property market becoming increasingly pricey, more young couples are pooling resources (evenly or not) to buy property together. The money put towards purchasing a home can also come from trusts, inheritance, or as a gift from parents or other family. More income sources make it important for couples to protect their investment, especially those in the relationship contributing more.
Keep in mind that a contracting-out agreement must still be fair and reasonable for both parties. Changing circumstances, such as having children, can often tip the scale if one party gives up work to care for them, while the other advances their career. It is vital to take all this into account to ensure the agreement will stand the legal test if ever challenged.
Talking sooner rather than later
More often than not, there are a lot of things to argue about when a relationship comes to an end and, unfortunately, the law around dividing relationship assets is rather blurred. Entering into a contracting-out agreement can save on potential legal fees. It removes uncertainty and provides clear lines for the splitting up of assets. It is not about painting your partner as a gold-digger - it is about ensuring that you get back the income, time and effort you put into the relationship. And while it may never be used, it is a helpful tool to ensure fairness in the event of a split.
As hard as it may be to broach this topic with your partner, the earlier you do it the better. Lawyers can be very helpful, so don’t be shy about talking to one regarding your options, especially where children are involved or parties are making differing contributions towards property.