Edmonds Judd

relationship property

Not that straightforward when it comes to property

You may have heard that ‘Marriage is betting someone half your stuff that you’ll love them forever’. But what happens about the ‘stuff’ you own before you formally say “I do”?

The law providing equal sharing of relationship property automatically begins after three years in a de facto relationship. However, what a de facto relationship looks like, and when it starts, isn’t always obvious and is often the subject of a dispute.

We take a closer look at de facto relationships as defined in the Property (Relationships) Act 1976 (PRA for short). This is key if you and your partner separate and have a dispute over property.

Harry and Kahurangi

If Harry and Kahurangi had been dating casually for a while before moving in together, we’d all agree their relationship evolved into a de facto relationship when they set up home as a couple. But what if Harry and Kahu were flatmates first? Would we assume they were in a de facto relationship from their first kiss?

The landscape changes again if Harry and Kahu each own their own home and want to keep their independence, or if Harry lives in Auckland away from Kahu in Tauranga? Does it matter that Harry hasn’t told Kahu about his significant credit card debt? Or that Kahu’s children think Harry is a ‘friend’?

Partners in relationships come with their unique experiences and backgrounds, forming bonds in any number of ways. Determining when a relationship becomes de facto requires an analysis of many factors.

The easy parts

A de facto relationship is a romantic relationship between two adults, who are not married or in a civil union, who live together as a couple. Many de facto relationships start when couples begin living together, as the legal term suggests. However, when couples have other commitments such as children or jobs in different cities requiring them to live apart, the science of determining when two people start living together as a couple becomes harder.

Living together as a couple

The PRA sets out nine factors to consider when determining whether two people are living together as a couple. The simplest factors are whether the couple lives together, the duration of the relationship and if a sexual relationship exists. Exclusivity is not a requirement of a de facto relationship: partners may be in more than one relationship or be having a sexual relationship with other people.

The nature and extent of the relationship must be taken into account. You should think about whether you would rely on your partner in an emergency and the level of dependency you have on your partner. A couple may date for many months or years before considering themselves to be serious or update their social media relationship status. It is also relevant whether the relationship is public or known to family and social circles of the couple when looking at whether a de facto relationship exists.

There are practical considerations: do the partners care for and support their partner’s family or children? Do they look after their partner’s home, including performing household chores and cooking? Entering a relationship with children from a previous relationship provides layers of complexity — deciding when to introduce partners to children, and navigating living arrangements, further complicates things.

The analysis of whether a de facto relationship exists also looks at whether there are financial commitments together such as owning joint property or bank accounts, and any support provided from one partner to the other. Some de facto partners retain separate accounts for their independence or security, but this alone will not stop a relationship from becoming de facto.

Ultimately, it is the degree of commitment and investment that each partner has to their shared life that is the tipping point of whether they are living together as a couple. They do not need to own property together and, on the other side of the coin, they can live in the same property without living together as a couple.

Why the fuss?

Many couples do not consider it relevant to define their relationship; and for many this is perfectly fine.

If, however, a couple is living in a property that was owned by one partner before the relationship began it will be classified as relationship property after the couple reaches its three-year anniversary, or earlier in some situations. If they separate, the property will be divided equally, rather than remaining the property of the original owner.

Protecting personal assets from a relationship property division is best done before reaching the three-year threshold, but can be done at any time. This is called ‘contracting out’. Independent legal advice for both parties is essential and should be obtained before entering into any formal agreement.

Conclusion

It is never too late to define your relationship with your partner. Whether you are introducing your partner to your family or buying some furniture together (or a house!), take a moment to consider whether you think you may have crossed into de facto, and potentially equal sharing, territory.

Whatever the stage of your relationship, it is wise to think about the longer-term impact this could have for both your futures.

 

NB: The Property (Relationships) Act 1976 has been reviewed by the Law Commission which recommended significant changes to this piece of legislation. However, in late November 2019, the government responded by stating it would not implement nearly all of those recommendations until the Commission has carried out a review of succession law.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650



Time for a contracting out agreement?

You have had years of saving up for the overseas experience many New Zealanders dream of — then a pandemic hits. The London job you thought you had in the bag is no longer an option, and you and your partner are faced with extending the lease on your flat here — that you were eagerly awaiting to escape. What do you do now?

In 2020, many couples have found themselves cashing out what would have been their big OE savings stash and using it for a house deposit. Others have leapt at the banks’ lower interest rates to extend their borrowing and have bought properties that were unattainable only a year ago. All over the country, and particularly in Auckland, the property market is flooded with returning expats who are establishing roots back here — often earlier than anticipated.

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Relationship property claims

Sign a contracting out agreement

When entering a second or subsequent relationship, it is common to want to keep assets safe from relationship property claims. An effective way to do this can be by transferring assets to a trust. Care needs to be taken, however, to ensure you do this within the law.

A recent case[1] reminds us that transferring assets to trust will generally be ineffective where:

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A cost-effective alternative to court

After separating, you could find yourself at loggerheads with your former partner or spouse on exactly how all property should be divided between you. Negotiations may be bouncing between your lawyers, with no common ground achieved. Without agreement, you could file court proceedings but learn costs would increase dramatically. As well, it could be years before a judge can give a decision on how your property will be divided.

Mediation, on the other hand, could be arranged within weeks. It offers a practical alternative to reach a conclusion on how property should be divided between you and your former partner.

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Law Commission to review conflicting inheritance laws

In late 2019 the Law Commission reported back to the government on its review of the Property (Relationships) Act 1976 (PRA). Discussion on Part 8 of the PRA that deals with the division of relationship property on the death of a spouse or partner was specifically excluded from the scope of that review.

Acknowledging the issues that could arise by not addressing the division of property when a spouse/partner dies, in December last year the government asked the Law Commission to review the law of succession – that is, the law that governs who inherits a person’s property when they die.

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Postscript

Changes ahead in relationship property laws

The Law Commission has proposed some significant changes to the way relationship property is dealt with by separating couples.

Since the Property (Relationships) Act 1976 was enacted and with major changes in 2002, the structure of families has changed considerably. New legislation needs to take this into account.

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For better, for worse?

The law governing the division of property when a relationship ends is, after more than 40 years, set to change following the Law Commission’s comprehensive review of the Property (Relationships) Act 1976 (the PRA).

The Law Commission has identified changes that it believes should be made to ensure the regime better reflects the reasonable expectations of New Zealanders. We set out some of the proposals that may be relevant to you or your family.

divorce

The family home

Under the current law, in a marriage, civil union or de facto relationship of more than three years, the family home is automatically considered to be relationship property and subject to equal sharing. Under the changes proposed, the family home will not necessarily be shared 50/50, particularly if one partner owned it before the start of the relationship. In that situation, it is proposed that only the increase in value would be subject to equal sharing.

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The bank of mum and dad

Helping your children – with care

Contributions by family members to the purchase of a property and how this is recorded can affect property ownership. We discuss how you can help your children and, at the same time, lessen the risks to you as parents.

mortgage

New Zealand houses have never been more unaffordable: in the 1950s to 1980s a house cost two to three times the average household income. In the 1990s it was four times the average, and by the 2000s it was up to six times the average household income. When you add in the fact that households are now far more likely to have two incomes (compared with the single income norm of the 1950s), housing looks even less affordable.

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It’s a time-consuming and expensive process if you don’t have an EPA

Most people are now aware of the importance of having an enduring power of attorney (EPA). If you are unable to make decisions for yourself at any stage (either temporarily or longer term) it is important there is someone in place to act on your behalf. What happens to you, and your family situation, if you have no EPA?

epa

Ensuring you have EPAs (for property and for your health and welfare) is a very important part of keeping your personal affairs in order. An EPA can be used if you are out of the country for a long time and you need someone to keep an eye on your financial affairs, or if you become mentally incapacitated and cannot look after your property or yourself.

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