Relationship property: how property is divided when a couple separates

Who’s covered by the Property (Relationships) Act 1976

Whether the rules in the Property (Relationships) Act apply to you and your ex-partner depends on the type of relationship it was and how long you were together.

Couples who’ve been together three years – Married, civil union and de facto couples who’ve been living together for at least three years are covered by the equal-sharing rules in the Act. This means the family home, car and furniture and appliances will usually be shared equally between them.
Short-term marriages and civil unions – Married and civil union couples who’ve been together less than three years are covered by the Act. But in some cases the family home, car and so on may be divided according to each person’s contributions to the relationship (including non-financial contributions), rather than being shared equally.
Short-term de facto relationships usually not covered by the Act – De facto couples who’ve been together for less than three years usually aren’t covered by the Act at all. This means that the ordinary rules of property ownership will decide what each person is entitled to. (eg. property owned by each individual will remain with the individual unless it would be inequitable (unfair) for this to happen).

Couples can agree on how to divide their property so that there is no need to apply to the Family Court for an order under the Act.
You can divide your property any way you like but you must follow some special procedural rules when you make your agreement. This is known contracting out of the Act.

The Property (Relationships) Act is intended to be a last resort for resolving disputes between ex-partners.

There is a time limit for applying under the Act

In the case of a marriage or civil union, you must apply within one year after the marriage or civil union is dissolved unless the Court grants “special leave” to apply out of time. In the case of a de facto relationship, you must apply within three years after the relationship ends.

When a partner dies

If your spouse or civil union or de facto partner dies, you also have the option of having the relationship property divided under the rules in the Act, instead of taking what you’re entitled to under the will or under the rules of intestacy (ie where there’s no will).

De facto couples and the Property (Relationships) Act

If you have been together for three years or more, you’ll be covered by the equal-sharing rules in the Act. This means the family home, car and household furniture and appliances will be divided equally.

If you were together less than three years, you usually won’t be covered by the Act unless an exception applies (eg. if you had a child together or if you made a “substantial contribution” to the relationship). In addition the Court must also be satisfied that not applying the Act to your relationship would cause a “serious injustice”. In these cases, your property will be divided according to the different contributions each of you made to the relationship.

If your relationship isn’t covered by the Act the ordinary rules of property ownership will decide what property you’re entitled to. For example, if the home you shared is legally owned by your ex-partner only, you will generally have no right to a share in the home.

However you may be able to show that some kind of “trust” existed that would entitle you to a share in particular items of property, even if you are not the legal owner of this property.
You would need to show that the two of you agreed that you would get a share in this property (this is called an “explicit trust” or “implied trust”), or that you contributed to the property, financially or otherwise (a “constructive trust”).

In the Property (Relationships) Act, a “de facto relationship” is where two people who are 18 or older live together as a couple without being married or in a civil union.

The Family Court must take certain factors into account when deciding whether two people were living together as a couple and if so, when. These factors include –

    * how long the relationship lasted
    * whether they lived in one house
    * whether they had a sexual relationship
    * what their financial and property arrangements were
    * how much they were committed to a shared life
    * who cared for and supported the children
    * who did the housework and other household tasks
    * how the relationship appeared to other people.

The Property (Relationships) Act rules for dividing property.

If a couple were together for at least three years, usually their “relationship property” is divided equally between them, while any property that is one person’s “separate property” is usually retained by that person.

This basic principle applies to married, civil union and de facto couples.

However there are some special issues, such as how children’s interests are provided for, the use of trusts to reduce a partner’s entitlement, lump sum payments and the sharing of functions within a relationship.

Relationship property is usually shared equally and includes –

the family home, car, household furniture and appliances, even if one of you owned this property before you were together, and
all property that one or both of you acquired while you were together.

Relationship property won’t be shared equally if there are extraordinary circumstances that make equal sharing “repugnant to justice” (very unfair). In these cases, each person’s share in the relationship property depends on the different contributions they made to the relationship. This is rare.

Separate property stays separate

All property that is not relationship property is called “separate property” and usually stays with the person who owns it.

Most property owned by one person before the start of the marriage, civil union or de facto relationship is separate property, except the family home, car, household furniture and appliances.

Gifts and inheritances that either of you received while you were together are separate property, unless you mix them with relationship property such as where inherited money is used to pay off the mortgage on the family home. Even gifts made to each other are separate property.

Also, if you directly or indirectly increase the value of your partner’s separate property (for example, doing work on their house), the increase in value is relationship property, not separate property. The same applies to any increase in value of separate property that comes from using relationship property – for example, if you used money from a joint account to upgrade a house that is separate property.

What about debts?

Debts are separated into personal debts and relationship debts. Relationship debts are taken into account in working out the value of the relationship property to be divided. These include, for example, joint debts (eg. the mortgage on the family home), joint business debts, and debts incurred to manage the household or bring up the children.

Personal debts, on the other hand, are the responsibility of the person who incurred them. (Eg personal tax liability and student loans).

How children are provided for?

When the Court divides a couple’s property it must take into account the interests of the couple’s children. It can make a variety of orders to provide for the children, including –

putting relationship property into trust for the children’s benefit
postponing the division of property under the Act to make things easier for the children’s main caregiver
making an occupation order or tenancy order to make sure the children’s main caregiver can stay in the family home
making a furniture order for specific furniture to make sure the children have suitable furniture.

What if one partner transferred property to a trust to get around the Act?

The Family Court can order one of the ex-partners to compensate the other if they transferred relationship property to a trust to reduce what their ex-partner would otherwise have been entitled to under the Act.

The Court can do this by ordering the person who transferred the property either to pay money to the other person out of relationship or separate property, or to transfer relationship or separate property to them. The Court can also order the trustees of the trust to pay some of the trust income to the other person.

Lump-sum payments to offset differences in financial position

In some cases the Family Court can award a lump-sum payment or a transfer of property to one of the ex-partners if they will have significantly less income or lower living standards than the other after they split up.

The Court can do this if the economic disadvantage results from how the couple divided their responsibilities when they were together – for example, if one of them resigned from a job that had good prospects to look after the children while the other focused on a successful career.

Short-term relationships: does the Act apply?

Marriages and civil unions of less than three years
If a marriage or civil union lasts less than three years, it’s covered by the Property (Relationships) Act, but in a special way. Equal sharing usually won’t apply to the family home and chattels, such as the car and household furniture and appliances. Instead, each person’s share will depend on the contribution they made to the marriage or civil union.

In special cases the Court can decide to treat a marriage or civil union of three years or more as if it were for less than three years, so that equal sharing doesn’t apply.

De facto relationships of less than three years
If a de facto relationship lasts for less than three years, the Property (Relationships) Act usually won’t apply at all. Instead the ordinary rules of property ownership decide what property each person is entitled to. For example, a de facto partner may in some cases be able to show there was some form “constructive” trust that entitles them to a share in particular items of property even though the relationship is less than three years.

What if a couple lived together before their marriage or civil union?
In that case the length of the de facto relationship is included when working out the length of the marriage or civil union.

For example, if a couple were married for two years but also lived together as a de facto couple for the previous two years, the couple is treated as having been married for four years.

Contracting out of the Act

This is where a couple make their own agreement for how to divide their property. They don’t have to follow the rules in the Property (Relationships) Act but they must follow some special rules as to how they go about entering into the agreement.
You can make a contracting-out agreement before your marriage, civil union or de facto relationship. (sometimes known as a “prenuptial” or “pre-nup” agreement) Contracting-out agreements can also be made during the relationship or after you split up.

Agreements are often used by couples entering a second or subsequent relationship later in life, especially if they already have substantial property that they want to keep as their separate property.

For your contracting-out agreement to be legally valid, you must follow these special rules –

the agreement must be in writing and signed by both partners
each partner must get independent legal advice from separate lawyers before they sign the agreement
each partner’s signature must be witnessed by his or her lawyer, who must also certify that the effect and implications of the agreement have been explained to them.

Can the Court cancel a contracting-out agreement?

The Court can cancel a contracting-out agreement if for example an agreement is very one-sided, and doesn’t allow a partner to share in property that the couple acquired during the relationship.

How relationship property is divided when a partner dies

The Property (Relationships) Act also deals with how you and your partner’s property is divided when your partner has died.

You, the surviving partner, can choose either –

to apply to the Family Court for the relationship property to be divided under the rules in the Act, or
to take what you’re entitled to under your partner’s will, if there is one, or under your legal right to inherit as a partner, if there’s no will.

Claims under the Act take priority over inheritance

If you apply under the Property (Relationships) Act, your right to share in the property takes priority over rights that any other people might have under your partner’s will or under the laws of inheritance.

Information on relationship property is at www.lawaccess.lsa.govt.nz/Lrm_V2.aspx?BookId=67&ChapterId=4