Part Seven: Relationship Property
It’s a natural human phenomenon that most of us tend to rate our abilities as better than average. More than 50% of people self-report being above average when it comes to creativity, intelligence, athleticism, honesty, friendliness, and even driving skills - even though that’s mathematically impossible! Social psychology even has a technical term for it: illusory superiority.
Perhaps that’s why most of us enter a committed relationship believing that it will last forever. It can be tempting to skip this article, thinking, “It’ll never apply to me!”
The statistics suggest that separation is a real risk:
Around one-third of Kiwi kids have experienced parental separation or have been born into a single-parent household by the time they turn 16 (Ministry of Social Development)
Every year, 7 to 10 out of every 1,000 unions end in divorce in New Zealand (Stats NZ)
Around 25% of marriages each year are remarriages (Stats NZ)
Money is the second most common reason couples argue (YouGov), and it can get a lot more heated during divorce proceedings. This article outlines how the legal system works in New Zealand so that you’re better prepared to navigate it should you need to. In fact, we recommend this as a pre-read before you enter a committed relationship!
🚨 Denote parent-specific points in our guide.
Property Relationships Act 1976 (“PRA”)
The PRA deals with how the property of spouses, civil union partners and de facto partners are divided when a relationship ends because of separation or the death of a spouse or partner. Suffice to say, this is a very important piece of New Zealand legislation!
Defining Property
Under the legislation, the term “property” doesn’t just refer to the family home. “Property” is any asset of value, such as real estate, cash, financial assets, cars, boats, art, and jewellery. Furthermore, the law recognises two types of property: Relationship Property and Separate Property.
These definitions are all-encompassing and mutually exclusive. In other words, every asset you or your partner own is classified as either Relationship Property or Separate Property.
What Happens When a Relationship Ends
The end of a relationship can be distressing - and then you’re faced with the stressful and tedious task of sorting through your finances and reaching an agreement with your ex. Under the law, when a relationship ends:
Each person receives half of the Relationship Property
Each person keeps their own Separate Property
There are special rules under the legislation that deals with how assets are divided following the death of a partner. You can read more about this in our Wills guide.
In addition, sometimes different rules can apply in the case of a de facto relationship, which is why we have a dedicated section on this below.
Relationship Property
Relationship property is assets you and your partner own together under the eyes of the law. It is considered a product of the relationship and therefore divided equally. Examples includes:
The family home, even if it was acquired by one partner before the relationship began or by inheritance, gift or via a trust. The only exception is if it is on Māori land.
The family chattels, such as furniture, fittings, household equipment and appliances, vehicles, and boats, even if they are in one person’s name only (but see Separate Property below)
Any common or jointly-owned property
In certain circumstances, separate property that has been intermingled with relationship property. For example, if you receive an inheritance (which is considered Separate Property) and then you use the funds to pay off the mortgage on the family home, it’s then considered Relationship Property.
Property acquired before the relationship began if it was intended for the couple’s common use or benefit
All income earned and property bought after the relationship began
The value added during the relationship to superannuation and life insurance policies
Separate Property
Separate Property is assets that remain the separate property of the owner. This includes:
Inheritances and gifts
Heirlooms and taonga
Property acquired under a trust
Property acquired before the relationship began
Property acquired with the proceeds of separate property and not intended for the use or benefit of both partners
Property that the partners declare is separate under an agreement contracting out of the PRA (aka a prenup - we’ll get into that later)
De Facto Relationships
The Definition of a De Facto Relationship
There’s a paper trail when a couple is married or in a civil union. However, recognising when a couple is in a de facto relationship is not as clear-cut.
According to the law, a de facto relationship is a relationship between two persons who:
Are both aged 18 years or older;
Live together as a couple; and
Are not otherwise married or in a civil union.
What constitutes ‘living together’ is not as simple as the wording suggests. In determining whether two people live together as a couple, the following things are relevant:
The length of the relationship
Whether you share a home
Whether or not a sexual relationship exists
The degree of financial dependence or interdependence
How your property was owned and used
Your mutual commitment to a shared life
The care and support of children
The performance of household duties
Whether others saw you as a couple
Division of Property When a De Facto Relationship Ends
If a de facto relationship ends after the couple has been together for three years or more, then the same rules apply as a marriage or civil union.
However, in the case of a de facto relationship ending within three years, Relationship Property does not need to be shared unless:
🚨 There is a child of the de facto relationship
One party has made a substantial contribution to the de facto relationship
The failure to share Relationship Property would result in serious injustice
🚨 It’s worth noting that the term “child of the relationship” has a wide-ranging definition. It includes:
Any child the couple has together
Any child of either partner
Any other child who is a member of the family at the time when the couple ceased to live together, or one partner passes away
In practice, this can include stepchildren, adopted children, and even foster or other children if they live as family members.
Prenups
We tend to think of prenups as the domain of the rich and famous. This is partly correct, but the application can be wider.
The PRA is intended to create a regime of fairness and justice to protect those who may be vulnerable. However, the PRA often has unintended and unwanted effects on couples whose intentions may differ from those contemplated by lawmakers. This is particularly common when, for example:
One partner brings disproportionately more wealth to a relationship than the other partner
One partner receives, during the course of a relationship, an asset (like an inheritance) they want to utilise in their relationship but keep as Separate Property
There is a blended family involved
One partner owns a business/asset that they want to keep as Separate Property
The PRA allows couples to “contract out” of its terms, hence why the lawyers refer to prenups as “contracting out agreements”. This allows couples to determine between themselves at the outset of a relationship - or during the relationship (aka a postnup) - how their property will be divided if the relationship ends.
To enter a valid prenup or postnup:
It must be in writing and signed by both parties;
Each party must have been properly advised independently by a lawyer before signing the agreement (this will involve time and cost); and
Each signature must be witnessed by a lawyer who must certify that they have explained to that party the effect and implications of the agreement.
Separation: Additional Considerations For Parents
When a relationship ends, Sarah suggests that a couple enter into a separation agreement. The last thing you may want to do is to spend more time with your now-former partner hashing things out, but a separation agreement makes it clear to both of you what the expectations are going forward. In other words, having those difficult conversations earlier will save you more headaches down the track.
A separation agreement includes:
The date the couple agree to separate (which is important when finalising a divorce as the law requires a couple to be separated for two years or more)
How relationship property will be divided
Identifying what the couples agree to be separate property
🚨 Custody arrangements for children
How the costs associated with children will be shared.
A separation agreement can be registered as a ‘consent order’ in the Family Court. This makes the agreement legally enforceable.
🚨 In the first instance, it is always much better if parents can agree on the care arrangements. However, if you cannot agree, the Family Court provides access to a Family Dispute Resolution service where a mediator will help you try to reach an agreement as to who will have primary care of your child. If an agreement still cannot be reached, then an application to the Family Court for a Parenting Order will need to be made.
🚨 In terms of cost sharing, parents can make a private agreement on how costs will be shared. If a private agreement is not made, the IRD website has a tool to determine how much child support each parent will pay or receive.
Last word
I once took a negotiation course that involved practice negotiations every lesson. The entire class would debrief after every exercise, and it quickly became apparent that people had very different definitions of the term “fair”. In the event that you go through a financial separation, it’s very possible you and your partner may have differing views on what you’re each entitled to. After reading this article, we hope you are at least familiar with what is considered fair in the eyes of the law.
The Latin roots of the word “divorce” mean “to turn different ways”. Sorting through who gets what is necessary for each person to embark on their next chapter.
This is part of Crayon’s mini-series on asset and estate planning for parents:
Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 18 January 2023.
All of our content is independent. Crayon provides you with accurate and valuable information you can use to make smart money moves for your family. We work with people we respect, and all collaborations are unpaid.
Sarah Kelly
Senior Associate, Private Wealth team at Dentons Kensington Swan
Stephanie Pow
Founder and CEO, Crayon
