When a marriage or de facto relationship ends in New Zealand, one of the most significant and often contentious issues is how property will be divided. Understanding the legal framework that governs property division can help you navigate this challenging process and ensure your rights are protected.
The Property (Relationships) Act 1976
In New Zealand, the division of property after a relationship ends is governed by the Property (Relationships) Act 1976 (PRA). This legislation applies to marriages, civil unions, and de facto relationships (including same-sex relationships) that have lasted for at least three years.
The PRA is based on the principle that relationship property should be divided equally between partners when a relationship ends, reflecting the view that both partners contribute equally to the relationship, albeit in different ways.
Relationship Property vs. Separate Property
A fundamental concept in the PRA is the distinction between "relationship property" and "separate property."
Relationship Property
Relationship property generally includes:
- The family home and family chattels (regardless of when they were acquired)
- Property acquired during the relationship
- Property acquired for the common use or benefit of the relationship
- Income earned during the relationship
- Increases in value of relationship property
- Increases in value of separate property if the increase is attributable to the application of relationship property or the actions of the other partner
Separate Property
Separate property generally includes:
- Property acquired before the relationship (except the family home and chattels)
- Property acquired by gift, inheritance, or as a beneficiary under a trust
- Property designated as separate property in a contracting out agreement (prenuptial agreement)
It's important to note that separate property can become relationship property if it's intermingled with relationship property or used for family purposes. For example, if an inheritance is used to renovate the family home or pay off the mortgage, it may lose its status as separate property.
The Equal Sharing Principle
The cornerstone of the PRA is the equal sharing principle, which states that relationship property should be divided equally between the partners when the relationship ends. This 50/50 split applies regardless of:
- Who purchased or owns the property
- Who contributed more financially
- Whose name is on the title or account
The equal sharing principle recognizes that both partners contribute to a relationship in different ways, including non-financial contributions such as homemaking and childcare.
Exceptions to Equal Sharing
While equal sharing is the default position, there are several exceptions where the court may order unequal division:
1. Extraordinary Circumstances
If there are "extraordinary circumstances" that would make equal sharing "repugnant to justice," the court may order unequal division. This is a high threshold to meet and is rarely successful. Examples might include:
- Extreme economic disparity
- Significant misconduct that has affected the value of relationship property
- Unusual financial arrangements that would make equal sharing unfair
2. Short-Term Relationships
For relationships lasting less than three years, different rules apply:
- For marriages and civil unions under three years, the court may order division based on contributions to the relationship rather than equal sharing
- For de facto relationships under three years, the PRA generally doesn't apply unless there is a child of the relationship or one partner has made a substantial contribution
3. Economic Disparity
If the income and living standards of one partner are likely to be significantly higher than the other because of the division of functions during the relationship (e.g., one partner gave up career opportunities to care for children), the court may award additional relationship property to the disadvantaged partner.
4. Compensation for Contributions
In some cases, the court may award additional property to a partner who has:
- Made an extraordinary contribution to the relationship
- Sustained or diminished the other partner's separate property
The Process of Property Division
There are several ways to divide property after a relationship ends:
1. Agreement Between Partners
The most straightforward approach is for partners to reach an agreement on how to divide their property. This can be formalized through:
- A separation agreement (also called a relationship property agreement)
- A consent order from the Family Court
For an agreement to be legally binding, both partners must receive independent legal advice before signing.
2. Mediation or Collaborative Law
If direct negotiation is difficult, mediation or collaborative law processes can help partners reach an agreement with professional assistance.
3. Court Proceedings
If agreement cannot be reached, either partner can apply to the Family Court for orders dividing relationship property. This process typically involves:
- Filing an application
- Disclosure of all assets and liabilities
- Valuation of property
- Settlement conference
- Hearing (if settlement is not reached)
- Court judgment
Court proceedings can be lengthy, expensive, and stressful, so they're generally considered a last resort.
Practical Considerations
Timing of Property Division
It's important to note that property division is separate from divorce (dissolution of marriage) in New Zealand. You can resolve property matters:
- Before separation
- At the time of separation
- After separation but before divorce
- At the time of divorce
- After divorce
However, there are time limits for making claims under the PRA:
- Within three years of divorce for married couples
- Within three years of separation for de facto couples
Valuation Date
Generally, relationship property is valued at the date of hearing or agreement, not the date of separation. This means that changes in value after separation (both increases and decreases) are usually taken into account.
Debts and Liabilities
Relationship debts are also divided equally under the PRA. These include:
- Joint debts
- Debts incurred for the common benefit of the relationship
- Debts incurred to acquire, improve, or maintain relationship property
Trusts and Companies
Property held in trusts or companies can complicate property division. While such property is technically not owned by either partner, the court has various mechanisms to address trust property, including:
- Finding the trust is a sham or alter-ego of one partner
- Ordering compensation for contributions to trust property
- Adjusting other relationship property to achieve fairness
Contracting Out Agreements
Partners can opt out of the PRA's equal sharing regime by entering into a contracting out agreement (commonly known as a prenuptial or relationship property agreement). These agreements allow couples to:
- Define what property is separate and what is relationship property
- Specify how property will be divided if the relationship ends
- Protect specific assets from division
For a contracting out agreement to be legally binding:
- It must be in writing and signed by both partners
- Each partner must receive independent legal advice before signing
- The lawyer for each partner must certify that they explained the effects and implications of the agreement
The court can set aside a contracting out agreement if:
- It would cause serious injustice
- Proper disclosure of assets wasn't made
- There was undue influence or duress
Conclusion
Property division after a relationship ends can be complex and emotionally challenging. While the equal sharing principle provides a clear starting point, various factors can affect how property is ultimately divided.
Understanding your rights and obligations under the Property (Relationships) Act is essential for protecting your interests and achieving a fair outcome. Seeking legal advice early in the process can help you navigate these complexities and make informed decisions about your property.
Whether you're considering separation, in the midst of divorce proceedings, or planning for the future with a new relationship, being informed about relationship property law in New Zealand will help you protect your assets and plan for your financial future.